Bank denied access to info over €1.4 million in missing funds

Overview

In this case, the Court rejected a bank’s request for a Norwich Pharmacal order (“NPO”) from an electronic money institution (“EMI”) authorised by the FCA after €1.4 million of the bank’s money allegedly went missing from an account with the EMI. The NPO was sought from the EMI after the bank’s contractual counterparty went into liquidation in the Czech Republic. The Court rejected the bank’s claim, in part because the bank could have sought this information from its counterparty’s liquidators but had failed to do so. The case highlights the need to seek disclosure from the appropriate party and to do so without delay, because a failure to do so may result in an inability to obtain the information.

Background

The Claimant, The Kingdom Bank Corporation (the “Bank”), is an off-shore bank registered in the Commonwealth of Dominica. In May 2021, it entered into an agreement with Safe Payment Solutions s.r.o. (“SPS”), an electronic money issuer based in the Czech Republic, under which SPS opened accounts and the Bank gave instructions to transfer money in and out. Around February 2022, SPS provided the Bank with the address and details of an account with the Defendant Moorwand Ltd (“Moorwand”), an English company and an EMI authorised by the FCA to issue electronic money and to provide payment services. The account was said to be used for receiving and sending electronic payments. SPS then stopped trading and later went into liquidation.

The Bank alleged that €1.4 million of its money (and that of its customers) had gone missing from the Moorwand account. It sought an NPO requiring disclosure relating to the account, claiming that it needed this information to trace its funds and determine what claims to pursue.

Moorwand opposed, arguing that the test for a Norwich Pharmacal was not met. There was common ground that Moorwand provided SPS with an e-wallet, but there was an issue between the parties as to whether SPS acted as agent on behalf of Moorwand, and whether the Bank’s funds were received by Moorwand directly (the Bank’s case) or on behalf of SPS (Moorwand’s case).

The Court’s Decision

The essential purpose of an NPO is to do justice. There is a need for flexibility and discretion in considering whether to grant a remedy. The three conditions to be satisfied for the court to order Norwich Pharmacal relief are:

• 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: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued.

The Court ultimately found that the Bank failed to meet this test. Critically, the Bank had not had not presented a consistent or detailed position as to the wrong and wrongdoer relied upon as justifying the granting of an NPO. The Bank stated that "all it knows is that its money has gone". It argued that it did not need to establish a wrongdoing against a named party, and that SPS’s wrongdoing was sufficient.

The Court found that the Bank could not rely on SPS's wrongdoing to justify an NPO. It was common ground that SPS wrongfully failed to follow instructions to make payments and return the money sought by the Bank. The Bank did not need an NPO in order to pursue SPS for recovery - it already had sufficient information to pursue SPS and an NPO would not be available solely on the basis of SPS's wrongdoing.

Similarly, the Bank failed to establish a good and arguable cause of wrongdoing on the part of Moorwand on the basis of SPS acting as agent for Moorwand. There was no evidence that Moorwand held itself out as providing banking services, that SPS was authorised by Moorwand to offer services on its behalf, or that there was any basis for ostensible authority or agency.

On the issue of necessity, the Bank’s argument was fatally undermined by its failure to make any claim against SPS before or after its liquidation, or even now. It provided no adequate explanation as to why it had not investigated whether SPS was in liquidation or instructed Czech lawyers to consider the relief available, including recovery of funds but also an account of sums paid and production of documentation belonging to its account. It obviously had contractual remedies against SPS. Moorwand submitted, and the Court accepted, that information as to SPS's account, e-wallet and dealings in relation to the Bank’s funds could properly have been sought from SPS's liquidator or by commencing an action.

On this basis, the Court dismissed the claim.

Judge: Ms Clare Ambrose sitting as a Deputy Judge of the High Court

Counsel: Craig Ulyatt of Fountain Court Chambers (instructed by Keystone Law) for the Defendant Moorwand Ltd

Simon Harding (instructed by Gunnercooke LLP) for the Claimant The Kingdom Bank Corporation