In Primeo Fund (in Official Liquidation) (“Primeo”) v Bank of Bermuda (Cayman) Ltd (“Bank of Bermuda”) and HSBC Securities Services (Luxembourg) SA (“HSBC”) [2023] UKPC 40, the Judicial Committee of the Privy Council handed down its lengthy final judgment in the long running litigation arising from a multi-billion-dollar Ponzi scheme. 

Background

The litigation arose from the notorious Ponzi scheme run by Bernie Madoff via his company, BLMIS. Primeo, a Cayman Islands investment company, had invested in BLMIS, and when Madoff’s scheme collapsed in December 2008, Primeo suffered heavy losses and was soon placed into voluntary liquidation in January 2009. 

In February 2013, Primeo brought claims against: 

• Bank of Bermuda (Primeo’s former administrator), alleging breach of duties in respect of (i) calculating Primeo’s net asset value, (ii) keeping its accounts, books and records, and (iii) various implied duties, including the duty to exercise reasonable care and skill.
• HSBC (Primeo’s custodian), on a strict liability basis for appointing BLMIS as sub-custodian.

In an earlier judgment of the Privy Council (Primeo v Bank of Bermuda [2021] UKPC 22), Primeo’s losses were found to be, in principle, recoverable. This left for determination Cayman Island law issues of: (i) causation and loss, (ii) limitation and (iii) contributory negligence. Those issues were considered at length in the Privy Council’s unanimous judgment, the key conclusions of which are summarised below. 

Liability and Loss

Causation and liability: The Privy Council held that the relevant counterfactual “but for” analysis involved asking what would have been the position if BLMIS had not carried on the Ponzi scheme at all or if it had not fraudulently misled Primeo and had explained the actual position. In the counterfactual, Primeo would not have invested in BLMIS or would immediately have required that its cash be repaid. 

Loss: The Privy Council found that each time Primeo had invested cash in BLMIS and BLMIS misappropriated the money, Primeo suffered a real and immediate loss. In exchange for its cash, Primeo had received worthless (or near worthless) promises from BLMIS (which was insolvent at the relevant time) to hold a stock of financial instruments of equivalent value for Primeo’s account. Primeo’s losses were measurable by assessing the loss of economic value it suffered on each occasion as between the amount it invested and the essentially worthless promises it received from BLMIS. 

Finality of litigation: However, HSBC argued that Primeo had suffered no net loss, because Primeo had received back from BLMIS more than it had paid to BLMIS. Primeo had framed its strict liability claim against HSBC at trial by reference to net losses, so the only way Primeo could successfully respond to HSBC’s argument was to introduce a new basis for its claim on appeal. The Privy Council would not allow Primeo to advance that new argument on appeal. To do so, it said, would be contrary to the principle of finality and it would not be just nor consistent with the efficient resolution of commercial disputes for the Privy Council to allow a party to re-open its case against another party on appeal and after such a lengthy trial.  

Limitation

The Court considered s.37 of the Cayman Limitation Act which is identical in material respects to s.32 of the English Limitation Act 1980. The Cayman Limitation Act states that where a right of action has been deliberately concealed by the defendant or its agent the limitation period is postponed until the claimant has discovered, or could with reasonable diligence discover, the concealment. The Privy Council was asked to determine questions relating to the meaning of ‘deliberate concealment’ and whether BLMIS was HSBC’s “agent” within the meaning of the statute.

Deliberate concealment: The Privy Council rejected the argument that a reckless breach of contract amounts to a “deliberate commission of a breach of duty” for the purposes of the Cayman Limitation Act; as a matter of ordinary language and legal terminology, it said, “deliberate” and “reckless” have different meanings. The fault-based part of Primeo’s claim against the Respondents, which did not reach the threshold of deliberate concealment, was therefore time-barred having occurred more than six years ago.

‘Agent’: However, in respect of Primeo’s strict liability claim against HSBC, BLMIS was to be treated as HSBC’s agent. The term “agent” was not defined in the act, indicating that the legislature intended it should bear its usual meaning according to the general law (as a party which is permitted to alter the principal’s legal relationship with third parties). The Privy Council found that BLMIS was HSBC’s agent within that meaning of the term, and it was clear that BLMIS had deliberately concealed the relevant facts when acting in that capacity. The running of time was therefore postponed in respect of Primeo’s strict liability claim.

Contributory negligence

The Privy Council also confirmed that a defence of contributory negligence is in principle available in a contractual damages claim where a claimant relies on concurrent duties in contract and in tort. In doing so, the Privy Council endorsed Vesta v Butcher [1989] AC 852 (an earlier English Court of Appeal authority for that proposition). The Court remarked that they were reluctant to change the conclusions of that case, given it had been settled authority for almost 35 years. 

On the facts, the Court concluded that whilst the contractual duties of the Bank of Bermuda under relevant agreement were consistent with a tortious duty of reasonable skill and care, that was not the case for HSBC where the obligations were more specific. In the former case, the contributory negligence was available and the in the latter case it was not.