Ashley Fairbrother, solicitor at Edmonds Marshall McMahon, examines the High Court’s answer in FCFM v Hargreaves & others  EWHC 3075 (QB) and says the decision shows that Norwich Pharmacal Orders (“NPO’s”) are available to secure evidence to support private prosecutions in an appropriate case, but that great care must be exercised in deciding when and how to use this tool.
What is the background to this case?
FCFM were considering a private prosecution against Mr and Mrs Y for insider trading and fraud. In the few days leading up to 17 October 2017, Mr Y had attempted to buy from FCFM shares in a company which traded on the AIM. There was a dispute about whether, on that day, there was a binding contract for Mr and Mrs Y to buy those shares from FCFM or not. On the following day, 18 October 2017, a reverse takeover was publicly announced, which caused the share price of the company to skyrocket.
Civil proceedings were issued by Mr and Mrs Y to seek the shares they said were due to them under the contract. FCFM counterclaimed for negligent or fraudulent misrepresentations and a conspiracy to purchase shares using unlawful means.
In the meantime, FCFM made an application to the High Court for Norwich Pharmacal orders against three third parties; 1) the couple’s asset management company showing their trading history for the last 5 years, in order to uncover whether this trade was anomalous to their others, 2) an investor services company for the couple’s statement of accounts for the last 5 years and communications between and to/from the couple, and 3) EE Ltd, for a complete inventory of all the telephone calls and other communications between each other and anyone else in the world, on the basis this may produce evidence of a conspiracy.
What were the issues?
The Court was required to consider the three conditions for the grant of Norwich Pharmacal relief, which were set out by Lightman J in Mitsui & Co Ltd v Nexen Petroleum (UK) Ltd  EWHC 625 (Ch),  3 All ER 511 at para 21:
- A wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
- There must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
- The person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued.
What did the Court decide?
1. Was a wrong carried out?
FCFM’s case was based primarily on i) the timing of the negotiations and ii) prior contact between Mr and Mrs Y and another person who was an insider. Martin Griffiths QC, sitting as a Deputy Judge of the High Court, assumed for the present purposes that there was a good arguable case, sufficient for him to move on to the next condition.
2. Was there need for an order to enable an action to be brought?
Mr Griffiths QC held that there was not a need for the NPO to be made to enable an action to be brought, such that the victim, FCFM, could not otherwise obtain justice. His ruling rested principally on two matters:
- Firstly, FCFM had already made contact with the prosecuting authorities, who had not yet indicated what course they proposed to take. The Judge held that “On the face of it, the prosecuting authorities, being now seized of the matter, are, with their special powers and experience, better placed to decide whether there might or should be a prosecution, and, if so, to investigate and pursue it, than FCFM is.” He further held that the fact that public authorities have investigative powers and resources is a reason to assume (in the absence of other evidence) that, in the first instance, an investigation and prosecution can be left to them. Those who have been the victims of fraud and fraud practitioners may consider that the level of state inertia in investigating fraud is, however, a reason to assume that in many cases, sadly, the investigation and prosecution cannot be left to them.
- Secondly, FCFM were already a party to civil proceedings against Mr and Mrs Y in which they had made a counterclaim. The documents sought under the NPO could be sought by way of a disclosure application in those civil proceedings. The facts of the proposed private prosecution, in support of which the NPO was sought, were identical to the facts supporting their counterclaim in the civil proceedings and so the same basis could be put forward in any disclosure application in those civil proceedings, of which Mr and Mrs Y would be on notice and may have something to say about the application.
3. Is the third party mixed up in the wrongdoing/able to provide information?
Given stage 2 of the Mitsui test had not been met, there was no need to consider stage 3, however the Judge briefly stated that he would not consider that the third parties were mixed up in the wrongdoing and, in the case of EE, the application was premised on pure speculation that Mr and Mrs Y may have conspired with each other or with others via their phones.
What does the case reveal about the limits on or advantages of using NPO’s to support private prosecutions?
The jurisprudence for striking the correct balance on whether or not to grant Norwich Pharmacal relief in aid of criminal investigations by private prosecutors has not been developed. FCFM referred the Court to another case, stated to be the only other reported case in which an NPO had been made to provide evidence in support of a private prosecution. However, the crucial difference was that in that case the private prosecution was brought after the Police and Serious Fraud Office had both declined to investigate further.
Whilst all cases will turn on their own facts, Mr Griffiths QC appears to suggest that until the State has decided whether or not to investigate, one should be very cautious before seeking Norwich Pharmacal relief to support a private prosecution. Should this be a hard-and-fast rule? Given the retrenchment in State resources to investigate crime, the delay that habitually occurs when the State is deciding whether or not to investigate, and the rapidity with which lawyers are required to act effectively to combat fraudsters, those who advise victims of fraud should not disregard NPOs as an appropriate mechanism to secure evidence. The Judge’s confidence in the State’s willingness and ability to act when fraud is reported to them may be generous, stating “If those authorities think they justify further investigation and, in due course, prosecution, such a prosecution will take place. If they do not, then it will not.” Sadly, in many fraud practitioners’ experience, this does not always ring true.
Mr Griffiths QC considered it was not necessary to obtain NPO relief to secure redress in this particular case when a third-party disclosure application could have been made in the existing civil proceedings. A further important aspect of this case was that the judge was clearly concerned about the width of the application, which sought not just the call records between Mr and Mrs Y, but to anybody in the world and not just in relation to the proposed share purchase, or other share purchases, but for any reason and on any topic whatsoever. This case serves as a reminder to ensure NPO applications are clearly targeted, focused and “no wider than is strictly necessary“, but wide enough to catch the documents sought. Great care and expertise by solicitors must be exercised in balancing these factors.
 Paragraph 7.4, Chancery Guide