A new “jurisdictional gateway” has made it easier for victims of fraud to seek disclosure of the identity of fraudsters and the whereabouts of misappropriated assets. This is a welcome development on paper, but how effective will such orders be in practice?
Pia Mithani and Ed Holmes from our Fraud and Investigations team consider how the new gateway will assist in the discovery of crucial information in cross-border fraud cases and practical steps that can be taken to make orders for disclosure more effective.
Third-party disclosure orders
It is common, particularly in cyber-fraud and cryptocurrency fraud cases, for the victim to be unaware of who has stolen their assets and/or where their stolen assets have gone. In those circumstances, victims often apply for Norwich Pharmacal or Bankers Trust orders. Norwich Pharmacal orders are orders for the disclosure of information, typically regarding the identity of a defendant. They can be sought against third parties before a claim is issued, so they are useful where the fraudster’s identity is unknown. Bankers Trust orders are similar and typically used against banks or, increasingly commonly, cryptocurrency exchanges but are only available in support of an underlying proprietary claim (ie a claim to the title of specific property).
Until now, to obtain permission to serve a Norwich Pharmacal or Bankers Trust order on a foreign bank or cryptocurrency exchange, applicants had to persuade the English court that their application fell within one of the existing service gateways. The most common routes were the “necessary and proper party” gateway or the gateway for proprietary claims. However, that was not always straightforward, particularly as there was conflicting authority as to whether the former gateway could apply to such applications.
The new jurisdictional gateway
On 1 October 2022, a new jurisdictional gateway came into force in England and Wales. The result is that, subject to the usual tests, the English courts will now grant permission for applicants to serve disclosure orders on third parties based outside England and Wales. The gateway applies where the applicant seeks disclosure of information regarding either (i) the true identity of a defendant; and/or (ii) what has become of the applicant’s property. The application must be made for the purpose of proceedings that are or are intended to be commenced before the English court.
This is good news, particularly for victims of fraud. It should mean that where a victim of fraud needs to obtain information about the identity of a fraudster or the location of their misappropriated assets, it is likely to be simpler to obtain permission to serve an order for disclosure on a foreign bank or cryptocurrency exchange that holds that information.
It is important to remember that at the service out stage, the applicant will still need to persuade the court that England is the appropriate place for the underlying claim to be heard and that there is a serious issue to be tried.
While this new gateway is a substantial development regarding the disclosure landscape in fraud cases, how effective are these orders in practice?
Once service has been effected abroad, there is no guarantee that the respondent will comply with the order. This will depend on several factors, including:
- Where the respondent is located and what local law it is subject to. For example, certain jurisdictions, such as Switzerland, have strict banking secrecy laws preventing banks from disclosing confidential client information. Local restrictions of this sort can be a practical impediment to the effective execution of an international disclosure order.
- The nature of the contractual obligations the bank or exchange owes to its customer or wallet-holder.
- The size and nature of the respondent’s business and where it is situated. For example, if the respondent has no footprint or connection with England, it may simply ignore the order, particularly if it considers the risk of reputational damage from non-compliance is low.
There are several steps applicants can consider taking to increase the chances of securing the disclosure of the information sought, including:
- Applying to have the disclosure order recognised or enforced by the courts in the respondent’s local jurisdiction.
- Where appropriate, accompanying the disclosure order with a freezing order, with the additional presentational severity that such an order carries for non-compliance.
- Thinking strategically about how to keep the disclosure sought focused and tailored to avoid local law roadblocks.
- Considering disclosure routes in local jurisdictions, particularly in civil systems that permit an attachment to parallel criminal proceedings.
- Where the respondent does have a place of business in or connection with England, whether the server on which the relevant information sought is located in England or Wales.
- If time permits, issuing a letter of request whereby the English court requests that the court in the respondent’s local jurisdiction issue an order to disclose the information.
The introduction of the new jurisdictional gateway is the latest example of the English court seeking to keep up with modern developments in technology. This follows on the heels of its recognition of smart contracts and its willingness to accept service of a claim via Non-Fungible Token (among other things). Given that it is rare for fraud claims not to have an international element, this is a welcome development.
However, the English court’s ambit can only stretch so far. Applicants need to be aware that service is not the final step. A number of additional hurdles need to be overcome to get hold of the information they need to resolve the fraud perpetrated against them.
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This communication has been authorised by Arthur J Gallagher Insurance Brokers Limited for the purpose of s21 of the Financial Services and Markets Act 2000
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