Re Primeo Fund ((in Liquidation))

• Jurisdiction: Cayman Islands
• Judge: Sir George Newman, J.A.
• Judgment Date: 19 January 2017
• Court: Court of Appeal (Cayman Islands)
• Docket Number: CICA APPLICATION No: 08 of 2016
• Date: 19 January 2017

In the Matter of the Companies Law (2013 Revision)

and

In the Matter of Primeo Fund (In Liquidation)

Before:

THE RT. HON. Sir John Goldring, PRESIDENT

THE HON. Sir George Newman, JUSTICE OF APPEAL

THE HON. (CECILE) Dennis Morrison, JUSTICE OF APPEAL

CICA APPLICATION No: 08 of 2016

Cause No: FSD 30 of 2010 – AJJ

IN THE COURT OF APPEAL OF THE CAYMAN ISLANDS

Appearances:

Mr Tom Smith QC instructed by Mr. Peter Hayden and Mr. Jonathan Moffatt of Mourant Ozannes for Primeo.

Mr. Richard Gillis QC and Mr. Toby Brown, instructed by Mr. Andrew Pullinger of Campbells for the HSBC Respondents.

Mr David Allison QC instructed by Ben Hobden of Conyers Dill & Pearman for the Appellant.

Sir George Newman, J.A.

1. Primeo Fund (“Primeo”) entered into official liquidation on 8 April 2009 as a result of the fraud committed by Bernard Madoff. The judge overseeing the liquidation is the Hon. Justice Andrew Jones QC. On the 5 April 2016 he made an order that a Letter of Request should be issued to the Federal Ministry of the Republic of Austria in the terms approved by him and annexed to an Order made by him dated 16 December 2015. The Order dated 5 April 2016 also required the Official Liquidators (“the JOLs”) to take all such steps as are necessary or appropriate to carry the Letter of Request into effect. It will be necessary to trace the origins of the order because its evolution saw tactical changes and shifts of position by the parties and its final form was forged through extensive dialogue in hearings held in the months before April 2016.

2. The alleged need for a Letter of Request to be issued was first advanced by a summons dated 8^th May 2015. It was considered in a case management hearing on 28^th May 2015 as part of an extensive application for discovery by two banks, being defendants in proceedings for damages brought by Primeo against Bank of Bermuda (Cayman) Limited and HSBC Securities Services (Luxembourg) SA. (“the Defendants”). The application was not formulated as a complaint against the JOLs for having failed to act in their capacity as JOLs but was included in a catalogue of complaints about the extent to which Primeo, being the Plaintiff, was discharging its discovery obligations in accordance with the Grand Court Rules (“the GCR”). The Defendants were asking the court to conclude that there could be no fair trial of the issues in the action unless all the discovery being sought by the summons was ordered. Counsel for the Defendants submitted that the trial judge faced the prospect of “…a profoundly unsatisfactory and unfair position ..arising in which critical issues on causation and knowledge and failings on the part of Primeo could not be fairly tried”. The judge declined to make an order in connection with the request. He adjourned it to enable the Defendants to have another “bite of the cherry”.

3. In 2011 Primeo had commenced another set of proceedings in the Grand Court in order to recover damages arising out of the Madoff fraud. The proceedings were against Pioneer Alternative Investment Management Limited (“Pioneer”). The claim was settled on terms which included Primeo being paid $100m and releasing Pioneer, Bank Austria and the Austrian Directors (“the Service Providers”) from all its claims against them. The terms were set out in a detailed written settlement agreement dated 24 January 2014. The Defendants were pressing a claim for a Letter of Request to be issued against a number of parties, including the Austrian parties, in order to obtain the documents it believed were being held by them. The Defendants have pleaded a defence which includes an allegation of a lack of causation between the loss sustained by Primeo through investing in the Madoff scheme and any conduct on the part of the Defendants. They have also alleged relevant knowledge and failings on the part of Primeo as having caused or contributed to the loss. It is clear the Defendants believed that documents in the possession of Bank Austria and the Austrian Directors, who had acted as the service providers to Primeo, might support their defence. It is not difficult to understand the thinking behind the request for the Austrian documents and it is obvious that that they were seeking third party discovery to assist in establishing their defence. The Defendants' case on causation and knowledge might be assisted if the role played by Bank Austria and the Austrian Directors served to demonstrate that the liability of the Defendants played a small part in causing the loss sustained by Primeo and that, at least to some degree, the loss had been contributed to by Bank Austria or the directors. Counsel for Primeo correctly characterised the request as a “fishing” exercise.

