The decision of the High Court in Miles Smith Broking Limited v Barclays Bank PLC(1) has confirmed for the first time the availability of the commonly encountered Bankers Trust order to trustee claimants of stolen or misappropriated property, highlighting the flexibility of the court's equitable jurisdiction when presented with new situations. The decision also serves as a neat illustration of the court's willingness to grant Norwich Pharmacal relief to facilitate the recovery of unlawfully dissipated assets and the types of complimentary interim remedies available to claimants for that purpose.
The claimant sought Norwich Pharmacal relief and a Bankers Trust order for disclosure of documents and information from Barclays Bank plc. The information sought from Barclays concerning a bank account held in the name of Square Mile Partnership (SMP), which the claimant alleged had wrongly paid away insurance premiums that the claimant held on trust for the benefit of the reinsured.
The claimant is a reinsurance broker who entered into a 'run-off' agreement with SMP in respect of a reinsurance policy whereby SMP agreed to step in to the claimant's shoes for the purposes of collecting premiums due under the policy. Pursuant to the terms of the run-off agreement, SMP was obliged to pay the premiums to Lloyds Consortium 9169. In September 2004 premiums were paid to SMP; however, SMP allegedly failed to pass them on to the consortium in accordance with the run-off agreement.
SMP was subsequently dissolved with the result that the reinsurer consortium sought payment of the premiums from the claimant, whom it claimed remained primarily liable for the premiums under the policy. The claimant in turn brought a Part 8 claim against Barclays on the footing that the consortium had a good claim against it and thus the claimant was entitled to relief in respect of the paying away of the premiums by SMP. The claimant sought specifically Norwich Pharmacal relief (including a Bankers Trust order) against Barclays in order to obtain information that would enable it to identify the persons responsible for instructing the bank to pay the moneys away.
The judge identified the applicable legal principles governing the availability of Norwich Pharmacal relief:
- A wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
- There must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
- The person against whom the order is sought must:
- be mixed up in or have facilitated the wrongdoing (even innocently); and
- be able to provide the information necessary to enable the wrongdoer to be identified or sued.
The judge proceeded to consider the type of wrong that had been committed against the claimant and whether this founded a claim for Norwich Pharmacal relief. The judge looked first at the terms of the run-off agreement to discern the nature of the arrangements between SMP and the claimant and found that this indicated the existence of a trustee/beneficiary relationship such that the claimant was the beneficial owner of the premiums held by SMP. The claimant in turn held the premiums on trust for the benefit of the reinsured (and alternatively was subject to obligations to pay them to the consortium).
It followed from this that the wrongdoing consisted of the misapplication of the premiums and their payment to someone other than the consortium, which would constitute both a breach of the run-off agreement and a breach of trust. In the circumstances, it was unlikely that the claimant would recover any assets from SMP which was by that point insolvent and therefore it was necessary to consider any remedies available against the directors who were most likely to be responsible for paying away the premiums. In this regard, the judge accepted that there were good arguable claims against the directors for breach of trust, accessory to breach of trust and/or unlawful means conspiracy or alternatively a conspiracy between the directors and/or SMP. As per the second limb above, the judge agreed that the order was needed to enable the claimant to identify the persons responsible for instructing the bank to pay the moneys away (and may even afford the claimant a defence to the consortium's claim if the information showed the premiums were in fact paid to it).
As to the third limb of the test, the judge found that it was clear that the bank was mixed up in the wrongdoing and would be in a position to provide the information necessary to enable the ultimate wrongdoer to be sued.
The claimant also claimed Bankers Trust relief (named after the Court of Appeal decision in Bankers Trust Co v Shapira(2)), which is a related but distinct remedy developed under the court's equitable jurisdiction.
Bankers Trust orders are usually made against banks or other entities holding misappropriated or stolen funds or through which such funds have passed. They are a useful tool available to victims of fraud seeking to recover assets in that they require banks to disclose information concerning third-party bank accounts and are thus an effective way of tracing money (before their introduction, obtaining disclosure of information relating to third-party bank accounts could be made only in limited circumstances under the Bankers' Books Evidence Act 1879). In situations of urgency where there is a need to trace and preserve assets or there is a risk of further dissipation, Bankers Trust orders can be made without notice.
The judge considered that on the facts, the claimant was entitled to this additional form of relief against Barclays and that it did not matter that the claimant held the funds in question on trust for the reinsured and was not the ultimate beneficial owner of the same; the claimant had an arguable case that it had a proprietary interest in the premiums and that was sufficient.
It is inevitable that new situations will arise where it is appropriate for the court to exercise its jurisdiction in circumstances where it has not had to do so previously. In this case, the judge adopted a pragmatic and purposive approach in order to grant a Bankers Trust order to the claimant in its capacity as trustee, despite not being the ultimate beneficial owner of the funds. Bankers Trust orders, in particular, are a useful tool to claimants seeking to trace misappropriated funds and allow access to a wide range of materials including not only bank statements, but also correspondence, memoranda and transfer instructions.
English law in this area is not straightforward and has evolved in tandem with the increasingly complex (and international) nature of fraud generally. Norwich Pharmacal relief and Bankers Trust orders are just two examples of the range of powerful and effective tools that can be deployed against wrongdoers and innocent third parties alike which hold misappropriated funds or assets or through which such funds or assets have passed.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Greg Pooler or Jonathan Cary at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.