Court grants Norwich Pharmacal relief

This in context of arbitral proceedings.

Written by Damien Laracy (HK), and Reema Shour (UK), Hill Dickinson

Filatona Trading Ltd & another -v- Quinn Emanuel Urquhart & Sullivan UK LLP [2024] EWHC 2573 (Comm)

The litigation between the parties to this dispute was described by the Court as bitter, protracted and hard fought, with no holds barred. Both parties were found by the arbitrators to have put forward false evidence in the arbitration.

In the Court’s view, this fact carried with it a heightened duty on the part of the law firms acting on behalf of the parties to take all reasonable steps to ensure that the case of the party whom they were representing was presented fairly and, particularly, to ensure that the Court was not misled.

In the circumstances of this case, it was appropriate to order the solicitors acting for one of the parties to disclose the identity of the business intelligence consultancy (or its personnel) from whom it had obtained a report that was subsequently relied on by its clients both in court and arbitration proceedings, but subsequently proved to be a forgery.

The background facts

For the purposes of the latest chapter of this long-running dispute, the relevant facts are very briefly as follows.

Mr Deripaska owns a company, Filatrona Trading Ltd (the Deripaska Parties). Mr Chernukin owned a company, Navigator Equities (the Chernukin Parties).

The Deripaska Parties and the Chernukin Parties entered into a joint venture agreement for a Russian textiles manufacturing company in 2005. In late 2010, the relationship between the parties broke down and Mr Deripaska took control of the Russian company. Mr Chernukin alleged unfair prejudice on the part of the Deripaska Parties and commenced arbitration, seeking an order that the Deripaska Parties buy out the stake of the Chernukin Parties in the textiles company.

The tribunal issued three final partial awards. The second final partial award held that the conduct of the Deripaska Parties was unfairly prejudicial and they were ordered to buy out the Chernukin Parties’ stake for just over US$95 million.

The Court subsequently dismissed challenges to all three awards and found that both sides had given unreliable and sometimes dishonest evidence.

In 2020, the Chernukin Parties issued proceedings against the Deripaska Parties under s.68 Arbitration Act 1996, seeking to set aside the tribunal’s buy-out award on the basis of a serious irregularity in the arbitration process and remit the question of quantum to the tribunal. They alleged that the integrity of the award was compromised by a fraud committed by the Deripaska Parties, who had supposedly suppressed a Russian language report that purported to be a feasibility study dated May 2016 for the redevelopment of the Russian company’s site in Moscow.

The Chernukin Parties argued that the report should have been produced to the tribunal and that, had it been produced, then the tribunal would have ordered a buy-out in the amount of US$395 million not US$95 million. The Chernukin Parties sought to use the report to secure a further hearing before the tribunal in order to get the tribunal to award them a further US$300 million.

The Chernukin Parties’ solicitors stated that they had obtained a copy of the report through an unidentified London-based business intelligence consultancy (the Consultancy) but denied any knowledge of the original source of the report. The report had subsequently been passed on to the Chernukin Parties by their solicitors, not by the Consultancy.

The Deripaska Parties alleged that the report was a forgery. They sought an order from the Court that the Chernukin Parties’ solicitors disclose the identity of the Consultancy and/or the relevant individuals at the Consultancy which acted as the “middleman,” as this would assist them in identifying the ultimate source. The Deripaska Parties could then use this information to seek a further order against the “middleman” to identify their source.

Legal Principles

A Norwich Pharmacal order refers to the Court’s jurisdiction to allow a prospective claimant to obtain information in order to seek redress for an arguable wrong. The requirements are as follows:

1. There must be a good arguable case that a form of legally recognised wrong has been committed against the applicant by a person (the Arguable Wrong Condition).
2. The respondent to the application must be mixed up in, so as to have facilitated, the wrongdoing (the Mixed Up In Condition).
3. The respondent to the application must be able, or likely to be able, to provide the information or documents necessary to enable the ultimate wrongdoer to be pursued (the Possession Condition).

These are the three threshold conditions. In addition, requiring disclosure must be an appropriate and proportionate response in all the circumstances of the case, bearing in mind the exceptional but flexible nature of the jurisdiction (the Overall Justice Condition).

The Commercial Court decision

The Court found that each of the three threshold conditions was satisfied in this case. On the evidence, it was strongly arguable that the report was a forgery and neither set of solicitors seemed to challenge that evidence. The Chernukin Parties had withdrawn their s.68 claim and agreed to pay the Deripaska Parties’ costs on an indemnity basis. They would not have done so if they had continued to believe that the report was genuine.

The Court was also satisfied that the Chernukin Parties’ solicitors had become involved in the wrongdoing and had unwittingly facilitated it. Additionally, the Possession Condition was satisfied because the solicitors were likely to be able to provide the information or documents necessary to enable the ultimate wrongdoer to be pursued.

The Court also rejected the argument that this information was privileged. The provision of the identity of the Consultancy and of the persons who procured the report would reveal nothing about the content of any privileged communications, nor would it reveal anything about the litigation strategy of the Chernukhin Parties, not least because the Chernukhin Parties had themselves already deployed the contents of the report in the s.68 proceedings. Nor would revealing the identity of the Consultancy or the relevant employees inhibit candid discussion between Mr. Chernukhin and his solicitors.

The Court then considered whether requiring disclosure was an appropriate and proportionate response in all the circumstances of the case. It concluded that it was. In particular:

1. There was a strongly arguable case that the compilation and production of the report amounted to serious wrongdoing which was calculated to deceive the Court and the arbitral tribunal. There was, therefore, a strong public interest in allowing the Deripaska Parties to vindicate their legal rights.
2. Making the order was likely to deter similar wrongdoing in future, certainly by the wrongdoer in this case.
3. The information could not be obtained from another source. Despite their best efforts, the Deripaska Parties were unable to identify the source of the presumed leak.

The Court stated that the Deripaska Parties were genuinely seeking lawful redress of a serious wrong, namely an attempt to defraud them of some US$300 million, for which they could not otherwise obtain redress. The claim for Norwich Pharmacal relief was granted.

Comment

The decision nicely illustrates the way in which the Court’s jurisdiction and powers operate in tandem with, and to support, arbitration proceedings. It is also a reminder that merely  because solicitors have been involved for a client in litigation or in arbitration not all information passing between the solicitor and the client is immune from disclosure.

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