Aha! Knowing Me, Knowing You – Norwich Pharmacal in civil fraud

What is a Norwich Pharmacal order?

A Norwich Pharmacal order (NPO) compels a third party to disclose certain information to the applicant. This is usually aimed at determining the identity of a wrongdoer/defendant to anticipated proceedings, but can also be used to trace stolen funds. In a civil fraud context, an NPO will usually be sought against a bank that has received stolen funds into one of its accounts. The NPO compels the bank (deemed innocently mixed up in the fraud) to disclose personal information on the account holder and statements of account. This in turn allows us to identify the fraudster, and determine whether any of the funds remain or onto where they have been transferred.

When to use an NPO?

One common scenario: You have been duped by a spoof or hacked email into sending funds to the account of a fraudster. On discovering the fraud, all that you know for certain is the account number and sort-code to which you have sent the funds. What you do not know is the identity of the account holder or the status of the funds.

There are occasions when immediately seeking a freezing injunction against “Persons Unknown” is appropriate; but this is rarely so given the significant expense involved and the uncertainty that there is anything left in the account to freeze. Also, UK banks will generally place a 30 working day block on an account where fraud is suspected, which can serve as an informal freezer. More often, an NPO is a cost-effective means of obtaining more information on the fraudster and the funds.

Armed with this knowledge, a range of options potentially opens up. These can include:

1. Seeking a freezing injunction against the account holder where significant funds or assets are identified from the disclosure.
2. Targeting the banks for the return of funds specifically identified as remaining.
3. Conducting investigations into onward recipients that may be conspirators in the fraud and jointly liable for the entire loss.
4. Identifying other assets of the fraudsters for possible recovery in a civil claim.
5. Accepting there are no realistic prospects of a valuable recovery, but having the comfort that nothing obvious is being overlooked.

Another common scenario: You discover that an employee has been dishonestly paying company funds to his own account or that of his friends and family. One option would be an immediate freezing injunction since the identity of the fraudster is known and you may already know something about his assets. Another option however is an NPO where the position is less certain.

It may not be clear for example whether the accounts receiving the funds in fact belong to the employee or to someone else. It may also be unclear whether the employee has applied the funds to purchase a house (a potentially valuable asset for recovery), or frittered away at online casinos (a claim against the gambling operators may exist), or paid to a family member (a potential conspirator). NPO disclosure against the employee’s account can help address these uncertainties so that the best tactical course of action can then be determined; and all before the employee is alerted to your awareness of the fraud.

A nimble concept

It is also worth bearing in mind the nimbleness of NPO relief. We have, for example, successfully obtained an NPO against the police for disclosure of their own tracing of funds down to four layers of banks. This is something which many practitioners do not consider to be possible, in part because the development of the law around NPO is often something that takes place behind the closed doors of the urgent applications court at Court 37 of the Royal Courts of Justice, and so is not always widely publicised. A dynamic approach to an NPO can be very rewarding.

Procedure

Historically there has been uncertainty over whether an NPO should be sought by way of a pre-action application or a CPR Part 8 claim. A few weeks ago Stewart J handed a short note to the clerks at Court 37 putting this issue to bed: Part 8 claim, sometimes Part 7, but never by application.

If you would like to know more about Norwich Pharmacal Orders or what other steps can be taken in the preservation and recovery of assets in civil fraud, then do please get in touch with our Civil Fraud and Asset Recovery team.