Legal Blog

Norwich Order

What recourse does a creditor have when it suspects that it has been defrauded and needs information from a third party to either confirm or allay its suspicions? Under the right circumstances, the creditor can obtain a Norwich order, named after the plaintiff in an English case. The Norwich order has not been used extensively in Ontario or Canada, but, we suspect, it will be used far more following Isofoton v. TD Canada Trust, a 2007 decision of the Ontario Superior Court of Justice.

Fraud

The creditor needed the supply of a scarce precious metal. The debtor agreed to source and supply the metal and the creditor paid a deposit. The deal fell through when the debtor could not source the metal; however, the debtor repaid the deposit and no harm was done. The parties then entered into another, but larger, contract because the debtor represented that it had sourced the metal. After much negotiation, the creditor paid a $3.2 million deposit and agreed to purchase the metal for $27 million. The problems then started.

The debtor again complained that its source had not supplied the metal as contracted and that it had paid the source all but 900K of the deposit. Numerous emails were exchanged, including a purported exchange between the debtor and the source. When the discussion bore no fruit, the creditor engaged an investigator, who determined that the debtor had made many misrepresentations regarding its financial and corporate status. The creditor then realised that it was the probable victim of a fraud.

The creditor had paid the deposit money into the debtor’s TD Canada Trust bank account. The creditor therefore wanted to obtain from TD whatever information TD had regarding the account and the deposit cheque. However, due to confidentiality obligations, TD could not voluntarily supply that information.

The creditor therefore brought an application, without notice to either the debtor or TD, for an order authorising and directing TD to deliver the required information.

Tests

The judge canvassed the authorities in England and Canada and noted that the Norwich order had been granted:

a)   when information was necessary to identify wrongdoers;

b)   to find and preserve evidence; or

c)   to trace and preserve assets.

The courts had considered the following factors in their decisions:

1.   Was there sufficient evidence established to support a reasonable claim;

2.   Was the third party involved in the acts complained of (albeit innocently);

3.   Was the third party the only practicable source of the information;

4.   Could the third party be indemnified for costs to which it might be exposed because of the disclosure; and

5.   Was disclosure in the interests of justice?

Application 

The judge then applied the various tests to the facts. He held:

1.   The creditor set out sufficient evidence to demonstrate a bona fide claim against the debtor. The judge rejected a higher standard of a strong prima facie case; it was sufficient that the claim of the creditor not be frivolous or vexatious. The judge reasoned that even if the case proved to be false, the granting of the Norwich order would not have been a major detriment to the debtor. It was only for the release, and limited use, of information.

2.   TD was not a mere witness to the acts complained of (e.g. like a witness to a car accident). It was a participant, although an innocent one, in the debtor’s alleged scheme.

3.   There were only two sources for the information, the debtor and TD. Normally one would not go to a fraudster for information because, in doing so, that would alert the fraudster, who could then dissipate assets to render any subsequent order ineffective. In this case, however, the creditor had attempted to deal with the fraudster and had been unsuccessful. Accordingly, TD was not just the only practicable source of the information; it was the only source.

4.   It was not necessary for the creditor to give TD an indemnity for damages; it was sufficient to give an indemnity for any costs that TD might incur to comply with the order.

5.   Disclosure was in the interests of justice. Confidentiality is not absolute and is subject to disclosure by court order in a variety of circumstances. An applicant’s use of information is, under the order, also not absolute. It can only be used to trace assets, determine the identity of wrongdoers, and discover whether the facts justify an action. Finally, a fraudster is not entitled to confidentiality protection and the evidence supported a real possibility of fraud.

Upshot 

The judge granted the Norwich order. He had originally sealed the application so that no one could view it, but, since he had granted the sealing order two months before he issued the reasons for decision, any reason for confidentiality no longer existed; accordingly, he set aside his sealing order.

We have often been stymied because of confidentiality concerns of third parties, but we have now started to avail ourselves of this remedy. It is a powerful remedy in the arsenal of financial institutions seeking to recover funds from less than forthright debtors.