Discover Investment Company v Vietnam Holding Asset Management Ltd and Saigon Asset Management Corporation

JurisdictionCayman Islands
Judge(Kawaley, J.)
Judgment Date05 November 2018
CourtGrand Court (Cayman Islands)
Date05 November 2018
DISCOVER INVESTMENT COMPANY
and
VIETNAM HOLDING ASSET MANAGEMENT LIMITED and SAIGON ASSET MANAGEMENT CORPORATION

(Kawaley, J.)

Grand Court, Financial Services Division (Cayman Islands)

Civil Procedure — disclosure — Norwich Pharmacal order — applicant to show arguable case of wrongdoing; disclosure necessary to enable it to seek redress; and respondents likely to have relevant information acquired in circumstances making them more than witnesses — disclosure necessary if no other practical means of obtaining evidence

Held, granting a Norwich Pharmacal order:

(1) The Norwich Pharmacal principles had been developed incrementally on a case-by-case basis. For the purposes of the present case, the following conditions had to be satisfied for the court to be able to order Norwich Pharmacal relief: (i) the applicant must make out an arguable case of wrongdoing; (ii) the applicant must demonstrate that the disclosure sought was “necessary” in the requisite sense to enable it to seek legitimate redress for the wrongdoing; and (iii) the applicant must demonstrate that the respondents were likely to have relevant information acquired by them in circumstances where their involvement in the suspected wrongdoing made them more than witnesses. The purposes for which Norwich Pharmacal relief was sought were not limited to obtaining evidence to bring proceedings. The respondent to an application need not in all cases be in possession of information necessary to enable the ultimate wrongdoer to be sued. The mere fact that the information sought was confidential did not create a freestanding basis for refusing relief. With regard to the necessity for relief, it was possible to draw a distinction between (a) the need to adopt a flexible and non-technical approach when considering whether a particular set of circumstances in general terms potentially qualified for relief (conditions (i) and (iii)); and (b) the need to exercise caution when deciding whether, assuming the more generic first and third conditions had been met, it was in practical terms necessary to grant any relief in the particular circumstances and, if so, the extent of such relief. Whether an applicant had satisfied the necessity condition for obtaining Norwich Pharmacal relief was a fact-sensitive inquiry which required consideration of both (a) whether any relief at all was required and, if so, (b) what scope of relief was proportionate in all the circumstances of each case (paras. 7–17).

(2) The respondents conceded that conditions (i) and (iii) had been established. The court was satisfied that (a) the applicant had established an arguable case that MW breached his fiduciary duty while he was a director of the company; and (b) the applicant had established that the respondents had in their possession or under their power (either directly or indirectly) relevant information which they acquired through their involvement in impugned arrangements entered into by MW (paras. 18–19).

