Al Sadik v Investcorp Bank Bsc and Five Others
| Jurisdiction | Cayman Islands |
| Judge | (Chadwick, Mottley and Campbell, JJ.A.) |
| Judgment Date | 21 September 2016 |
| Court | Court of Appeal (Cayman Islands) |
| Date | 21 September 2016 |
(Chadwick, Mottley and Campbell, JJ.A.)
M. Black, Q.C. and M. Staff for the appellant;
Lord Falconer of Thoroton, Q.C. and D. Nambisan for the respondents.
(1) Abbey Forwarding Ltd. v. Hone, [2010] EWHC 2029 (Ch), referred to.
(2) Arnold v. Britton, [2015] UKSC 36; [2015] A.C. 1619; [2015] 2 W.L.R. 1593; [2016] 1 All E.R. 1, applied.
(3) Att. Gen. (Belize) v. Belize Telecom Ltd., [2009] UKPC 10; [2009] 1 W.L.R. 1988; [2009] 2 All E.R. 1127, considered.
(4) Bristol & West Bldg. Socy. v. Mothew, [1998] Ch. 1; [1997] 2 W.L.R. 436; [1996] 4 All E.R. 698, referred to.
(5) British Westinghouse Elec. & Mfg. Co. v. London Underground Elec. Ry. Co. (No. 2), [1912] A.C. 673, referred to.
(6) Davidson v. Noram Capital Mgmt. Inc. (2005), 13 B.L.R. (4th) 35; 2005 Can LII 63766, referred to.
(7) Dempster v. H.M. Rev. & Customs, [2008] STC 2079; [2008] BTC 5150; [2008] B.V.C. 275, referred to.
(8) Eagil Trust Co. Ltd. v. Piggot-Brown, [1985] 3 All E.R. 119, referred to.
(9) H (Minors) (Sexual abuse: standard of proof), In re, [1996] A.C. 563; [1996] 2 W.L.R. 8; [1996] 1 All E.R. 1; [1996] 1 FLR 80, referred to.
(10) Hospital Prods. Ltd. v. United States Surgical Corp., [1984] HCA 64; (1984), 156 CLR 41; 55 ALR 417; 58 ALJR 587, referred to.
(11) Investors’ Compensation Scheme Ltd. v. West Bromwich Bldg. Socy., [1998] 1 W.L.R. 896; [1998] 1 All E.R. 98; [1998] 1 BCLC 531; [1997] C.L.C. 1243, considered.
(12) Item Software (UK) Ltd. v. Fassihi, [2004] EWCA Civ 1244; [2004] BCC 994; [2005] 2 BCLC 91; [2005] ICR 450, applied.
(13) Kelly v. Cooper, [1993] A.C. 205; [1992] 3 W.L.R. 936; [1994] 1 BCLC 395, referred to.
(14) Laflamme v. Prudential-Bache Commodities Canada Ltd., [2001] 1 S.C.R. 638; (2000), 185 D.L.R. (4th) 417, referred to.
(15) Livingstone v. Rawyards Coal Co. (1880), 5 L.R. App. Cas. 25, referred to.
(16) Robinson v. Harman (1848), 1 Exch. 850; 154 E.R. 363; [1843–60] All E.R. Rep. 383, referred to.
(17) Ryder v. Osler, Wills, Bickle Ltd. (1985), 49 O.R. (2d) 609; 16 D.L.R. (4th) 80, referred to.(18) Shepherd Invs. Ltd. v. Walters, [2006] EWHC 836 (Ch); [2007] 2 BCLC 202; [2007] IRLR 110; [2007] F.S.R. 15, applied.
(19) Williamson v. Williams (1997), 160 N.S.R. (2d) 106, referred to.
Investments and Securities—investment management—powers and duties of investment manager—only duties of disclosure arising out of investment management agreement those specified in agreement—where fiduciary relationship arises out of contract, scope of fiduciary relationship defined by contractual terms—not appropriate to superimpose additional fiduciary duties
Investments and Securities—investment management—scope of management agreement—agreement allowing investment in leveraged funds and wide discretionary mandate interpreted as permitting economically equivalent leveraging of investment at portfolio level—contractual document to be interpreted according to meaning conveyed to reasonable person having all background knowledge reasonably available to those to whom addressed—not interpreted in way that would flout business common sense
The appellant brought claims in the Grand Court alleging, inter alia, breach of contract, breach of fiduciary duty and breach of trust against the respondents.
The appellant was a wealthy businessman with previous experience of high-value investments. Meetings took place between the appellant and the first respondent, a regulated international investment bank, regarding a proposed investment, at which the appellant indicated that he wished to obtain a 45% return on an investment of AED500m. after three years.
The first respondent’s hedge-fund platform comprised a number of funds of hedge funds, emerging-manager funds and single-manager funds which included those material to the present proceedings, namely Investcorp Diversified Strategies Fund (“DSF”), Investcorp Leveraged Diversified Strategies Fund (“LDSF”), Investcorp Single-Managers Fund Ltd. SPC (“SMFCo”) and six (later, seven) single-manager funds known collectively as “the single-managers.”
