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Switchboard: +44 (0)203 947 1539
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Trustee Claimants’ Ability To Use Norwich Pharmacal Relief And Bankers Trust Orders To Recover Misappropriated Assets

Author: Syedur Rahman  17 February 2020
4 min read

Syedur Rahman of Rahman Ravelli considers a case with significance for those acting as trustees who are seeking to recover assets.

The significance of the decision of the High Court in Miles Smith Broking Limited v Barclays Bank (2017) was that it was the first confirmation that Bankers Trust orders are available to trustee claimants of stolen or misappropriated property. It also emphasised how the courts are willing to grant Norwich Pharmacal relief to ensure the recovery of unlawfully dissipated assets.

The claimant had sought Norwich Pharmacal relief and a Bankers Trust order for disclosure of documents and information from Barclays, relating to a bank account in the name of Square Mile Partnership (SMP). The claimant alleged that SMP had wrongly paid away insurance premiums that the claimant held on trust for the benefit of the reinsured. 

Miles Smith Broking is a reinsurance broker that had entered a run-off agreement - an insurance policy provision that covers claims made against companies that have been acquired, merged, or have ceased operations - with SMP in respect of an excess of loss reinsurance policy, whereby SMP agreed to act for the claimant by collecting premiums due under the policy.  Under the terms of the run-off agreement, SMP was obliged to pay the premiums to the reinsurers, Lloyds Consortium 9169 (the Consortium). Premiums were paid to SMP but SMP was alleged to have not passed them on to the Consortium as it should under the terms of the run-off agreement. 

SMP was dissolved and the Consortium sought payment of the premiums from the claimant. The Consortium claimed that the claimant remained primarily liable for the premiums under the policy on the basis that SMP had acted as the claimant's agent (although the claimant then argued that SMP had become primarily liable for the premium after the agreement).

The claimant then brought a Part 8 claim against Barclays on the basis of the Consortium having a good claim against it and the claimant being entitled to relief in respect of the paying away of the premiums by SMP.  The claimant sought Norwich Pharmacal relief (including a Bankers Trust order) against Barclays in order to obtain information that would help it identify those responsible for instructing the bank to pay the monies away.

The Principles to be Considered

In making a decision in the case, the Judge identified the applicable legal principles governing the availability of Norwich Pharmacal relief, as set out by Lightman J in Mitsui V Nexen Petroleum [2005} EWHC 625:

  • 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.
  • The person against whom the order is sought must: (a) be mixed up in or have facilitated the wrongdoing (even innocently) and (b) be able to provide the information necessary to enable the wrongdoer to be identified or sued. 

The Judge considered the type of wrong that had been committed against the claimant and whether this was the basis for a claim for Norwich Pharmacal relief.  Looking at the terms of the run-off agreement to determine the nature of the arrangements between SMP and the claimant, the Judge found this indicated the existence of a trustee-beneficiary relationship with the claimant the beneficial owner of the premiums held by SMP.  The claimant was, in turn, holding the premiums on trust for the benefit of the reinsured or, 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 constituted a breach of the run-off agreement and a breach of trust. It was unlikely that the claimant could recover anything from SMP as it was by then insolvent  - making it necessary to consider possible remedies available against the directors who were most likely to be responsible for the paying away of the premiums.

The Court’s Decision

Regarding the first limb of the test, the Judge accepted that there were 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 for the second limb, the Judge agreed that the order was needed to enable the claimant to identify who was responsible for instructing the bank to pay the monies away (and may even afford the claimant a defence to the Consortium's claim if the information showed that the premiums were paid to it).  In considering 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. Bankers Trust orders are usually made against banks or other organisations that are either holding misappropriated or stolen funds or have had those funds pass through them.  They are an important method of tracing money as they require banks to disclose information relating to third party bank accounts. They are especially useful in urgent situations - where assets need to be traced and preserved or there is a risk of further dissipation –as they can be made without notice in such circumstances.

In Miles Smith Broking Limited v Barclays Bank (2017), the Judge considered that the claimant was entitled to this form of relief against Barclays. The Judge said 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’s arguable case that it had a proprietary interest in the premiums  was sufficient. This was a case, therefore, in which the Judge acted pragmatically in granting a Bankers Trust order to the claimant in its capacity as trustee even though it was not the ultimate beneficial owner of the funds. 

The legal framework for the governing principles for a Norwich Pharmacal order can be seen in the case of Ramilos Trading Ltd v Buyanovsky [2016] 2 CLC 896 at [14].

It must be noted that a respondent who merely holds relevant information is not amendable by the fact alone to the Norwich Pharmacal jurisdiction. You must also be able to go further and show there is an involvement sufficient to take the respondent outside the mere witness rule.  Applications for a Norwich Pharmacal order are granted on a merit to merit basis. The matter is one for the Court’s discretion.

This article was also featured at Lexology.com.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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