Koo Golden East Mongolia v Bank of Nova Scotia & Ors

A Norwich Pharmacal order may in principle be made against a bank whose account arrangements have unwittingly facilitated an alleged conversion, even where the account contains a credit representing refined goods rather than sale proceeds.

However, state immunity cannot be circumvented by seeking confidential information from a central bank’s bank where the application in substance affects the central bank’s interests. A central bank’s arrangements to increase national currency reserves are undertaken in the exercise of sovereign authority. The remedy is also discretionary. Disclosure should be refused where it would breach banking confidence, the primary dispute can be resolved in an agreed foreign forum, and any prospective claim against unknown third parties is speculative.

The claimant, a Mongolian gold-mining company, alleged that gold placed with MongolBank for safe custody had been refined abroad without its authority. It initially sought injunctive relief against the Bank of Nova Scotia on the premise that the bank held physical gold. After the bank established that MongolBank held only an unallocated metal account, the claimant abandoned the injunction application and sought Norwich Pharmacal disclosure to identify refiners and possible intermediate banks.

Royce J granted wide disclosure. The bank appealed. The issues were whether the conditions for Norwich Pharmacal relief were met, whether state immunity prevented disclosure concerning MongolBank’s account, and whether relief should in any event be refused in the exercise of discretion.

1. Appeal allowed unanimously. Sir Anthony Clarke MR, with whom Smith LJ and Pumfrey LJ agreed, held that Royce J’s Norwich Pharmacal order should not have been made.

2. The ordinary threshold for Norwich Pharmacal relief was capable of being met in principle. The remedy is flexible. A person may be sufficiently mixed up in an alleged conversion where its account arrangements have facilitated a credit representing the refined product, although the person neither holds the original goods nor participated in the refining. The bank’s proposed restrictive construction of Norwich Pharmacal Company v Commissioners of Customs and Excise [1974] AC 133 was rejected.

3. Nevertheless, the application was barred by state immunity. MongolBank’s refining and placement of gold through its London account were undertaken to increase Mongolia’s currency reserves. That was an exercise of sovereign authority under the State Immunity Act 1978. The claimant could not avoid the immunity by seeking, from the bank, confidential information held for MongolBank. For this purpose the bank was MongolBank’s agent in the broad sense recognised in Twycross v Dreyfus (1877) 5 Ch D 605. The court was therefore required by section 1(2) to give effect to the immunity, although MongolBank did not appear. Any contractual waiver between the bank and MongolBank did not assist a stranger to that contract.

4. Independently, the court would have refused relief in its discretion. Disclosure would breach the confidence owed by a bank to a customer, especially a central bank. The claimant could pursue its primary dispute with MongolBank in Mongolia, as the agreement contemplated. It could acquire no better rights against refiners or later holders, and the identity, traceability and prospects of claims against such parties were speculative. Any proper order would in any event have required far narrower terms.

• Court of Appeal (Civil Division): allowed the bank’s appeal and overturned the Norwich Pharmacal disclosure order: [2007] EWCA Civ 1443.
• High Court, Chancery Division: Royce J made a Norwich Pharmacal order on 10 December 2007 and refused permission to appeal.