The first respondent drew up an investment proposal, proposing investment in leveraged funds. The appellant transferred AED500m. to the first respondent in February 2008, and in March the appellant and the first respondent entered into a share purchase agreement (“the SPA”) which inter alia (a) provided that the investment account would be established asa special purpose vehicle—Shallot IAM Ltd. (the third respondent); (b) gave the first respondent a discretion to manage and invest the plaintiff’s moneys; (c) required the first respondent to provide the appellant with monthly statements of each hedge fund or account in which his moneys were invested; but (d) did not contain the standard form disclaimer that the investment was speculative and could be lost completely.
The appellant’s investment was leveraged at the portfolio level (“first-layer leverage”) through Blossom IAM Ltd.—a wholly owned subsidiary of Shallot established as a SPV—rather than being invested in leveraged funds as contemplated by the investment proposal. A multi-party credit facility (“White Ibis III”) was used to achieve this leveraging. The first respondent did not inform the appellant that his investment had been leveraged in this way and failed to provide him with complete monthly statements in accordance with the SPA. Blossom invested US$79m. in a fund of hedge funds (DSF). The remaining balance, some US$56m., was invested in five single-manager funds. The appellant believed his investment was being leveraged by means of “second-layer leverage”—i.e. being used for investment in hedge funds which sought to achieve a certain specified level of leverage.
Following the market collapse beginning in September 2008, the appellant’s investments began to perform poorly. He gave instructions to redeem the investment in December 2008. He asserted that he had the benefit of a guaranteed 45% return by way of collateral contract. The first respondent denied the existence of this guarantee. The final redemption proceeds reflected a total loss since inception of approximately AED207.6m., which represented a return on investment of –42%. He brought proceedings against the respondents in the Grand Court for fraudulent misrepresentation, breach of the SPA, deceitful non-disclosure, breach of trust and/or fiduciary duty and breach of guarantee (the claim for fraudulent misrepresentation was subsequently withdrawn).
The Grand Court decision
The Grand Court (Jones, J.) dismissed the appellant’s claims (the decision is reported at 2012 (1) CILR 451). The judge held that the first respondent had not breached the SPA in leveraging the appellant’s investment at the portfolio level. The SPA gave the first respondent a wide discretion to manage the investment. It would flout business common sense to construe the SPA as prohibiting leveraging at the portfolio level since it achieved a result that was economically equivalent to investing in leveraged funds, which clearly was permitted. In the alternative, if the first respondent had not been entitled to leverage the investment as it did, it was likely that the different portfolio construction that would have been adopted would have resulted in a worse return for the appellant. Therefore, even if he had established that the first respondent breached the SPA, he would have failed to prove any loss or damage. The court also held that the first respondent was not liable to the appellant by reason of deceitful non-disclosure. The first respondent’s duty of disclosure was defined by the SPA. It had not deliberately or deceitfully failed to disclose details ofthe leveraging. The court held that the first respondent had not acted in breach of trust and/or fiduciary duty, and in making its investment decisions it had not ignored the appellant’s best interests in favour of its own. The court also found that there was no legally enforceable guaranteed return of 45%.
The appellant appealed against that decision.
Breach of the SPA
The appellant submitted that (a) the Grand Court was wrong to hold that the first respondent was not in breach of the SPA either when it caused Shallot to transfer the investment amount to Blossom for investment or when it caused Blossom to leverage that investment by borrowing under the White Ibis III credit facility; and (b) it was wrong to have held that, even if there had been a breach of the SPA, the first respondent would not have been liable for damages.
The first respondent submitted that (a) the Grand Court’s assessment of the factual matrix (including the investment proposal) against which it construed the meaning of the SPA was correct, as was its application of the law, and that, on the evidence before it, the only conclusion the court could have reached was that the first respondent had authority to leverage the appellant’s investment in the manner that it did; and (b) the appellant’s claim for damages was misconceived as it was a fundamental principle that, if a party were to have suffered the loss for which he now claimed irrespective of whether there had been a breach of contract, then that breach could not be said to have caused his loss.
Deceitful non-disclosure
The appellant submitted that the Grand Court had erred in failing to hold that the first respondent had been in breach of duty in failing to disclose, before the parties entered into the SPA, its intention to leverage the assets at portfolio level. It also submitted that the Grand Court had wrongly held that the first respondent’s post-investment breaches of its contractual disclosure obligation had not been deceitful.
The respondent submitted in respect of the alleged pre-investment non-disclosure that (a) this was a new claim that had not been part of the pleaded case nor advanced at trial; (b) the new claim was an impermissible attempt to resurrect the...
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Al Sadik v Investcorp Bank B.S.C. and Five Others
...The plaintiff’s appeals to the Court of Appeal and the Judicial Committee of the Privy Council were dismissed (in judgments reported at 2017 (1) CILR 1 and 2018 (1) CILR 606). In May 2018, the plaintiff commenced proceedings in Dubai. The original claim against the first defendant sought “n......
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Al Sadik v Investcorp Bank Bsc and Others
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