Asset tracing and recovery: how tools in the Caribbean can help trace and recover assets in Asia
by Jeremy Lightfoot
The sphere of asset tracing and recovery, particularly the extent of tools available around the world, is rightly attracting more attention in cross-border fraud and investigations. This includes projects at the international level, such as UNCITRAL's ongoing efforts (for which the author acts as an expert), as well as attention being given in national legislatures around the world. This makes perfect sense as ATR is often a pass/fail requirement; if you cannot trace, secure and recover meaningful assets, it is irrelevant what legal remedies may on paper otherwise be open to the victim.
In the Caribbean legal jurisdictions, owing to the strong influence of the English legal system, a number of the quintessential tools that can be used for ATR in common law jurisdictions are also available and widely used under the legal systems of the Cayman Islands, British Virgin Islands ("BVI") and Bermuda. This article will explore these various tools in the Caribbean, take stock of their current development and demonstrate how they are used, including in cross-border situations.
As will be illustrated in the cases that are discussed, the Courts of the Caribbean jurisdictions are familiar with and have substantial experience in dealing with cross border cases, so where clients from Asia require assistance, there are a variety of powerful options standing ready.
When it comes to ATR, there are a number of classic tools, including Norwich Pharmacal, Bankers Trust and Mareva orders. These are available under all of the Caribbean jurisdictions of the Cayman Islands, BVI and Bermuda – although there may be differences in detail in how these orders are required to be applied for and function, they are broadly the same as in many common law jurisdictions.
One additional feature of the Caribbean jurisdictions is that in the latter stages of asset recovery, if there is any need for restructuring or liquidation, these jurisdictions are also well versed in the use of receivers and liquidators, both to protect value and enhance recovery efforts.
In the following sections of the article, we will discuss the basic foundational elements of the tools that can be used for ATR and explore some interesting new cases, many involving Asian elements, that showcase how these tools have been deployed in practice in fraud, asset tracing and recovery cases.
Norwich Pharmacal Orders
Norwich Pharmacal orders are a well-known and powerful disclosure tool that have a long history of being used in asset tracing situations to obtain information from third parties. Called Norwich Pharmacal orders following the case of Norwich Pharmacal Co v Customs and Excise Commissioners  AC 133, they are typically sought against those who have become "mixed up" in the wrongdoing committed by another person or entity, because this can often be an effective way of seeking out information about the missing assets.
The requirements for a Norwich Pharmacal order tend to be quite stringent, commensurate with the power of the remedy. In essence, a party applying for the order must be able to show (i) a good arguable case of wrongdoing; (ii) the respondent involved in the wrongdoing is more than a mere witness; (iii) the target of the order is likely to have the documents that are being sought; and (iv) the order being sought is necessary and proportionate in the interests of justice.
For the Caribbean jurisdictions, what we often see is that Norwich Pharmacal orders are sought against professional providers of registered office services ("ROs"), as they often hold information about companies by way of their "know your customer" and anti-money laundering requirements. These ROs will also likely have information about a company's shareholders or beneficial owners, which can also be useful in cases of asset tracing. Following amendments to the relevant legislation at the beginning of this year in the BVI, there is also now the prospect of obtaining detailed accounting records from ROs there; a tantalising and powerful treasure trove of information for ATR.
Related to a Norwich Pharmacal order is a gagging order, which is often sought in conjunction. Gagging orders prevent the person against whom the order has been granted from disclosing the fact that it has been ordered to disclose information. The purpose of this is to avoid tipping off, or the risk of the wrongdoer finding out and therefore destroying evidence or dissipating assets.
Viewed from the lens of Asian clients, a Norwich Pharmacal order can be particularly useful because such an order can also be used across jurisdictions, for example, by the Court of the Cayman Islands granting a Norwich Pharmacal order in support of foreign proceedings, such as proceedings in Hong Kong.
Essar Global Fund Ltd et al v Arcelormittal USA LLC
The area of Norwich Pharmacal orders has undergone insightful and multi-faceted development in the case law. A good illustration is from the Cayman Courts.
In the case of Essar Global Fund Ltd et al v Arcelormittal USA LLC, (Civil) Appeal No 15 of 2019, the Cayman Court characterised Norwich Pharmacal orders’ jurisdiction as "broad, flexible and developing", and said that the Courts should adopt a "common sense non-technical approach" when dealing with such applications.
