SKAT Litigation: The DIFC Courts grant Norwich Pharmacal relief in support of foreign proceedings

In a resounding victory for those combatting cross-border financial crime, the DIFC Courts granted the Danish Tax Authority ("SKAT") a Norwich Pharmacal/Bankers Trust order (the "Order") in July 2024 in support of its existing proceedings before the English courts and onshore Dubai courts. This type of order is a powerful tool for claimants since it enables them to obtain evidence from parties who are not responsible for any wrongdoing but who hold key information the claimant needs to pursue their claim.  The Order compels a DIFC private bank ("FFA") to disclose documents and information related to two accounts held in FFA's name which had received traceable proceeds from a massive fraud perpetrated on SKAT.

The Court ruled that there was nothing which prevented it from exercising its discretion to grant Norwich Pharmacal/Bankers Trust relief in support of foreign proceedings.

Background

The Order is one of the latest developments of the complex litigation which has arisen out of the the vast "cum-ex" scandal that has affected a number of European jurisdictions, including Denmark. The tax avoidance strategy at the heart of the scandal permitted non-resident shareholders to reclaim income tax withheld on dividend payments. SKAT alleges that the same shares were transferred rapidly between groups of investors around the time of dividend payment dates, allowing multiple investors to make fraudulent claims for refund of Danish withholding tax. As a result, significant civil and criminal litigation is afoot across a number of jurisdictions including the US, England, Germany Canada and the UAE.

Whilst the "Main Scheme" is still being tried before the English Commercial Court, claims were also commenced against various different entities and individuals in the onshore Dubai court. In the course of reviewing documents obtained in satellite litigation in the Isle of Man, SKAT uncovered that approximately GBP 16.7 million of proceeds of the fraud it was seeking to unravel had been transferred to bank accounts held in the name of FFA (a DIFC entity) in the UAE (as part of its business, FFA holds and invests funds belonging to its clients in its own accounts held by commercial banks).

The application

SKAT sought a Norwich Pharmacal order for FFA to produce information relating to the beneficiaries or ultimate beneficiaries of the funds as SKAT did not know on whose behalf those funds were being held/managed and did not know what happened to the funds after receipt by FFA.

The application had two distinct purposes:

1. to ascertain whether it had claims, including proprietary claims against the unidentified third parties who received the funds from FFA (or against FFA itself); and
2. to potentially use of the information and documentation to strengthen its existing case in the onshore Dubai courts.

SKAT also suggested that the information was necessary for it to build a complete picture for the purpose of the English court proceedings.

Whilst it was unusual for banks to challenge Norwich Pharmacal applications, FFA took a fundamental point of principle and objected to the order sought, on the basis that the DIFC Courts did not have the jurisdiction required.

FFA's main submissions were as follows:

1. Jurisdiction –
   1. Under English common law, Norwich Pharmacal relief is not available to obtain further evidence in support of existing claims before foreign courts. The jurisdiction of the English courts to do so has been exclusively statutory¹ (the "1975 Statute") and the court in Ramilos had held that such orders were inappropriate to obtain evidence obtainable under the 1975 Statute.² FFA's view was that the same limitations should constrain the DIFC Courts.
   2. Further, the Treaty between the UK and the UAE on Judicial Assistance in Civil and Commercial Matters had the same effect in the DIFC as the English statute – i.e., that the mechanism to seek evidence in support of foreign proceedings from the DIFC Courts was limited to the terms of the Treaty.
2. Utility – There were no real prospect of assets being located some 8 to 9 years later.
3. Necessity – SKAT had other means to obtain the information sought in the existing proceedings.

The Decision

Justice Jeremy Cooke granted the Norwich Pharmacal order sought by SKAT. He dismissed FFA's argument on jurisdiction on the basis that the confinements on Norwich Pharmacal relief in England did not apply to the relief in the DIFC. In particular, Justice Cooke held that:

1. The jurisdiction of the DIFC Courts is statutory (and not based on English common law or upon English Statutes). The powers of the DIFC Courts to grant orders of this type are very broadly expressed in local statute and are only fettered by the need for any discretion by the Court to be exercised judicially. Whilst relevant common law principles would need to be accounted for when determining how such discretion should be exercised, this in no way meant that the DIFC Courts had to apply the English statutory scheme. There was nothing which limited the DIFC Courts' jurisdiction to make Norwich Pharmacal/Banker's Trust orders to obtain evidence for foreign proceedings.
2. The mechanism available for obtaining judicial assistance under the Treaty did not affect the DIFC's jurisdiction to make orders of the Norwich Pharmacal/Banker's Trust nature.
3. Even if the Treaty and the Rules of the DIFC Courts provided something equivalent to the English statutory scheme in the DIFC, many common law jurisdictions (e.g., Jersey, Guernsey) have failed to follow the decision in Ramilos, likely because it was seen as uncommercial and not in accordance with the principles of comity. The Letter of Request route is slow and puts the alleged fraudster on notice, allowing for the dissipation of assets.

Crucially, the Judge emphasized the necessity of supporting efforts to counter international fraud: "Where international fraud is concerned, it behoves this Court to assist the courts of friendly foreign nations in doing justice and, for that purpose, on the application of an alleged victim of such wrongdoing, to enable the foreign Court to have before it the maximum information available for it to make its own determination."

In any event, the Judge held that the first, and primary, purpose of the application was for SKAT to identify the recipients of the proceeds of the fraud, and locate the funds – an objective which fell squarely within the scope of the Norwich Pharmacal jurisdiction.

As to FFA's point on "Utility", the Judge ruled that the court could not readily make an assumption that the funds would be traceable given the passing of time. In current times, electronic records made it easier to trace funds.

As to "Necessity" – the Judge held that it was not realistic to expect that SKAT would be able to obtain the information sought in the English proceedings where "fraudsters seek to hide their tracks, fail to give proper disclosure when ordered and do not readily admit anything in the witness box".  In relation to obtaining the evidence from the proceedings in on-shore Dubai, the Judge noted that "disclosure normally takes the form of a party producing the documents upon which it relies and there is no provision for oral evidence so that alleged fraudsters cannot be cross-examined".

Comment

The rise of international fraud has become a growing concern, with increasingly sophisticated schemes targeting both individuals and institutions. Despite challenges in enforcing them across borders, Norwich Pharmacal and Banker's Trust Orders remain powerful tools in a fraud lawyer's arsenal. These orders are particularly effective in situations where there is a lack of information about the perpetrators and the location of dissipated funds. This will no doubt be an increasingly common feature of large-scale fraud litigation with the rise of digital assets which provide a level of anonymity and are easily transferred making them an attractive tool for hiding and moving ill-gotten gains, further complicating efforts to trace and recover such assets.

This is especially relevant to the UAE, a key financial hub keen to develop its digital assets offering.

Therefore, it is extremely encouraging to see the DIFC Courts' clear stance towards supporting efforts to counter international fraud by permitting parties to seek Norwich Pharmacal/Bankers Trust Orders in support of foreign proceedings. While in this particular case, SKAT's application may have been particularly persuasive because it was seeking the orders not only in support of existing proceedings, but also to determine whether further claims needed to be brought, the Court did not suggest that it would be limited where the evidence sought was to exclusively support existing known claims pursued elsewhere – although in such a case, it remains to be seen whether the Court decides that it would not be in the interest of justice to do so. Nonetheless, this proactive approach by the DIFC Courts is a significant step in maintaining the integrity of financial systems and combating the misuse of digital assets for illicit purposes.