(1) Irving H Picard (Trustee for the liquidation of Bernard L Madoff Investment Securities LLC) (2) Bernard L Madoff Investment Securities Llc (in Securities Investment Protection Act liquidation) Plaintiffs Appellants in Appeal CICA 1/2013 Respondents to Appeal CICA 2/2013 v Primeo Fund (in official liquidation) Defendant Respondent to Appeal CICA 1/2013 Appellant in Appeal 2/2013
| Jurisdiction | Cayman Islands |
| Judge | Elliott Mottley Justice of Appeal,Sir John Chadwick |
| Judgment Date | 16 April 2014 |
| Judgment citation (vLex) | [2013] CICA J1108-1 |
| Docket Number | CICA 1/2013 and 2/2013 |
| Court | Court of Appeal (Cayman Islands) |
| Date | 16 April 2014 |
The Rt Hon Sir John Chadwick, President
The Hon Elliott Mottley, Justice of Appeal
The Rt Hon Sir Anthony Campbell, Justice of Appeal
Mr Gabriel Moss QC with Mr Stephen Robins instructed by John Harris of Higgs & Johnson appeared for Irving H Picard (Trustee in the liquidation of Bernard L Madoff Investment Securities LLC) and Bernard L Madoff Investment Securities LLC (in Securities Protection Act liquidation), the Appellants in Appeal CICA 1/2013 and the Respondents to Appeal CICA 2/2013
Mr Michael Crystal QC with Mr Peter Hayden and Mr Nicholas Fox of Mourant Ozannes appeared for Primeo Fund, the Respondent to Appeal CICA 1/2013 and the Appellant in Appeal CICA 2/2013
Sir John Chadwick, President:
These are an appeal and a cross-appeal from the determination of Justice Andrew Jones, in an order made on 14 January 2013, of preliminary issues raised by the parties in proceedings brought by the Trustee for the liquidation of Bernard L Madoff Investment Securities LLC (the ‘Trustee’) and Bernard L Madoff Investment Securities LLC (in Securities Investment Protection Act liquidation) against Primeo Fund (in official liquidation) (the ‘Fund’).
Bernard L Madoff Investment Securities LLC (‘BLMIS’) is a limited liability company incorporated under the laws of New York. At all material times it was owned and controlled by Bernard L Madoff. On 15 December 2008 the Securities Investor Protection Corporation (‘SIPC’) filed an application in the District Court for the commencement of liquidation proceedings in respect of BLMIS. On the same day the judge of that Court made an order appointing Irving H Picard as trustee in the liquidation of BLMIS; and transferred the case to the United States Bankruptcy Court for the Southern District of New York.
Primeo Fund was incorporated in the Cayman Islands on 18 November 1993 and commenced business as an open ended investment fund, under the Mutual Funds Law, on 1 January 1994. The Fund operated at least two sub-funds, Primeo Select and Primeo Executive. Primeo Select invested exclusively, or almost exclusively, with BLMIS. Primeo Executive invested in Primeo Select; and in two other funds, Alpha Prime Fund Limited (‘Alpha’) and Herald USA Segregated Portfolio One Fund, the single portfolio in Herald Fund SPC (‘Herald’). Alpha and Herald invested exclusively with BLMIS. Following a restructuring on 25 April 2007, Primeo Select exchanged all its direct investments with BLMIS for shares in Herald. Thereafter Primeo Select and Primeo Executive invested exclusively in Alpha and Herald; and so, indirectly, in BLMIS. On 23 January 2009 Primeo Fund resolved to be wound up voluntarily. James Cleaver and Richard Fogerty, insolvency practitioners, were appointed as joint voluntary liquidators of the Fund. On 8 April 2009 the Grand Court made an order that the voluntary liquidation should continue under the supervision of the Court; and Mr Cleaver and Mr Fogerty were appointed Joint Official Liquidators.
On 5 February 2010 Justice Jones made an order under section 241(1)(a) of the Companies Law (the ‘Recognition Order’) recognizing the right of the Trustee to act in this jurisdiction on behalf of BLMIS. On 9 December 2010 the Trustee commenced these proceedings in the Grand Court seeking to recover some US$145 million which, it is said, the Fund had received from BLMIS prior to June 2007 (‘Direct Transfers’) and any further funds received by the Fund from BLMIS through intermediary feeder funds (Alpha and Herald) following the restructuring (‘Indirect Transfers’).