In that case, the dispute concerned a jurisdictional dispute between ArcelorMittal USA LLC (AMUSA) and parties related to Essar Global Fund Limited (EGFL) and Essar Capital Limited (collectively with EGFL, the Essar Parties). AMUSA applied for a Norwich Pharmacal order to seek disclosure of information and documents by the Essar Parties, the purpose of which was to assist with the enforcement of an ICC Arbitral Award obtained against Essar Steel Limited, a Mauritian-incorporated subsidiary of EGFL. The Essar Parties objected to the Norwich Pharmacal order on inter alia grounds that the relief could not be granted for the purpose of enabling AMUSA to use the information or disclosure to pursue foreign proceedings.
The argument of the Essar Parties was that the relevant provision for international evidence assistance ("Evidence Order") already conferred statutory jurisdiction on the Cayman Islands Grand Court to respond to requests from foreign courts for oral and documentary evidence to be used in foreign proceedings which are pending or contemplated, and therefore this should be the exclusive route for obtaining information or documents for the purposes of foreign proceedings.
The case proceeded to the Caribbean Islands Court of Appeal ("CICA"), which drew an interesting distinction between the Norwich Pharmacal jurisdiction and the grant of relief under the Evidence Order. It held that the former was for the purpose of providing information about wrongdoing and the latter was to impose an obligation for the provision of evidence. In particular, the CICA explained that: (1) the courts of the Cayman Islands have no inherent jurisdiction to order evidence to be provided for the purpose of foreign proceedings; and (2) where provision in the statute was made for the production of evidence, there will be an implied exclusion of any overlapping jurisdiction that might otherwise exist.
Overall, however, the CICA continued with the flexible approach of the Grand Court. It stated that "so long as care is taken to confine the Norwich Pharmacal jurisdiction to its proper scope, there can in principle be no overlap between that jurisdiction and the statutory regime relating to evidence in foreign proceedings, and accordingly no reason to regard the former as excluded by the latter". The CICA explained that it did not see "why legislation dealing with the giving of evidence in foreign proceedings should be treated as impliedly excluding jurisdiction to order the provision of information necessary to enable foreign proceedings to come into existence at all – such as, in Norwich Pharmacal itself, information about the identity of the wrongdoer".
What the CICA decision shows is that in the area of Norwich Pharmacal orders, the law of the Cayman Islands has diverged somewhat from that in England and Wales, and instead has aligned itself more closely with recent decisions in other offshore jurisdictions. In March 2021, the Essar Parties applied for leave to appeal the CICA's decision to the Judicial Committee of the Privy Council (JCPC), but the CICA refused to grant leave, on the basis that the Essar Parties did not have an appeal as of right and that the matters raised in the appeal did not raise questions of great general or public importance. The JCPC also dismissed the Essar Parties' challenge to the CICA decision by finding that the appeal did not raise an arguable point of law and the CICA was right for the reasons it gave.
In all of the Caribbean jurisdictions, the approach with regards to Norwich Pharmacal orders in aid of foreign proceedings has generally been flexible, but in the BVI in particular, the Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act confirmed the BVI Court’s jurisdiction to make disclosure orders (e.g. Norwich Pharmacal/Bankers Trust orders) in support of actual or contemplated foreign proceedings, even where a letter of request might also be available to the applicant as an alternative. This confirms that the BVI Court will not be bound by the English decision in Ramilos Trading Limited v Buyanovsky  EWHC 3175 (Comm). Although several decisions of the BVI Court had already confirmed that it would not follow Ramilos Trading, this legislative amendment adds further certainty in this important area, and therefore in some respects provides even more clarity than the BVI's fellow Caribbean jurisdictions, such as the Cayman Islands.
Bankers Trust Orders
An application for a Bankers Trust order is similar to seeking a Norwich Pharmacal order and the basic requirements are the same, except that there will also be an added requirement of demonstrating that there is good reason to believe that the target is holding property that was misappropriated by fraud or breach of trust and which the applicant also had a proprietary claim to. The target is usually confidential documents held by a bank to support a proprietary claim, and in this scenario they are of considerable value to a victim to further its ATR efforts.
