Richard Crump, 20 April 2021
A Cayman Islands investment fund urged the highest court for overseas British territories on Tuesday to revive its breach of contract claim against Bank of Bermuda and an HSBC subsidiary for $2 billion in damages as the result of losses from Bernie Madoff’s massive Ponzi scheme.
Primeo Fund said the Judicial Committee of the Privy Council, which sits in London, should overturn a decision by the Court of Appeal of the Cayman Islands that the fund’s claims are barred by the reflective loss principle. That rule prevents shareholders from bringing a claim for personal losses arising from a breach of duty or contract owed to the company they have invested in.
Primeo’s counsel, Tom Smith QC, told the Judicial Committee that the Cayman appeals court had found Bank of Bermuda (Cayman) Ltd. and HSBC Securities Services (Luxembourg) SA negligently breached their contractual duties as the fund’s administrator and custodian, respectively, but had “erroneously” adopted an expansive approach to the principle of reflective loss.
The Cayman court dismissed the claim because Primeo’s direct investments in Bernard L Madoff Investment Securities LLC, referred to as BLMIS, the main vehicle of Madoff’s fraud, were transferred in 2007 into an indirect investment held by feeder fund Herald Fund SPC in return for shares in the fund.