A recent BVI Court of Appeal decision has evolved the use of Norwich Pharmacal orders in asset-tracing cases. Mark Forté and Tameka Davis report
Norwich Pharmacal relief is a much-deployed weapon in the asset-tracing arsenal, but the extent to which it can be used to target professional registered agents in jurisdictions such as the British Virgin Islands (BVI) was questioned recently.
On 21 February the Eastern Caribbean Supreme Court’s Court of Appeal delivered a judgment in JSC BTA Bank v Fidelity Corporate Services Ltd et al that resolves the scope of such orders.
The case concerned an application by JSC BTA Bank for Norwich Pharmacal/Bankers Trust relief against several agents. On the question of whether agents were sufficiently involved in the wrongdoing of companies under their administration, the court held unequivocally that “by virtue of their very role in providing registered agent services to companies, a role which is voluntary, [the agents] cannot on any view be considered as mere onlookers”.
This overturned a previous decision, which found that agents had to be involved in and have knowledge of the alleged wrongdoing. This had created considerable uncertainty for those in search of such relief, since its effect, it was feared, would render it virtually impossible to obtain Norwich Pharmacal relief against agents as a class of defendant.
The agents were divided. Some welcomed this paralysis of the Norwich Pharmacal jurisdiction and the burden of compliance
it brought to bear, while others saw it as sending the wrong message to fraudsters using the jurisdiction’s corporate form as a conduit for misappropriated assets.
Burden of proof
The impact of the decision at first instance was far-reaching. It meant an applicant for Norwich Pharmacal relief had to accept the threshold requirements of actionable wrong and facilitation, to demonstrate that the court had the jurisdiction to order disclosure against the agents, and also had to show the agent knew about the wrongdoing.
While agents are integral in the administration of companies, they often manage hundreds of companies and are unlikely to be aware of any individual company’s wrongdoing. The imposition of the requirement of knowledge was unprecedented.
The importance of agents cannot be overstated. Every BVI company is required to have a registered agent and an office in the jurisdiction. A company’s registered office is almost always that of the agent. The obligation to have an agent is so important that a company that contravenes this requirement commits an offence and is liable on summary conviction to pay a fine.
The company is required to keep certain documents at the registered office and the agents are required by law to satisfy themselves of the ultimate owners of the companies they incorporate or continue. All court processes are served at the registered office and all the statutory filings are conducted on the company’s behalf by the agent.
In the context of asset-tracing, the involvement of offshore companies usually heightens suspicion. When one gets to the offshore company there is a perception that there is an impenetrable barrier of confidentiality.
In the context of the BVI this perception is exaggerated and misplaced – albeit confidentiality is an established quality of the product. While persons incorporate companies in the BVI because of the public’s restricted access to information about them, this restriction of access is not immutable and in suitable cases the court will order disclosure.
The strength of the operation of the Norwich Pharmacal jurisdiction in these circumstances is that it allows disclosure to be ordered against the agents themselves, who not only are likely to have critical information in their possession, but more often than not are innocent third parties and so are likely to offer up the information once ordered to do so.
In reality, BVI companies implicated in a fraud are unlikely to provide this disclosure themselves, even if compelled to do so. This is especially so if the victim’s suspicions about the company’s involvement in the wrongdoing are right.
The threat of contempt proceedings against a recalcitrant company is unlikely to make much headway, since the company is unlikely to have assets in the jurisdiction capable of sequestration and any order for committal against the directors of these companies is oftentimes useless because the directors are not resident in the BVI and thus not susceptible to the personal jurisdiction of the BVI court. For these reasons the availability of Norwich Pharmacal relief against the registered agent has always been seen as particularly powerful.
In the frame
By holding that agents could not be considered mere onlookers by virtue of the services they perform, the Court of Appeal rejected this notion of the need for knowledge and placed the emphasis back on facilitation. The mere incorporating and maintaining of companies being used as vehicles of fraud or any wrongdoing meant the agent was facilitating that wrongdoing.
The state of their knowledge does not matter to the existence of the jurisdiction. The Norwich Pharmacal order not only cloaks the agent with the protection it needs against a charge of breach of confidentiality, but also recognises their innocence in the whole affair by ordering that the applicant pays the reasonable cost of their compliance. Thus, what is commonly known as the ’relationship test’ has been firmly embraced by the BVI as the test in determining the threshold requirement of facilitation in a wrongdoing.
The judgment should be hailed for its practical adaptation of well-settled principles to the reality of the role of agents in the BVI, both as corporate agencies and as active participants presiding over the birth, administration and dissolution of companies and as facilitators of acts that may lead to a duty to assist a claimant by disclosing information under Norwich Pharmacal principles.
Mark Forté is head of litigation and Tameka Davis is an associate at Conyers Dill & Pearman in BVI