Singularis v Daiwa Capital Markets Europe
To supplement the picture regarding the involvement of banks, recent case law also provides an interesting perspective into the scenario of where money has been misappropriated by those with control over a victim's bank accounts. In such cases, a claim may potentially arise against the victim's banks who effected any relevant transfers of money.
A bank owes a duty of reasonable skill and care to its customers when executing a customer's order (commonly known as the Quincecare duty). A bank will have liability if it executed an order knowing it to be dishonest, or was wilfully blind or reckless in failing to make sufficient enquires about the appropriateness of the order. In the case of Singularis v Daiwa Capital Markets Europe  UKSC 50, which involved a claim brought by the Cayman Islands court appointed liquidators of one of the companies in the Saad group, against the London subsidiary of the Japanese investment bank and broker Daiwa, the UK Supreme Court examined this duty. In that case, Daiwa had been instructed to execute transfers by the main protagonist, Maan Al Sanea, from Singularis' account to other entities.
The appointed liquidators investigated and decided to bring claims against Daiwa for breach of the Quincecare duty of care, arguing that in that case, Daiwa should not have effected the transfers. Despite the fact that Daiwa had mounted an illegality defence, the Supreme Court nevertheless found that a negligence claim against Daiwa should be allowed. Part of the Supreme Court's reasoning was that otherwise this would undermine the public interest aspect that requires banks to play an active role in preventing financial crime. Further, as a matter of causation, the Supreme Court found that the fraudulent instruction from Al Sanea to Daiwa gave rise to Daiwa's duty of care, Daiwa breached this duty, and there was in fact causation that was made out.
What this case illustrates is that banks involved in handling wrongly obtained assets could also potentially be responsible for a much broader range of activity. Where cases involve Caribbean elements, such as in this case where the claim was brought by Cayman Islands court appointed liquidators, they will not shy away from using the full range of tools in their possession to seek accountability and responsibility when assets are lost.
Mareva or freezing orders are some of the most frequently sought orders, both for proceedings in the Caribbean jurisdictions, and in aid of foreign proceedings. As well as the standard freezing orders against the respondent, freezing orders may also be available against third parties in certain circumstances, if it can be demonstrated that there is a good arguable case that the third party holds assets belonging to the respondent. In the Cayman Islands, for example, such freezing orders can be granted against third parties in the Cayman Islands, or against third parties (whether or not based in the Cayman Islands) which have assets in the jurisdictions.
Broad Idea International Limited v Convoy Collateral Limited
In terms of recent case developments regarding freezing injunctions, perhaps one of the most notable developments has been the Black Swan saga in the British Virgin Islands.
In its May 2020 decision in Broad Idea International Limited v Convoy Collateral Limited No 2 (BVICMAP 2019/0026), the Eastern Caribbean Court of Appeal held (overturning Black Swan jurisdiction, named after the case in which Justice Bannister applied the dissenting judgment of Lord Nicholls in Mercedes Benz AG v Leiduck  1 AC 284, and ruled that the BVI Court was not bound by the majority decision in that case) that the BVI Court was bound by the majority decision in Mercedes Benz. Consequently, it found that there was no common law jurisdiction to grant a free-standing freezing injunction against a respondent which was not a party to substantive proceedings in the BVI.
This decision appeared to pose a significant obstacle to those seeking freezing injunctions to preserve assets and prevent dissipation. Interestingly, the Eastern Caribbean Court of Appeal decision hinged itself on a decision from the House of Lords that stemmed from a much earlier period of judicial development, when issues of jurisdiction and global commercial interests were comparatively less developed.
The Court of Appeal realised that the first instance court's decision would not be beneficial for the BVI looking to strengthen its position as an international financial hub. Hence, in deciding the case, the Court of Appeal suggested that there should be consideration of intervention by legislation to address the situation. Legislation did in fact follow swiftly, with the Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act taking effect in January 2021. The newly inserted section 24A of the Eastern Caribbean Supreme Court (Virgin Islands) Act provides statutory jurisdiction to grant interim relief where proceedings have been or are about to be commenced in a foreign jurisdiction, and allows the court to grant any relief which may be granted in relation to matters within the BVI Court’s jurisdiction (including freezing injunctions and receivership appointments). It also expressly gives the Court power to grant relief against non-cause of action (or “Chabra”) defendants.
