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/ Legal Articles / The collateral purpose rule of disclosed documents

The collateral purpose rule of disclosed documents


Posted in: Asset Tracing & Recovery, Litigation.


Nicola Sharp of Rahman Ravelli considers a case that may offer victims of fraud more options for recourse.

In I.F.T. S.A.L. Offshore v Barclays Bank PLC [2020] EWHC 3125 (Offshore),  the High Court recently considered the circumstances that are appropriate for a party to use disclosed documents for collateral purposes, contrary to 31.22 of the civil procedure rules (CPR 31.22).

CPR 31.22 – Collateral Use

CPR 31.22 stipulates that, except where a court otherwise gives permission, disclosed documents may be used “only for the purpose of the proceedings in which [they were] disclosed”.

The following two-limb test (the Tchenguiz Test) must be considered, as found in Tchenguiz v Director of the Serious Fraud Office [2014] WCAC iv 1409:

  1. Permission will only be granted where there are “special circumstances which constitute a cogent reason for permitting collateral use”; and
  2. The presence of a strong public interest warranting the applicant’s release from the collateral purpose rule.

Offshore

In the Offshore case, I.F.T. S.A.L. Offshore (the applicant), was the victim of an authorised push payment fraud whereby $249,721.44 was diverted to an account at Barclays Bank (the respondent). The applicant successfully obtained a Norwich Pharmacal Order against the respondent, ordering disclosure of documents from Barclays evidencing the receipt and payment out of the monies.

When the application was made, it was confirmed that the applicant had no intention of bringing proceedings against the respondent. An undertaking was given, confirming that the documentation would not be used for bringing civil or criminal proceedings against the bank.

The applicant later sought the court’s permission, pursuant to CPR 31.22, to review the documents to consider whether to proceed against the respondent and to be discharged from its undertaking, given that the material identified grounds for a potential claim. 

The respondent resisted the application and sought to rely on various grounds. One was that to grant permission would set a precedent for Norwich Pharmacal applicants to be able to pursue the bank if their claim against the fraudster proved to be unsuccessful. The respondent also argued that this would increase the risk of victims of fraud bringing speculative claims against banks.

The Outcome and its Implications

The court did not find this argument persuasive and noted that a better way to discourage speculative claims was to seek a strike out or summary judgement once they are issued. The court found that both limbs of the Tchenguiz Test were met, and permission was granted.

This could be considered a welcome judgment for victims of fraud, providing them with additional options for recourse. It may also prompt a change of approach adopted by third parties when responding to Norwich Pharmacal applications. Third parties may now opt to vigorously defend such applications and depart from their previous neutral positions, in order to reduce their exposure.

Nicola Sharp

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
+44 (0)203 910 4567 vCard

Specialist Areas of Practice: International Regulation and Corporate Crime, Fraud and Business Crime, Civil Fraud, Corporate Investigations

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