Expansion of the jurisdictional gateways, including a new gateway for Norwich Pharmacal / Bankers Trust claims

The circumstances in which the English courts can grant permission to serve civil claims out of the jurisdiction will soon be expanded substantially, including a number of changes that could potentially make it easier to pursue cross-border fraud actions in some cases.

A suite of proposals to amend and add to the existing list of jurisdictional gateways in CPR Practice Direction 6B was recently approved by the Civil Procedure Rules Committee (CPRC). The amendments are currently being finalised and are expected to take effect in October.

The key changes are discussed in this post by Anna Pertoldi, Partner in our Disputes team, on the Practical Law Dispute Resolution Blog.  Below, we focus on several changes likely to have particular relevance in actions involving civil fraud or misappropriation:

• a new gateway specifically for third party information claims (such as Norwich Pharmacal orders (NPOs) and Bankers Trust orders). This will hopefully make it easier for victims of fraud (both domestic and international) to obtain from outside the UK information they need in order to bring an action; and
• a substantial widening of gateways for claims concerning trusts and fiduciary duties.

The changes are likely to be especially important in the growing  field of litigation concerning cryptoasset, blockchain and other digital transactions.  Although not limited to that context, the Master of the Rolls has made clear that one of the key prompts for the reforms is the policy aim of positioning the UK as the jurisdiction of choice for actions involving on-chain transactions and cryptoassets.  Key to achieving that will be ensuring that rules and principles developed in the analogue context are adapted where necessary to respond to the digital environment. That will be particularly important in fraud actions, given the decentralised and opaque nature of crypto transactions and the importance of speed in tracing and freezing misappropriated assets - the maxim "justice delayed is justice denied" is particularly relevant here.

The CPRC in fact noted calls for there to be a new gateway specifically for claims regarding cryptoassets.  However, given that the Law Commission has recently announced its intention to consider the conflicts of law issues raised by cryptoassets, it was agreed that any such proposals would be best addressed once that work is completed.

In both digital and traditional contexts, it is important to bear in mind that, even where the gateway reforms open up a new opportunity to serve a claim outside the jurisdiction, it will still be necessary to persuade the court in relation to the other two elements of the test for permission to serve out: that there is a serious issue to be tried and, critically, that England is the appropriate place for the claim to be heard (the "forum conveniens" test).

New gateway for Norwich Pharmacal and Bankers' Trust claims

The problem

One of the central issues noted by the Master of the Rolls in respect of the existing gateways was the difficulty of serving out of the jurisdiction applications for third party information orders.

Information orders such as NPOs and Bankers Trust orders can be obtained pre-action to compel third parties who were innocently mixed up in some wrongdoing to provide information that is necessary to enable proceedings to be brought against the wrongdoer (most commonly, to identity the wrongdoers and/or trace misappropriated assets).  The courts have stressed that such orders will only be made where strictly necessary and cannot be used as fishing expeditions.  However, their usefulness has been highlighted in recent years with the growing sophistication of cross-border fraud and particularly in the crypto fraud context, where potential claimants will frequently be reliant on information in the control of third party institutions such as crypto exchanges or marketplaces (often offshore).

Historically, there have been some cases where a court has permitted service of an NPO application outside the jurisdiction, relying on an expansive interpretation of the existing gateways. However, this was not free of controversy and, in AB Bank Ltd v Abu Dhabi Commercial Bank [2016] EWHC 2082 (summarised here), the Commercial Court held that none of the existing gateways permit service out of NPO applications. In particular, it rejected arguments that an NPO is an interim remedy, or that the action it compels occurs within the English jurisdiction, or that the respondent to an NPO is a necessary and proper party to the underlying claim.

In the case of Bankers' Trust claims, the courts have been more open to permitting service out, usually under the "necessary and proper party" gateway. That has included recently in the context of crypto fraud (for example here) - although that has generally required a claimant to seek the order alongside an application to serve out a substantive proprietary claim against the wrongdoers, as 'persons unknown'.

The Master of the Rolls has questioned this disparity between the jurisdictional treatment of NPOs and Bankers Trust orders, and expressed the hope that rule changes will remove "an obstacle that has impeded many sets of proceedings aimed at tracing the proceeds of crypto fraud".

The new gateway

The CPRC agreed that the current position is unsatisfactory and that there is a need for a discrete gateway directed at third party information applications.

It was agreed (subject to final drafting) that the new gateway should be limited to applications:

(i)  for information regarding:

• • the identity of a potential defendant; or

• • what has become of the claimant’s property

(ii)  where the information is required for the purposes of proceedings commenced (or which, subject to the information received, are intended to be commenced) in the English courts.

Technically, the information described in (i) might appear to be narrower than what can potentially be sought under the NPO principles established by case law, which is generally defined as information necessary to enable the claimant to plead an action. That could, for example, feasibly include information about the detailed structure of a fraudulent scheme, if that detail goes to an essential element of a potential cause of action and is a "missing piece of the jigsaw" required before the claimant can formulate and plead its case.  However, it may be arguable that any information that could properly be sought under the established NPO principles could be considered part and parcel of "what has become of the claimant's property" (ie that the question extends to what has happened to the property, not just where it is now).

It is interesting to note that the CPRC also considered the possibility of a new general gateway for all applications against non parties (prompted particularly by concerns about difficulties in serving out charging orders). However, it was agreed that such a broad gateway could not be justified, at least without significant further thought and consultation.

Other gateway changes

Other changes particularly relevant to actions for fraud and misappropriation include new gateways for:

• trust and fiduciary claims where the breach occurs within the jurisdiction
• trust, fiduciary, and confidentiality/privacy claims where the legal relationship came into existence in the jurisdiction
• claims against third parties for unlawfully causing or assisting in trust, fiduciary, and confidentiality/privacy breaches, where the legal relationship or the breach has certain connections with the jurisdiction
• negative declarations that no trust, fiduciary duty or confidentiality/privacy duty has arisen (where, if it had done so, it would fall within a gateway)
• contempt

There will also be an extension of the existing gateways for tort, constructive trust, fiduciary duty and confidentiality/privacy actions, to cover such claims where they are governed by English law.

Several of the above changes effectively extend to trust/fiduciary claims the approach that already applies to contractual claims under the existing gateways.

The CPRC recognised that some of these amendments constitute a significant extension of both the letter and spirit of the current gateways.  As discussed in the Practical Law post, this can be seen as consistent with a recent trend in the court's approach to the test for permission to serve out, in which the gateways play a lesser role and the emphasis is shifted to the forum conveniens test.