4. After the hearing of the Defendants' “second bite of the cherry” on the 16 December 2015 the judge indicated his intention to make an order. Written reasons for this decision were given, dated 4 February 2016. In the absence of an appeal by Primeo, Pioneer (like Bank Austria a member of the UniCredit group of companies) intervened and contended that the order sought by the Letter of Request was precluded by the terms of settlement in the Pioneer damages action. The judge heard Pioneer on 5 April 2016 but determined the issue against it. Pioneer also challenged the judge's proposed exercise of jurisdiction to order and direct the JOLs to issue the Letter of Request. Primeo initially asserted in correspondence that the terms of the settlement agreement precluded it from taking steps to obtain documents by the means of a Letter of Request but then changed its position. Thus before the April hearing Primeo had not appealed the December Order, had informed the Defendants that the settlement agreement was a bar to initiating the Request and had issued a summons to have the issue determined with Pioneer as a party. However at the hearing, despite its detailed and forceful submissions submitted at the December hearing, Primeo did not substantially support Pioneer's submissions that the proposed Order directing that a Letter of Request be issued should not have been made and, contrary to its earlier position, asserted it was not precluded by the settlement agreement from complying with the Order. It is important to note however that at no time have the JOLs resiled from the contention that the exercise was speculative and likely to be very expensive. One of the JOLs, Mr. Gordon MacRae swore an affidavit (his seventh) setting out the extent and detail of the attempts which had been made to obtain such documents as were in the possession of the Austrian parties. It should also be noted that in May 2015 the judge had expressly refrained from criticising the JOLs in the performance of their statutory duties. There was good cause to refrain because he accepted that prior to the issue being raised by the Defendants he could see that the JOLs had no reason to apply to obtain documents, which in their judgment were not needed for the purposes of the liquidation and which if pursued would involve an exercise disproportionately expensive when weighed against the likely return it would provide.

The Damages Claim.

5. Primeo is claiming hundreds of millions of dollars against the Defendants for alleged breach of contract and negligence in connection with the Madoff fraud. As I have already recited, the pleaded defence includes allegations of knowledge as well as control weaknesses on the part of Primeo in connection with the Madoff investments. Counsel for the Defendants placed considerable emphasis on these allegations which were said to be critical to the question of causation which was a central defence advanced by the Defendants. It has not been suggested that the Defendants are not entitled to discovery from Primeo under the GCR in connection with issues of causation and all other issues raised on the pleadings. The important issue raised by this appeal is whether the jurisdiction of the court over the JOLs should have been exercised under the Companies Law (2013 Revision) so as to give rise to the incidental but expressly desired consequence that the Defendants requests for disclosure of third party documents could be met.

6. As the cases cited in argument demonstrate, there is a distinction between the public purpose of seeing that JOLs fulfill their public duties and the public purpose under the general law of securing justice in accordance with the rules governing litigation between private individuals. The general law in the Cayman Islands under the Cayman Grand Court Rules (“GCR”), unlike the English Procedure Rules, does not provide a means to obtain discovery from a third party to the litigation. The Defendants nevertheless, in their summons for discovery dated 8 May 2015 requested extensive third party discovery, framed as an order pursuant to the GCR and the common law. In particular the Defendants sought “…the provision, including by exercise of the liquidator's statutory powers, of all relevant documents held by relevant third parties”. This was an unambiguous request that the JOLs' statutory powers should be used to obtain documents from third parties outside the jurisdiction relevant to the issues in the damages action between Primeo and the Defendants. It is obvious that the court was being asked to assist the Defendants to obtain documents beyond those allowed for under the GCR. As first advanced the request was not even limited to documents which belonged to Primeo or to which Primeo was entitled, being the categories of documents to which the JOLs' statutory powers extend.

7. At the first hearing which took place on these issues on the 28 May 2015 the Defendants asserted that too little had been done by the JOLs to obtain documents from third parties. The judge agreed that they did not appear to have “tried particularly hard to obtain information from these service providers” but he stated that he was not...