Key contentious issues for banks and financial services institutions

The Privy Council and English authorities discussed below are likely to be persuasive in the Cayman courts, subject to the facts of the case and any subsequent local authority.

Campbells has deep experience managing contentious risks for banks and other financial services clients. Please contact any member of the team if you would like to discuss the issues covered in this briefing.

Disclosure applications – claims for Norwich Pharmacal relief

Banks are frequently the recipients of applications seeking Norwich Pharmacal relief by way of the disclosure of information to enable a prospective claimant to identify a wrongdoer and pursue legal action. Such relief may be sought against innocent third parties who have become involved in the wrongdoing – for example, in fraud cases banks may be named as respondents to such applications where funds derived from the fraud are paid through accounts held with them.

The Grand Court of the Cayman Islands considered those principles in two 2025 decisions.

In AA & Others v UU & Others [2025] CIGC (FSD) 42, Kawaley J clarified several ancillary issues that have received limited consideration in the Cayman Islands, including:

• when an applicant should provide a cross-undertaking in damages to protect the respondent against loss caused by the disclosure order;
• when that cross-undertaking may need fortification; and
• what costs orders may be appropriate, including interim payments on account and security for costs.

The judgment is useful guidance for banks and financial institutions facing wide-ranging disclosure applications, particularly where compliance costs may be substantial or the order may have other adverse effects. It also indicates that the Cayman courts will readily apply the English authorities when exercising the Norwich Pharmacal jurisdiction.

Campbells acted for the respondents in the proceedings.

In LR Capital China Growth II Company Limited v International Corporation Services Ltd [2025] CIGC (FSD) 30, Asif J considered whether to grant a document preservation order and sealing or gagging orders in relation to an intended Norwich Pharmacal application.

Applicants often seek these orders with Norwich Pharmacal disclosure to avoid tipping off an alleged wrongdoer or risking document destruction before disclosure is ordered. Respondents must act carefully where such orders are made.

Asif J declined to make a document preservation order on the facts of LR Capital. He held that the applicant needed evidence of a real, not merely fanciful, risk that documents might be lost without the order. There was no such evidence: the respondent was a regulated entity and was unlikely to destroy documents or transfer registered office services without retaining its file.

Asif J also declined to make a sealing and gagging order. He agreed with Doyle J in Cathay Capital Holdings v Osiris International Cayman Limited [2021 (2) CILR 391] that such orders should be exceptional and made only where necessary.

The case demonstrates that applications for preservation, sealing or gagging orders should be supported by clear evidence of need.

Banks and other financial institutions remain common respondents to disclosure applications where funds linked to alleged wrongdoing have passed through accounts held with them. The Privy Council has previously confirmed in Stanford Asset Holdings Ltd & Another v AfrAsia Bank Ltd [2023] UKPC 35 (at [38]) that there is no “specially high hurdle to be surmounted before a Norwich Pharmacal order can be made against a bank”. Banks and financial institutions should therefore maintain clear procedures for responding promptly to such applications.

Payments – claims in knowing receipt

Claims against banks for the recovery of funds or other property often include claims for knowing receipt. The UK Supreme Court’s decision in Byers v Saudi National Bank [2023] UKSC 51 remains a useful authority on the requirements of the cause of action.

Knowing receipt is a personal equitable claim. It may arise where property is transferred in breach of trust and the recipient learns of the breach before disposing of the property. The recipient may then be personally liable to account or pay compensation as if it were trustee of the property, even if the property has since been disposed of, dissipated or destroyed.

The facts of Byers were unusual. The claim against the bank failed even though the bank received the property with notice of the alleged breach of trust and continued to hold it. The Supreme Court held that the claimant needed a continuing proprietary interest in the property to bring the claim.

The Supreme Court also reviewed the wider law on knowing receipt and its relationship with proprietary claims, tracing claims and dishonest assistance.

For banks and financial institutions, the key points are that knowledge remains central to personal liability and that mere notice is not enough. The boundaries of effective knowledge remain uncertain, including whether constructive knowledge is sufficient. The Supreme Court did not decide that issue in Byers.

As a result and pending further authority resolving the point, constructive knowledge is likely to remain a contested issue in knowing receipt claims involving banks.

Marketing investment schemes – the role played by lenders providing finance

The English High Court’s decision in Upham v HSBC UK Bank plc [2024] EWHC 849 concerned claims by investors in a failed investment scheme against a bank that had provided finance and helped market the scheme.

The scheme involved film finance investment intended to defer UK tax liabilities. HM Revenue & Customs successfully challenged the scheme, and investors facing large tax bills brought claims against those involved in promoting and advising on it.

The High Court dismissed the claims, including claims for fraudulent misrepresentation. The decision usefully illustrates the liability risks for banks that help promote or market complex investment schemes.

A bank’s duties, responsibilities and exclusions will usually be defined by the contractual documents. The documents should state clearly what role the bank is taking on, what it is not taking on, and where it is relying on separate legal advice on the scheme.

Communications with investors should also be in writing, or otherwise documented, and should clearly state the scope and limits of the bank’s role.

Lending to corporate borrowers – pursuing recoveries against directors and guarantors

Several decisions in the last couple of years have considered when company directors may be personally liable for legal wrongs committed by the company, including when they may have to account for profits. These authorities are relevant to lenders considering pursuing  directors or guarantors after a lending fraud by a corporate borrower and where there is a shortfall in the recoveries achieved from the borrower.

In Lifestyle Equities CV v Ahmed [2024] UKSC 17, the UK Supreme Court considered when directors may be liable as accessories for wrongs committed by the company. The Court confirmed that directors are not exempt from accessory liability and may be liable under ordinary tort principles.

Liability requires an act that assisted the tort and formed part of a common design to do the relevant act. The director’s knowledge of the essential facts making the company’s act unlawful will be critical.

The English High Court applied Lifestyle Equities in Trafigura Pte Ltd v Gupta [2026] EWHC 159 (Comm). The Court held that a corporate director was jointly liable for deceit and unlawful means conspiracy arising from fraudulent misrepresentations made by the defendant companies as part of a widespread fraud orchestrated in relation to international commodities trading.

In LUX Films Ltd v Fowler & Another [2026] EWHC 963 (KB), the English High Court also held that a sole corporate director and the company he controlled could together be liable for unlawful means conspiracy.

Together, these decisions may assist lenders considering recovery action against directors and guarantors where recoveries against a corporate borrower are insufficient.