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10 September 2013
In NML Capital Ltd v Chapman Freeborn Holdings Ltd(1) the Court of Appeal clarified the circumstances in which Norwich Pharmacal(2) relief is available. The decision emphasised the necessity, in order to fall within the jurisdiction of the relief, for the relevant third party to be mixed up or involved in the wrongdoing that it has facilitated.
This case forms part of the long-running litigation brought by NML Capital Ltd in its attempt to recover judgment debts owed to it by the government of Argentina. NML is a Cayman Islands company, affiliated with a New York hedge fund of a nature often described as a 'vulture fund'. NML purchased Argentine sovereign debt at a significant discount to face value (while the country was in financial difficulty) and then sought to enforce it.
In 2006 NML obtained summary judgment on its claim for payment under the Argentine bonds in a New York federal court. NML brought a common law action in the English courts to enforce that judgment, and was initially successful before the Commercial Court. The Court of Appeal reversed that decision in 2010, on the basis that Argentina enjoyed state immunity.(3) This decision was itself reversed by the Supreme Court in 2011.(4) NML's efforts in the meantime to enforce the original judgment in New York had proven unsuccessful, so its attention turned to English enforcement.
NML has assiduously pursued Argentine assets around the world. In October 2012 the ARA Libertad (Q-2), a full-rigged sailing ship which serves as a school vessel for the Argentine Navy, was impounded in the port of Tema in Ghana, following a court ruling in favour of NML.(5) In light of this, for President Cristina Fernández de Kirchner's early 2013 tour of Asia, the Argentine president's office did not want to expose the presidential Boeing 757 aircraft, Tango 01, to a similar risk.
Chapman Freeborn Airchartering Limited is the UK operating company of a group of companies that has an international reputation as a leading aircraft charter broker. The group's clients include sovereign states, non-governmental organisations, heads of state, multinational companies and wealthy private individuals.
The availability of Norwich Pharmacal relief was established in the 1973 House of Lords case of the same name. Essentially, where a third party has in some way facilitated the wrongdoing of a perpetrator, a duty arises to cooperate with the person who has been wronged. This classically meant the provision of information to the wronged party so that the true wrongdoer could be identified. However, the principle was stated broadly at its inception, and later cases have emphasised the need for flexibility in its application. The relief has therefore also been used to, for example, identify the full nature of the wrongdoing, or to require disclosure of particular documents.
In December 2012 the Argentine president's office made enquiries with several potential charter brokers, including the Chapman Freeborn group. The group's standard practice, once a suitable aircraft has been found and agreed with the customer, is for a group company to enter into both a charter contract with the aircraft operator and a sub-charter with the customer.
The president's office accepted one of the proposals offered by the group. On December 29 2012 Chapman Freeborn entered into a sub-charter contract with the office and on January 3 2013 entered into a charter agreement with the operator. Attached to the contracts was a comprehensive flight programme including details such as airport scheduling and crew rosters. The price for the sub-charter was $880,000 (to be paid half upfront and half on completion). Chapman Freeborn paid the operator $770,000. The balance of $110,000 represented Chapman Freeborn's brokering fee.
The charter plane departed Argentina on January 10 2013 and was due to visit Cuba, the United Arab Emirates, Indonesia and Vietnam, with refuelling stops in the Canary Islands and the Seychelles. It was scheduled to return to Argentina by January 22 2013. The charter was not a secret, having been reported by Argentine newspaper Clarin on January 8 2013.
Around January 14 2013, NML heard of the arrangement and made a without notice application against Chapman Freeborn in the Commercial Court for Norwich Pharmacal relief. NML sought details of the charter with a view to realising its value to Argentina to the extent that it had not been fully performed. NML also sought information about the bank accounts from which any payment under the charter agreement might have been made. The order was made, but was drafted in a form that allowed Chapman Freeborn to object before compliance.
On January 15 2013 Chapman Freeborn appeared before the court and provided evidence which made clear that there was no realisable value in the remaining seven days of the charter. This was accepted by NML. NML maintained its application for bank account information and it fell to Justice Cooke in the Commercial Court to decide whether it was appropriate to compel disclosure.
