Jofa Ltd & Anor v Benherst Finance Ltd & Anor [2019] EWCA Civ 899

24 May 2019

Should an applicant for a #NorwichPharmacal order be allowed #costs of the application on the basis that the respondent should and could have disclosed voluntarily?

Background

The Appellants were a small company (‘Jofa’) and its sole director and shareholder (‘Mr Farah’) which had been ordered in the court below to pay a proportion of the Respondents’ costs of applying for a Norwich Pharmacal order against them. The Respondents were investment companies (‘the Investors’) alleging that they had been defrauded of significant sums of money by a third party, one Mr Taktouk, who had relied on invoices purported to have been issued by the Appellants.

In early June 2017, the Investors’ solicitors entered into correspondence and discussions with Mr Farah in respect of the alleged fraud. Mr Farah initially cooperated and appointed lawyers of his own in early July 2017, given the allegations he had been involved in criminal conduct.  However, between mid-July and late November 2017, Mr Farah’s lawyer did not engage with the Investor’s solicitors, failing to respond to their letters and telephone calls.

The Investors’ solicitors then sent what was described as a ‘pre-action letter’ dated 8 December 2017. It requested disclosure of a long list of documents and asked for a response within 14 days; failing such response, the Investors would issue a Norwich Pharmacal application in the High Court.  The letter emphasised that the Investors were ready to receive voluntary disclosure any time so as to avoid proceedings, and would pay the reasonable costs of such disclosure.   No response was received.

The Investors ultimately issued an application in early March 2018, not only for a Norwich Pharmacal order but also their costs of making the application in circumstances where disclosure could and should have been given voluntarily.

The High Court

The judge granted both applications; Mr Farah and Jofa were ordered to disclose the documents, and to pay a proportion of the Investors’ costs to the sum of £23,000. Her reasons for making such costs order were stated as:

“The usual order would be for no order to be made for the costs of the applications. […] Costs are sought by the applicants against [Jofa Limited and Mr Farah] and that is because of the history that I have gone through that there was extensive discussion and negotiation with [them] through their solicitors at the time they were represented, the failure of which resulted in the pre-action letter of 8 December 2017.”

Permission to appeal against the costs order was granted by on the sole ground that, in deciding what order to make, the judge adopted the wrong starting point.

The Court of Appeal

Leggatt LJ (with whom the sole other member of the Court agreed) found that the judge below had erred: the correct starting point was that the applicant should normally be ordered to pay the costs of the party ordered to give Norwich Pharmacal disclosure, including the costs of the application and the costs of complying with the order.  Although the parties agreed that this was correct, they disagreed as to the extent of this presumption and the circumstances which justify departure from the general rule.

Leggatt LJ began with the proposition that a person from whom assistance is sought under the Norwich Pharmacal principle does not owe any legal duty to the party seeking assistance in the ordinary sense of the term.  In Norwich Pharmacal itself, the ‘duty to assist’ was held to arise without the assistor incurring personal liability; later authorities confirmed that ‘duty’ in this context was a simple way of saying that the court would require disclosure under an equitable jurisdiction to intervene.

From this, another line of authority drew analogy with pre-action disclosure under CPR 36.16, for which costs are governed by what is now CPR 46.1. Where a proposed claimant obtains an order for pre-action disclosure against a proposed defendant where wrongdoing is alleged, it may often be appropriate to make the award of costs of the application dependent on the outcome of the subsequent litigation.  Thus, although the position was not that a wrongdoer would never be ordered to pay costs for an application under CPR 36.16, such an approach would be inappropriate in the present case.  Here, the application was made solely on Norwich Pharmacal principles and the assistors had been innocently mixed up in the wrongdoing a third party.

Further, Leggatt LJ found it relevant to take into account the ‘obvious disparity’ between the parties in terms of their resources, sophistication, and legal representation, as well as the background of the earlier communications from the Investors’ solicitors. These were found to be ‘heavy-handed’ accusations of criminal conduct and requests to interview under caution.  Mr Farah could not, therefore, be criticised for declining to disclose on a voluntary basis.  Where criticism could be made was in the failure to reply to the ‘pre-action’ letter of 8 December:

Although there is no pre-action protocol that applies to Norwich Pharmacal applications, it is reasonable to expect a person who receives a request to provide information, supported by evidence that the person has been mixed up, albeit innocently, in wrongdoing and that the information is needed for the purpose of proceedings against the wrongdoer, at least to indicate his position and to say whether he is prepared to provide the information voluntarily and, if not, whether and on what grounds he will oppose an application for a Norwich Pharmacal order.

The appeal was nevertheless allowed, and further, Mr Farah and Jofa were awarded their costs of the appeal as the successful party.

Commentary

This case is a useful reminder that Norwich Pharmacal applications are not ordinary adversarial proceedings: the general rule as to costs is displaced by one which holds that the applicant should recover its costs of obtaining the information that it needs from the wrongdoer rather than from the respondent, who is an innocent party.

The case is further noteworthy for the indication that even innocent respondents to a Norwich Pharmacal application come within the scope of the overriding objective.  It will be interesting to track the extent to which any tension develops between the principles that (i) such respondents owe no legal duty to assist proceedings; and (ii) the fundamental culture change in litigation introduced by the CPR.  Is it the position the same as it is for pre-action disclosure, or is it that a respondent to a Norwich Pharmacal application will never be ordered to pay the costs to an application, even if he has been totally unreasonable?   Pending further guidance, practitioners would be prudent to keep the present case in mind when appearing in Norwich Pharmacal applications, especially if costs are a live issue.