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Court of Appeal Considers Norwich Order
Published in the September 2009 issue of Litigation Notes - View Article
The Ontario Court of Appeal recently considered the circumstances in which an order will be made for examination for discovery before the commencement of an action.
The Ontario Court of Appeal recently rendered a decision on the application and scope of the “Norwich” Order. Based on a case decided in the British House of Lords in 1974 (Norwich Pharmacal Co. v. Comrs. of Customs and Excise), the Norwich Order provides for the equitable remedy of pre-action discovery.
This action involved an aborted Sale and Purchase Agreement (the “Agreement”). GEA Group AG (“GEA”) is a German conglomerate consisting of more than 250 companies in 50 countries. GEA entered into the Agreement, intending to sell one of its subsidiaries to Flex-n-Gate Corporation (“FNG”), an American supplier of automotive equipment. FNG failed to proceed with the Agreement and the matter proceeded to arbitration in Germany, where GEA claimed an amount in excess of 210 million Euros for breach of contract. The arbitral tribunal ruled in favour of GEA on liability and at the time of the application for the Norwich Order, damages remained to be assessed.
FNG is controlled by an individual named Shahid Khan. During the negotiations for the purchase from GEA, he apparently said that FNG was also the owner of a Canadian subsidiary, Ventra Group Co. During the course of the arbitration he said that Ventra had $1 billion in sales but that it was in fact owned by him personally and not by FNG. At a settlement meeting which took place in Germany, FNG’s Canadian counsel said that FNG had arranged its affairs in a manner to make it difficult for GEA to recover anything that it may be awarded in the arbitration.
With this backdrop, GEA applied for a Norwich Order in the Ontario Superior Court of Justice against Ventra Group Co. and FNG’s Canadian Counsel. The purpose was to obtain information relating to any conveyances that FNG may have made of its property to other persons or entities. The Norwich Order was granted by the Superior Court of Justice and the Respondents appealed to the Ontario Court of Appeal.
The Court of Appeal reviewed the history of the Norwich Order. In the Norwich Pharmacal case, the owner of a patent sued the Commissioners of Customs and Excise to obtain the names of importers of products which infringed their patents. The House of Lords stated that “…in certain circumstances, an action for discovery may be allowed against an “involved” third party who has information that the claimant alleges would allow it to identify a wrongdoer so as to enable the claimant to bring an action against the wrongdoer where the claimant would otherwise not be able to do so”.
After reviewing the caselaw in the UK and Canada, the Court of Appeal points out that the Norwich Order has been expanded to apply not only for the purposes of identifying a wrongdoer but also to evaluate whether a cause of action exists, to plead a known cause of action, to trace assets or to preserve evidence or property. On an application for Norwich relief, the court will consider the following factors:
(i) whether the applicant has provided evidence sufficient to raise a valid, bona fide or reasonable claim;
(ii) whether the applicant has established a relationship with the third party from whom the information is sought such that it establishes that the third party is somehow involved in the acts complained of;
(iii) whether the third party is the only practicable source of the information available;
(iv) whether the third party can be indemnified for costs to which the third party may be exposed because of the disclosure; and
(v) whether the interests of justice favour the obtaining of the disclosure.
In this case, the Court of Appeal considered that the conditions necessary for the issuing of a Norwich Order did not exist. GEA had sufficient information to support its assertion that a potential fraud or frauds had been perpetrated on it by FNG and it was in a position to plead its case. Once an action was commenced information would be available under the normal discovery regime provided for in the Rules of Civil Procedure. Clearly, the relief was not necessary to identify a suspected wrongdoer, nor was it necessary to preserve evidence, as there was no indication on the record of a potential destruction of relevant evidence. Furthermore it was not a tracing case because unlike other cases in which Norwich Orders have been granted, GEA had no “existing proprietary or personal claim or other beneficial entitlement to assets formerly or at present in the possession of any of the appellants…” The appeal was allowed. See the case at page 3 of this newsletter, wherein a Norwich Order was granted.
GEA Group AG v. Flex-N-Gate
Corporation, 2009 ONCA 619