There was no suggestion that Chapman Freeborn knew or suspected that the president's office had entered into the sub-charter agreement with a view to avoiding the potential impounding of a state-owned aircraft so as to protect it from execution in order to satisfy (in part) the judgments obtained against Argentina in respect of its sovereign debt.
In the Commercial Court the judge accepted that the Norwich Pharmacal jurisdiction had been made out, in that Chapman Freeborn had become caught up in the arrangement of a charter which had the objective of avoiding attachment of Argentine assets in order to pay judgment debts. The judge also accepted that the Norwich Pharmacal jurisdiction is available post-judgment in aid of execution. Detailed consideration was not given to either of these points, because the judge was satisfied that relief should be refused on discretionary grounds.
The judge held that the evidence before him was that there was a bank account from which payments had been made to Chapman Freeborn and would, presumably, be made in the future. There was no evidence that the bank account contained substantial sums against which NML could execute. Against this was set the commercial interests of Chapman Freeborn, which would be damaged by its compliance with a Norwich Pharmacal order becoming known.
The court held that the potential benefit was insufficient to justify the interference with Chapman Freeborn's interests and business relationships, and the relief was denied.
The Court of Appeal stressed the importance of carefully scrutinising the scope of the relevant wrongdoing. NML submitted that the wrongdoing was Argentina's persistent refusal to pay its judgment debts and its taking of deliberate steps to evade enforcement. NML asserted that Argentina's chartering of a plane formed part of its wrongdoing, akin to Argentina deliberately removing assets from the English jurisdiction. As Argentina was choosing to trade with Chapman Freeborn, rather than satisfy its judgment debt, NML contended that the charter company was mixed up in the wrongdoing.
This was forcefully rejected by the court, which held that there was "nothing inherently wrong in chartering an aircraft". It could not be the case that "any trading by a judgment debtor which involves using his assets for [a] purpose rather than satisfying a judgment debt is in itself wrongdoing". This would lead to a jurisdiction of "absurd width" and encourage "speculative litigation". It was no answer that the courts would have the discretion not to apply the doctrine if it was unnecessary or disproportionate.
While recognising that there was a need for flexibility in the Norwich Pharmacal jurisdiction, in order for it not to become "wholly unprincipled" the Court of Appeal said that it was essential for the third party to be "involved in the furtherance of the transaction identified as the relevant wrongdoing".
It was not any sort of wrongdoing for Argentina to choose not to use the presidential aircraft, as there was no obligation on it to "transfer its assets into places where execution could be levied against them". The court found that the relevant wrongdoing was in fact simply the failure to satisfy the judgment debt. There was "simply no connection… let alone actual involvement" between the activity of Chapman Freeborn and the wrongdoing.
The court also commented obiter that if Norwich Pharmacal jurisdiction extends to aiding post-judgment enforcement, this would be so only in particular and restricted circumstances. The court suggested that the necessary bar might be activity that constitutes engagement in "wilful evasion" (per the comments of Sir Thomas Bingham MR in Aiyela(6)), and that "non-satisfaction of a judgment debt is not wilful evasion of it".
Norwich Pharmacal jurisdiction is still developing, and creative application is certain to see further cases before the court. It remains a discretionary remedy and, while not decided on this basis, the Court of Appeal endorsed the consideration which was given by the Commercial Court to the commercial interests of Chapman Freeborn.
While it is important that the remedy remains a flexible tool, there was a risk in the immediate case that too great a discretion would be reserved for the courts, to the detriment of legal certainty. As noted in the Court of Appeal: "It would be absurd and exorbitant if parties were exposed to the risk of having to defend applications for discovery on the basis of no more than having traded with a person who turns out to have been at the relevant time a judgment debtor."
The further delineation of the jurisdiction underscores the need for parties to consider carefully the relevant wrongdoing in a given case.
(1)  EWCA Civ 589.
(2) Norwich Pharmacal v Customs and Excise Commissioners  AC 133.
(3) Republic of Argentina v NML Capital Limited  EWCA Civ 41.
(4) NML Capital Limited v Republic of Argentina  UKSC 31.
(5) The Libertad's release was subsequently ordered by the UN International Tribunal for the Law of the Sea on the basis that it had immunity as a military vessel; it was released from Tema on December 19 2012.
(6) Mercantile Group (Europe) AG v Aiyela  QB 366.
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