(3) The necessity requirement for obtaining Norwich Pharmacal relief required, first, identifying the purpose for which the relief was sought; secondly, determining whether the form of relief sought was necessary in a general sense; and thirdly, establishing that the relief sought was necessary in terms of its scope and/or proportionality. In relation to the first question, the main purpose of the present application was to enable the applicant to ascertain whether its suspicions of wrongdoing on the part of MW were justified and supported by documentary evidence to such an extent as to justify commencing remedial proceedings. Seeking information to assist an applicant to decide whether there was a sound basis for bringing proceedings was a legitimate purpose for seeking NorwichPharmacal relief. In relation to the second question, necessity would arise from the absence of any other practical means of obtaining the information. Where it was possible to demonstrate that no other means of obtaining the information existed at all, the necessity bar would be easily met. Where it was possible to demonstrate that, although other means theoretically existed, they were not in reality available to the applicant, the bar would be set marginally higher. Where, as in the present case, other means of accessing the information both existed and were available but were said to be not straightforward, the necessity bar would likely be set marginally higher still. In the present case it was essentially argued that a Norwich Pharmacal order in the Cayman Islands would be the most straightforward means of obtaining the best available evidence of the alleged wrongdoing, copies of the secret agreements and documents evidencing the payments made thereunder. The respondents had no cogent answer. The applicant had established that in general terms relief was necessary because (a) the court accepted the applicant’s evidence that its board of directors was still at the investigative stage; (b) it was impossible at this stage to plead a case which would survive strike out, as it depended on partially disputed oral disclosures allegedly made by parties to confidential agreements; (c) the information sought was clearly crucial to the applicant’s ability to conclude its investigations into the suspected wrongdoing; (d) it was the first respondent’s case that under Cayman law an order under the CIDL was required to permit disclosure of the confidential information sought by the applicant; (e) it was the second respondent’s case that the information sought was subject to Swiss law confidentiality protections; (f) the respondents were unwilling to disclose the information sought without a court order, and MW would not voluntarily disclose the information; and (g) the present application was the most straightforward remedy for the applicant to pursue in circumstances where the other conditions for Norwich Pharmacal relief had been met. In relation to the third question, it was clear from the authorities that Norwich Pharmacal orders must be limited to compelling the production of essential information and should not be used as a means of obtaining broad discovery. The scope of the relief that could properly be ordered would depend on the factual circumstances of the case. The respondents rightly complained that the order initially sought by the applicant was too broad. On its face it looked like an order for specific discovery rather than an order compelling the production of necessary information. Having regard to the legal prohibition on Norwich Pharmacal applications being used to obtain wide-ranging discovery, the court found that the applicant had not established that the following aspects of its draft order were necessary to enable it to determine whether it had a viable claim in respect of MW’s suspected wrongdoing: (a) the request for particulars of the agreements to be set out in an affidavit; (b) the request for particulars of “any written correspondence . . . in respect of the Agreement” to be set out in an affidavit; (c) therequest for an accounting of all amounts paid to MW or entities linked to him to be set out in an affidavit; (d) the request for copies of documents without any temporal limitation; (e) the request for copies of “any written correspondence” with MW or entities linked to him; and (f) the request for copies of “all other records . . . in respect of any of the Agreements” (paras. 21–47).

(4) Subject to the court’s ruling on the CIDL issue, the applicant was entitled to an order with para. 1 modified so as to include the following:

“(a)provide copies of:

(i)any agreements in or evidenced in writing (‘Agreements’) which the Respondent, or entities it controls has, directly or indirectly, with [MW], or persons the Respondent knows or believes to be associated with MW, and/or entities owned or controlled by him;

(ii)all payment instructions and requests for payment evidencing payments made pursuant to the Agreements.

(b)sub-paragraph (a) of paragraph 1 of this Order shall only apply to documents created during the five year period ending on:

(i)June 30, 2017 in the case of the 1st Respondent; and

(ii)December 31, 2017 in the case of the 2nd Respondent.

(c)serve an affidavit on the Applicant’s attorneys sworn by a responsible officer, verifying that the documents supplied are true copies of the originals and setting out the extent to which the documents produced constitute a complete record of each of the two categories of documents required to be produced.”

An obligation to provide copies of agreements and documents evidencing payments and requests for payments over a five-year period ending with the month in which each respondent ended its relationship with MW was proportionate. The court accepted the submission that the request for any correspondence relating to the agreements amounted to “fishing.” An undertaking by the respondents to preserve all potentially relevant documents should be embodied in the order (paras. 48–51).

(5) No application for directions under s.4 of the CIDL was required where the court determined that the party seeking to deploy confidential information in legal proceedings had a legal right to do so because it was arguably the victim of wrongdoing. No application under s.4(2) was required in the circumstances of the present case because (a) the applicant was entitled to compel the respondents to produce the confidential information “in accordance with, or pursuant to a right or duty created by any other Law or Regulation” (s.3(1)(j)); and/or (b) this court having ruled that the respondents were obliged to produce the information sought by way of granting relief for suspected wrongdoing, they were entitled to produce the information “in good faith and in the reasonable belief that the information was substantially true and disclosed evidence of wrongdoing” (s.3(2)). In these circumstances they would have a statutory defenceto any breach of confidence claim brought...

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