The statement of claim in these proceedings advances, on behalf of customers and creditors of BLMIS, transaction avoidance claims under two principal heads (so far as now material):
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(1) Claims founded on transaction avoidance provisions of United States bankruptcy law; including, in particular (a) immediate transferee claims under section 548 of the U.S. Bankruptcy Code (two-year fraudulent transfers), (b) transferee claims under the New York Debtor and Creditor Law and other applicable law (six-year fraudulent transfers), (c) subsequent transferee claims to recover payments avoided under section 547 and 550 of the U.S. Bankruptcy Code (90-day preference payments) and (d) subsequent transferee claims to recover payments avoided under sections 548 and 550 of the U.S. Bankruptcy Code (two-year fraudulent transfers). These claims are pleaded in section VI of the statement of claim.
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(2) Claims founded on section 145 of the Companies Law (or on equivalent common law rules) to set aside, as preferences, transfers in the total sum of US$588 million or thereabouts which were made within six months immediately preceding the commencement of the liquidation (‘the six-month payments’). Those claims, which are made in reliance on section 241 of the Companies Law and/or the common law, are set out in section X of the statement of claim.
On 19 January 2011 the judge ordered preliminary issues of law to be tried. Those preliminary issues included, so far as material on these appeals:
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(1) Whether the Court has jurisdiction to apply transaction avoidance provisions under U.S. insolvency law under section 241 and/or section 242 of the Companies and/or at common law (‘Preliminary Issue 1’) .
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(2) Whether the Court has jurisdiction to apply transaction avoidance provisions of Cayman Islands insolvency law in aid of a foreign insolvency proceeding as a matter of common law or under sections 241 and 242 of the Companies Law (‘Preliminary Issue 2’).
The judge determined the first of those issues against the Trustee. In his order of 14 January 2013 he declared, on Preliminary Issue 1, that the Grand Court was not able to apply U.S. insolvency law under section 241 and/or section 242 of the Companies Law or at common law. Accordingly, he ordered that section VI of the Statement of Claim be struck out as disclosing no reasonable cause of action.
The judge determined the second of those issues against the Fund. In his order of 14 January 2013 he declared, on Preliminary Issue 2, (i) that the Grand Court did have jurisdiction at common law to apply avoidance provisions of Cayman Islands insolvency law in aid of a foreign insolvency proceedings, irrespective of whether the Grand Court would have jurisdiction under section 91 of the Companies Law to make a winding up order in respect of the foreign company in question; but (ii) that the Grand Court did not have jurisdiction under sections 241 and 242 of the Companies Law to apply avoidance provisions of Cayman Islands insolvency law in aid of a foreign insolvency proceeding.
The Trustee filed Notice of Appeal on 25 January 2013 (under reference CICA 1/2013) seeking orders declaring (i), on Preliminary Issue 1, that the Court in this jurisdiction is able to apply U.S. Bankruptcy Law under sections 241 and 242 of the Companies Law and (ii), on Preliminary Issue 2, that the Court has jurisdiction under sections 241 and 242 of the Companies Law to apply avoidance provisions of Cayman Islands' insolvency law in aid of a foreign insolvency proceeding. The Trustee's Memorandum of Grounds of Appeal was filed on 9 August 2013.
The Fund also filed Notice of Appeal on 25 January 2013 (under reference CICA 2/2013). By that Notice the Fund sought orders declaring, on Preliminary issue 2, (i) that the Court does not have jurisdiction at common law to apply avoidance provisions of Cayman Islands' insolvency law in aid of a foreign insolvency proceeding, or, in the alternative, (ii) that the Court does have jurisdiction at common law to apply avoidance provisions of Cayman Islands' insolvency law in aid of a foreign insolvency proceeding provided that the Court would have jurisdiction under section 91 of the Companies Law to make a winding up order in respect of the foreign company in question. The Fund's Memorandum of Grounds of Appeal was filed on 29 August 2013. On 11 September 2013 the Trustee filed a Respondents' Notice.
When the appeal and cross appeal came before this Court for hearing on 7 and 8 November 2013 it was common ground that there were three issues for determination:
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(1) Whether the Court has jurisdiction under sections 241 and 242 of the Companies Law to apply transaction avoidance provisions of foreign insolvency law (and, in particular, provisions of U.S. Bankruptcy Law) in aid of foreign insolvency proceedings.
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(2) Whether the Court has jurisdiction under sections 241 and 242 of the Companies Law to apply transaction avoidance provisions in Cayman Islands' insolvency legislation in aid of foreign insolvency proceedings.
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(3) Whether the Court has jurisdiction at common law to apply transaction avoidance provisions in Cayman Islands' insolvency law in aid of a foreign insolvency proceeding; or, in the alternative, whether the Court has such jurisdiction but only in a case where it would have jurisdiction under section 91 of the Companies Law to make a winding up order in respect of the foreign company in question.
The oral arguments on the third of those issues were not completed in November 2013. It was necessary to adjourn the hearing for further argument. Further, the Court was informed, correctly, that an issue central to that third...
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