Subsequent to that, as a cherry on top, in October 2021, the Privy Council handed down its much anticipated judgment in Broad Idea International Ltd (Respondent) v Convoy Collateral Ltd (Appellant) (British Virgin Islands) Convoy Collateral Ltd (Appellant) v Cho Kwai Chee (also known as Cho Kwai Chee Roy) (Respondent) (British Virgin Islands)  UKPC 24.
By a 4:3 majority, the Privy Council held that: (1) Black Swan jurisdiction should be upheld. It decided that the original (obiter) judgment by Bannister J in 2010 had been a vital tool in aid of judgment and award enforcement in the BVI, permitting freezing injunctions against BVI respondents to foreign proceedings in aid of potential future enforcement; and (2) on the rules and law as it then was, the Court did not have jurisdiction to grant service out of a claim seeking only a freezing injunction.
The analysis by the Privy Council highlighted the tension between two lines of authority: one from the decision of the House of Lords in The Siskina  AC 210, which suggested that a freezing injunction could be granted only where substantive proceedings were extant in the same jurisdiction; the other was from the decision of Bannister J in Black Swan, which suggested that a freezing order could be granted in aid of foreign proceedings.
The Board unanimously dismissed the appellant’s appeals, although there was a 4:3 divide on one aspect. The majority judgment given by Lord Leggatt (with whom Lord Briggs, Lord Sale and Lord Hamblen agreed) concluded that where a court has a personal jurisdiction over a party, the court has power and in fact can exercise that power to grant a freezing injunction against that party to assist enforcement through the court’s process of a prospective or existing foreign judgment. The majority reasoned that Bannister J in Black Swan had been correct and that its decision should not have been overturned. However, it held that the Eastern Caribbean Court of Appeal had been right to set aside the freezing injunction granted against Broad Idea on the facts of the case and was also right to conclude that the BVI court had no personal jurisdiction over Dr Cho, since there was no power in the Eastern Caribbean Civil Procedure Rules that gave permission to serve out of the jurisdiction proceedings which seek only an interim freezing injunction.
The minority (Sir Geoffrey Vos, Lord Reed and Lord Hodge) felt that they should not decide whether there is a power for the court to grant a freezing injunction against a defendant in aid of foreign proceedings when no substantive claim was made in proceedings before the domestic court. Overall, however, the Privy Council decision endorsed the decision of Bannister J in the Black Swan, rather than the reasoning of Lord Diplock in The Siskina.
A further important principle to derive from this decision is that a freezing injunction operates to support enforcement of judgments and not (exclusively) to support the bringing of substantive claims within the jurisdiction. This explains expansions in the jurisdiction such as the granting of post-judgment freezing injunctions and so-called Chabra injunctions (following TSB Private Bank International SA v Chabra).
The Road Ahead
What we can see from an analysis of recent case law in the Caribbean jurisdictions is that these jurisdictions have taken the classic tools of ATR and have strengthened and clarified their usage through detailed judicial development and refinement. Further, in many cases, particularly in the BVI, these jurisdictions have also taken to statute to enshrine the flexibility and availability of these tools by way of legislation, as a further way to bolster their effectiveness.
This is particularly useful for cross border ATR, such as where there are foreign proceedings in an Asian jurisdiction, or the parties are located elsewhere than in the Cayman Islands, BVI or Bermuda. It is worth remembering that often an applicant trying to trace and recover its assets will seek from the offshore Courts more than one type of order, such that these orders can be used in combination with each other, to obtain the maximum effect and assist in other jurisdictions.
As the cases examined in this article have demonstrated, parties do increasingly fully utilise these ATR tools, and it is clear that one of the key strengths of these Caribbean jurisdictions of the Cayman Islands, BVI and Bermuda is that they are often pragmatic and realistic in their approach, meaning that they will develop case law in a way that remains friendly to those seeking to use these. Decisions such as the Privy Council decision of Broad Idea v Convoy show that the Courts have further galvanised these jurisdictions as the upholders of legal remedies being flexible, reactive and widely available.
We expect that this trend will continue into the future and that we will see further interesting developments in this area of law, which will no doubt benefit those who look to use these tools and remedies in complex situations of ATR. Long gone are the days when discovering the assets had moved was the unwelcome end of a case; it is now the beginning of the ATR phase and there is a powerful toolkit available offshore.
This article first appeared in the March 2023 edition of IPBA Journal and is shared with the permission of the Inter-Pacific Bar Association.