British Virgin Islands: Combating International Fraud

Last Updated: 4 February 2010
Article by Martin Kenney

The Importance of the Norwich Pharmacal/Bankers Trust Jurisdiction in the BVI

With the development of the BVI as an offshore financial centre ('OFC') in the early 1980s many companies have decided to establish domicile in the jurisdiction. Demand for OFC services is growing — so much so that 740,000 companies are currently registered in the BVI.1 High taxation, complex laws and excessive regulations in many industrialised countries, and political instability and economic uncertainty in developing countries, have certainly contributed to the high demand for OFC services. Furthermore, OFCs have generated interest because privacy/secrecy is one of the hallmarks of OFCs. In the BVI, very little company information is publicly available other than:

1. The name;

2. The date of incorporation;

3. The current status;

4. Copies of the articles of incorporation;

5. The registered agent and its address,

The following are not available:

1. Names of the beneficial owners;

2. Names of any creditors;

3. The identity of the payer of annual administration costs in the BVI;

4. The names of the directors are not publicly available.

Despite sustained corporate interest in OFCs, for these reasons their influence in the global market is not always positive. Recent estimates consider that at least 50 per cent of all currency transactions processed internationally involve OFCs.2 As OFCs emphasise their corporate confidentiality, a wrongdoer may then believe that he or she can lawfully use vehicles to conduct unlawful business unbeknownst to the rest of the world. As set out below, however, lawyers have a powerful tool to pierce the secrecy upon which a tortfeasor relies.

What Is the Norwich Pharmacal/Bankers Trust Jurisdiction?

The Norwich/Bankers Trust jurisdiction had its genesis in a decision made by the House of Lords on 26 June, 1973 in Norwich Pharmacal Co. v. Customs and Excise Commissioners3 ('Norwich'). It is a discretionary stand-alone, independent pre-action discovery remedy against a third party who has innocently helped an unknown potential defendant to commit a wrong on a potential plaintiff. Typically, such third parties include banks, trust companies, financial institutions, etc. The purposes of a Norwich/Bankers Trust Order are twofold: to identify tortfeasors and to obtain full information from innocent third parties who have unknowingly facilitated the commission of a wrong.4 A key element of the Norwich/Bankers Trust jurisdiction is that discovery may be ordered against information and documents in respect of an unknown wrongdoer. If the circumstances warrant it, a Norwich/Bankers Trust Order is granted by a Court together with sealing and gagging orders. If ordered, this discovery will supersede duties of confidentiality owed, for example, by a bank to its customers. Because of the secrecy in which this pre-action discovery may he conducted, the Norwich/Bankers Trust jurisdiction is a powerful weapon in litigation.

The circumstances in which the Norwich/Bankers Trust jurisdiction arises have been described by Lord Reid in the following words:

"If through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers."

Under the principles established by the House of Lords, this kind of "pre-action discovery can be granted against a person who is not mere witness to discover."5In other words, "the persons must have been so involved [in the tortious act] as to justify treating them differently from the bystander6 (i.e. as a witness rather than a participant)." It is crucial for an applicant to demonstrate that the person from whom discovery is sought is more than a mere witness. The rationale behind this requirement is that a witness may be compelled to testify in Court through the issuance of a subpoena. Distinctions between being a witness and a Norwich/Bankers Trust defendant include:

  • The level of involvement of the third party in the alleged wrongdoing;
  • The frequent necessity to preserve secrecy, which is far more difficult when a witness is subpoenaed;
  • The fact that "until the defendant has disclosed what he knows, there can be no litigation in which he could give evidence." 7

Specifically, Lord Bingham of Cornhill and Lord Hoffman stated in The President of the State of Equatorial Guinea: 8

"Norwich Pharmacal relief exists to assist those who have been wronged but do not know by whom. If they have straightforward and available means of finding out, it will not be reasonable to achieve that end by overriding a duty of confidentiality such as that owed by banker to customer. If, on the other hand, they have no straightforward or available, or any, means of finding out, Norwich Pharmacal relief is in principle available if the other conditions of obtaining relief are met."

The Usefulness of the Norwich Jurisdiction in the BVI.

Our firm has made numerous successful Norwich/Bankers Trust applications in the past few years. The Norwich/Bankers Trust jurisdiction has been recognised in most Commonwealth jurisdictions, including in the British Virgin Islands. Recently, we have used the Norwich/Bankers Trust jurisdiction both in the context of a $500 million joint-venture agreement that has gone wrong; and also in respect of high-value matrimonial litigation, where a husband resident in a particular jurisdiction, and in which the principal matrimonial litigation is taking place, has sought to conceal ownership of assets that should form part of the matrimonial estate.

In conclusion, the Norwich/Bankers Trust jurisdiction is a forceful disclosure tool which, in cases of significant value, can make a major contribution to establishing the identity of a tortfeasor, and also in so doing, the true ownership and control of assets and corporate vehicles. The fact that the existence and power of the Norwich/Bankers Trust jurisdiction is not widely appreciated, can increase its effectiveness as an investigatory tool; and make it all the more valuable when pursuing remedies against an unscrupulous tortfeasor – someone who may have erected a number of 'shells' to be pierced or otherwise dismantled.

Footnotes

1. Information obtained from the BVI Financial Services Commission on 13 December, 2006.

2. Offshore Financial Services Information Center, available at: http://www.bviibc.com/about.html . Last accessed 13 December, 2006.

3. [1974] AC 133.

4. Id.

5. Id. per Lord Dilhorne.

6. Axa Equity and Life Assurance plc and others v. National Westminster Bank plc and others, Case No. CHANF 98/0236 CMS3, Thursday, 7 May, 1998.

7. Supra, note 1.

8. President of Equatorial Guinea 9.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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