To what lengths will the courts go to protect potential victims of fraud? Should third parties be compelled to provide confidential, but relevant, information to potential litigants? The Ontario Court of Appeal’s recent decision in GEA Group AG v. Ventra Group Co. and Timothy Graham deals with these issues and, in doing so, provides needed guidance on the availability of Norwich orders in Ontario.
A Norwich order is an equitable remedy that allows a party to a dispute to discover, or depose, someone who is not party to the dispute in order to assist the potential claimant in advancing his or her legal rights against the alleged wrongdoer where the claimant would be unable to do so without information from the third party.
The Norwich order originated from the principles enunciated in a 1974 English case, Norwich Pharmacol Co. v. Comrs. of Customs and Excise. In that case, the House of Lords was careful to set limits on the availability of Norwich orders in order to avoid abuse of the remedy . The Court was concerned that prospective plaintiffs may attempt to use this remedy to collect information from third parties who had no relevant connection with the person being sued or the events at issue. Subsequently however, English courts expanded the scope of Norwich orders, allowing the remedy to be used to permit an applicant to determine whether a cause of action existed against a potential wrongdoer, to trace and freeze assets and to obtain information from a third party even in the absence of a settled intention to sue the alleged wrongdoer.
Norwich orders have not been considered as expansively by Canadian courts as they have in England. In Isofoton S.A. v. Toronto Dominion Bank, the Ontario Superior Court visited the issue of when a Norwich order should be granted.1 It outlined five considerations:
- First, there should be evidence of a valid, bona fide claim or reasonable claim. The standard required is that the claim is not frivolous or vexatious.
- Second, the applicant must establish that the third party from whom the information is sought is somehow involved in the wrongful act, even innocently.
- Third, the third party must be the only practicable source of information. However, the victim is not required to approach the alleged wrongdoer for the information.
- Fourth, the victim is required to indemnify the third party for any costs associated with complying with the order.
- Fifth, the court will consider all the respective interests and weigh the benefits of revealing the information against the interest in maintaining confidentiality.
The Court of Appeal’s Decision
The Ontario Court of Appeal considered this test in GEA Group AG v. Ventra Group Co. and Timothy Graham. In this case, the request for a Norwich order originated from a dispute over a sale by Flex-N-Gate Corporation (“FNG”) of one of its subsidiaries to GEA Group AG (“GEA”). When FNG failed to close the transaction, GEA commenced an arbitration relating to the alleged breach of contract. GEA subsequently became concerned, however, that FNG had transferred its assets to an unknown person in an effort to become judgment proof in the event that GEA was successful in the arbitration. GEA applied to the Ontario Superior Court of Justice for a Norwich order to, among other things, obtain documents from a company related to FNG (“Ventra”) and to examine or depose FNG’s lawyer (“Graham”), who was also a director, officer and employee of Ventra. GEA insisted that it was necessary to obtain information from Ventra and Graham in order to investigate the alleged fraudulent transfer of assets and determine its legal remedies. GEA’s application was successful and a Norwich order was granted. FNG, Ventra and Graham appealed.
The Court of Appeal allowed the appeal, finding that, on the facts of the case, the disclosure sought was not necessary to enable GEA to exercise its rights against the alleged wrongdoer, FNG. The Court noted that GEA had knowledge of the critical facts necessary to advance its cause of action. In fact, it had already commenced proceedings against FNG and its principal based on the same facts in the United States. The Court held that it was unnecessary for GEA to have full particulars regarding the mechanics of the fraud. GEA knew the nature, timing, apparent purpose and identity of the suspected wrongdoers, which was sufficient. After an action was commenced, GEA could obtain additional information through the normal discovery process.
In reaching its determination, the Court emphasized that for such relief to be granted, an applicant must demonstrate that it is necessary. The Court noted that although Norwich relief is a flexible and discretionary remedy, it is also extraordinary and intrusive. A Norwich order cannot be used by an applicant to circumvent the normal discovery process. Its purpose is not to assist an applicant in perfecting potential pleadings or obtaining further evidence to prove facts, but rather is to aid an applicant in asserting his or her rights against a potential wrongdoer where the information is unavailable to them other then through the third party.
The Court emphasized that the necessity of a Norwich order hinges on the particular facts of each case. Although an applicant must demonstrate that Norwich relief is necessary, necessity is not restricted to the necessity to plead a cause of action. For instance, a request for a Norwich order is not defeated simply because there is not a firm commitment to commence proceedings. Rather, the Court held that Norwich relief may be necessary in order to satisfy other legitimate objectives including:
- to obtain information needed to identity a potential wrongdoer;
- to evaluate whether a cause of action exists;
- to plead a known cause of action; or
- to trace assets.
When a Norwich order is not required to satisfy a legitimate objective, such relief will not be granted.
This decision illustrates that Norwich orders are extraordinary remedies that are not liberally granted. The Court of Appeal was careful to limit the availability of the remedy to prevent applicants from engaging in ‘fishing expeditions’ at the expense of a third party. The decision suggests that a court will not allow a Norwich order to be used to obtain information unrelated to a pending claim or to gather additional information that is not needed to commence an action as to do so would unfairly place a burden on third parties to participate in litigation in which it has no interest and to reveal confidential information.
The decision is a welcome development in that it protects businesses and individuals who are incidentally involved with a party to a dispute from being compelled to participate in litigation unless such participation is necessary for the applicant to achieve justice. Accordingly, it prevents Norwich relief from being used to harass third parties or to circumvent rules governing the litigation process that prevent those not involved in litigation from being subjected to its burdens.