In Norwich Pharmacal v Customs and Excise Commissioners  AC 133, the House of Lords established the principle that a third party who has facilitated, albeit innocently, wrongdoing – may be ordered to provide information which will enable the victim to sue the wrongdoer.
Following this case, applications for such Orders for disclosure of documents or information acquired the name “Norwich Pharmacal Orders”.
In Jofa Ltd & Anor v Benherst Finance Ltd & Anor  EWCA Civ 899, the Court of Appeal was asked to review the High Court’s order that the respondent to the Norwich Pharmacal Order pays a proportion of the applicant’s reasonable costs of making the application.
The applicant for the Norwich Pharmacal Order, in this case, was the solicitors for two investment companies on a joint venture property project who believed that they had been defrauded by a small building company, Jofa Limited and it’s sole Director – Joseph Farah. The investors had reason to believe that Jofa and Mr Farah had purportedly issued invoices for works carried out to the property that was paid for by the investors in response to cash calls made by a Mr Elie Taktouk of JMT Property Ltd (who had been engaged to manage the project) – yet the majority of these redevelopment works had not been carried out. As a result, the property had a much lower value than expected and the mortgagor exercised its power to sell. The investors lost everything.
Solicitors for the investors had repeatedly asked Mr Farah and Jofa to disclose various documents including bank statements covering the period works were allegedly being carried out to the property. They were also separately seeking disclosure of Mr Taktouk and JMT’s bank accounts and related documents. Initially, they had tried to interview Mr Farah under caution, failing which they went on to requesting documents and encouraging voluntary disclosure. After Mr Farah’s failure to engage or deliver – they sent a pre-action letter prior to seeking the Norwich Pharmacal Order.
Although Counsel for the investors had asked for their full costs, on the basis that the Jofa and Mr Farah could and should have provided the documents requested from them voluntarily without the need for court proceedings – the Judge found that the respondent should only be liable for such proportion of the costs incurred that could have been avoided had the respondent taken a “neutral position” in response to the applicant’s pre-action letter sent prior to seeking the Norwich Pharmacal Order (instead of ignoring it completely).
In giving the judgment as to costs, the judge said:
“The usual order would be for no order to be made for the costs of the applications. None is sought by the applicants against the third respondent, National Westminster Bank plc. Costs are sought by the applicants against [Jofa Limited and Mr Farah] and that is because of the history…”
Mr Farah and Jofa Ltd appealed this particular point in that the correct starting point on a successful application for a Norwich Pharmacal Order by the court is that the applicant should normally be ordered to pay the costs of the party ordered to give disclosure, including the costs of the application. On behalf of the appellants, it was submitted that the judge approached the question of costs on the wrong legal basis and thus the costs order should be set aside.
Lord Justice Leggatt allowed the appeal, setting aside the Order for costs but also ordering that the respondent in the appeal (being the investment companies) pay the appellants costs of appeal summarily assessed at £13,000. Leggatt LJ further identified that the starting point was that the respondent to a Norwich Pharmacal application does not owe any “legal duty” to the applicant to provide information without a court order, and is entitled to require the matter to be submitted to the court at the expense of the party seeking disclosure. It was also noted that the investment companies’ application for a Norwich Pharmacal Order had not been made under CPR 31.16 on the basis of a prospective claim.
This case will be particularly welcomed by those threatened with Norwich Pharmacal Orders, such as banks and financial institutions who are often the first point of call for parties seeking financial information about a third party. These bodies have duties of confidentiality to their customers, and therefore disclosure without an order from the court could expose them to potential claims for breach.
Although a sigh of relief, respondents should not take this judgement as a green light that they will not be exposed to the costs of a Norwich Pharmacal Order application by any means – in exercising its discretion as to the extent of the presumption of costs to be borne by the applicant and the circumstances which would justify a departure from the general rule, the Court of Appeal felt that the particular facts of this case did not warrant a departure from the usual rule.
To be on the safe side, respondents to Norwich Pharmacal Orders would be better off keeping a “neutral position” in response to an application instead of ignoring the request for disclosure altogether.