Rule Changes In England and Wales Help Combat Fraud—Should Canada Follow? – JD Supra

Bennett Jones LLP
The United Kingdom’s Civil Procedure Rule Committee recently approved methods of extra-jurisdictional service of Norwich-type information orders that could make it easier to pursue cross-border economic crime disputes in England and Wales. This change could pave the way for similar legal reform in Canada.
Norwich Orders are a type of information order that allows parties to obtain the sometimes critical facts necessary to pursue a claim. Norwich Orders compel a usually innocent non-party to produce evidence in its possession to a claimant. As the English House of Lords originally framed the duty to inform and assist underlying the Norwich Order:
If through no fault of his/her own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers.
With this powerful tool, a claimant can discover the identity of a wrongdoer or the location of assets when necessary and pursue legal recourse. 
Traditionally in England and Wales, it has been difficult to serve Norwich Orders on parties located outside of the jurisdiction, based on the courts’ hesitancy to appear to assert jurisdiction over foreign non-parties. As a result, parties have often had to rely on treaties or local relief available in the jurisdiction of the non-party target instead. This can lead to significant added cost and delay, and the availability of recourse depends on the laws in the target jurisdiction.
As part of some of the changes by the Civil Procedure Rule Committee, which took effect in early October 2022, claimants may now—with leave of the court—more easily serve Norwich information orders outside of England and Wales. This should assist some claimants with avoiding the sometimes fatal delays and other obstacles that can stand in the way of obtaining the information necessary to pursue claims related to fast-moving frauds.
In fact, according to the Master of the Rolls, a key prompt for the rule change was the policy aim of responding to the growing field of litigation involving virtual assets (like cryptocurrency), where speed in tracing and freezing misappropriated assets may be key:
In the world of crypto fraud, there are no national barriers and unlawfully obtained cryptoassets can be difficult to trace. That is the experience of lawyers working in this field. Accordingly, the Deputy Head of Civil Justice and I have set up a sub-committee of the Civil Procedure Rule Committee to look at amending or expanding the grounds on which proceedings can be served out of the jurisdiction. It is that obstacle that has impeded many sets of proceedings aimed at tracing the proceeds of crypto fraud. Under current case law, third party disclosure applications cannot easily be served outside the jurisdiction, even if one can serve out orders requiring a third party to disclose documents relating to the account of someone who can be shown to be prima facie responsible for a fraud. I hope that developments in the court’s rules will make this fine distinction less significant and will make it generally easier to litigate issues that arise in relation to on-chain transactions and the tracing of cryptoassets.
To better protect Canadians from wrongdoing, Canada’s laws should also adapt to the ever-changing landscape involving economic crime. It will be interesting to see whether Canada’s provincial legislators or Civil Rules Committees embrace similar changes to that of England and Wales or let the law lag behind.
Like England and Wales (before the rule changes), Canadian courts have balked at the thought of serving information orders on foreign non-parties, for policy reasons related to jurisdiction and international comity. The British Columbia Supreme Court summarized this position aptly in Lockwood Financial Ltd. v. China Blue Chemical Ltd, 2015 BCSC 839:
While the court ought to allow development of the law, in my view, the court’s reluctance to assert jurisdiction over an innocent foreign party is so significant that even if the court has territorial competence here, it ought not to exercise it…[a] claim for a Norwich Pharmacal order against a foreign party offends fundamental notions of international comity and exceeds the constitutionally imposed territorial limits. A Norwich Pharmacal order ought to be pursued in the jurisdiction of the party which is being asked to provide the documentation.
As a result, to obtain information from foreign non-parties, such as banks or internet service providers that could assist in pursuing a domestic lawsuit, Canadian litigants have largely had to rely on the legal rules present in the jurisdiction of the foreign non-party target. What this involves varies depending on the jurisdiction and could include obtaining a letter of request or relying on foreign statutory rules. In some countries, obtaining a non-party information order may be impractical or virtually impossible.
It is interesting to compare Canadian courts’ reservations about issuing Norwich Orders against foreign non-parties with their stance on injunctions that may affect—or even lead to ancillary orders against—those same non-party entities. A worldwide Mareva order, where a strong prima facie case has been made out against a party, may impose obligations or restrictions on innocent foreign banks and other intermediaries, such as blocking account access or disclosing financial information. Similarly, in Google Inc. v Equustek Solutions Inc., 2017 SCC 34, the Supreme Court of Canada upheld an injunction that affected the non-party search engine Google and putative customers worldwide because “[t]he problem in this case is occurring online and globally. The Internet has no borders—its natural habitat is global. The only way to ensure that the interlocutory injunction attained its objective was to have it apply where Google operates—globally.” The Supreme Court of Canada also referenced with approval a hypothetical example of an injunction affecting foreign non-parties, noted in the decision below:
…a non-party corporation that warehouses and ships goods for a defendant manufacturing company might be ordered on an interim injunction to freeze the defendants’ goods and refrain from shipping them. That injunction could affect orders received from customers around the world. Could it sensibly be argued that the Court could not grant the injunction because it would have effects worldwide? The impact of an injunction on strangers to the suit or the order itself is a valid consideration in deciding whether to exercise the Court’s jurisdiction to grant an injunction. It does not, however, affect the Court’s authority to make such an order.
[Emphasis added]
Thus, somewhat inconsistent with their reservations with respect to ordering Norwich Orders against foreign non-parties, Canadian courts—in some circumstances—conceptually accept the appropriateness of issuing other forms of injunctive reliefs that may affect foreign non-parties.
While the Canadian courts’ legal position on the reach of Norwich Orders to foreign non-party entities has some policy grounding, it creates practical impediments in a modern world. Fraudulent schemes have become more complex. Networks have become more international. And crimes have become borderless.
The rise of frauds involving virtual assets provide an apt example. The Supreme Court of Canada has relied on the fact that “[t]he Internet has no borders” to justify injunctive relief affecting foreign non-parties to litigation. Similarly, cryptocurrency and other virtual assets also have no borders. It may be time to change the law and procedural rules in Canada to reflect this reality. The need for such change may be bolstered by the findings of the Cullen Commission inquiry on money laundering in British Columbia that legal bodies must keep up with the evolution of crime in the virtual asset space:
The virtual asset space will undoubtedly continue to transform, and new methods of criminality will certainly emerge. It is crucial that government, law enforcement, and regulators stay current on the risks facing this sector.
An Ontario Superior Court Judge has similarly noted that “it is fundamentally important to the stability of the economy and the online market place that the integrity of [virtual] assets be maintained”, and therefore “the investing and transacting public need assurance that the law applies to protect their rights.” Clarity in the law—and evolving it as necessary—is a way to provide such assurance.
Adopting the new approach of England and Wales to service of Norwich information orders on foreign non-parties, while useful, could raise certain issues involving enforcement. In Canada, a non-compliant non-party who is subject to a Norwich-type information order can potentially be found in contempt of court. However, the prospect of a Canadian court making such a finding against an innocent non-party in a foreign jurisdiction would appear unlikely, particularly where that foreign non-party disputes that the Canadian court has any jurisdiction over it in the first place. Nonetheless, one would expect that many innocent foreign non-parties would believe that they would be better off complying with a Norwich-type information order rather than risking being found in contempt in a foreign jurisdiction (or in the very least, they may seek the direction of their local court).
With traditional policy considerations competing with new ones designed to combat the proliferation of economic crime—including as it relates to virtual assets—it will be up to Canada’s law, policy and rule-makers to determine how best to strike a balance, and ensure that Canadians are well-protected.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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