By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A $34.2 million claim against UBS (Bahamas), which has connections to Bernard Madoff’s infamous multi-billion dollar Ponzi scheme, was yesterday reinstated by the Court of Appeal.
Court president Anita Allen, in a ruling that was backed by her two fellow judges, threw out the decision by Chief Justice Sir Michael Barnett to strike out a Swiss bank’s claim against its Bahamian counterpart on the grounds that it was “unsafe”.
Re-opening UBS (Bahamas) exposure to a potentially significant multi-million dollar liability, the Court of Appeal noted that Sir Michael had initially dismissed Standard Chartered Bank (Switzerland’s) action on the grounds it “could not be sustained”.
Justice Allen’s judgment recalled that the dispute stemmed from a $34.2 million debt owed to UBS (Bahamas) by an unnamed client, referred to as ‘CIF’.
The debt was secured by the client’s pledge of shares in two investment funds - 98,068 shares in the Kingate Global Fund, and 36,356 shares in the Thema Fund.
Standard Chartered then agreed to pay off the debt owed to UBS (Bahamas) in full, in exchange for taking over the fund shares held by the Bahamian bank and using them as collateral for the loan to the client.
This was agreed via a series of wire messages between November 10-12, 2008, and Standard Chartered duly paid the $34.2 million to UBS (Bahamas), which then started the process of transferring the fund shares to the Swiss banks.
It was then that the two investment funds, and the value of the shares (security) collapsed, because they were invested in Madoff’s Ponzi fraud.
Trading in the shares of both funds was suspended before they could be transferred from UBS (Bahamas) to Standard Chartered, and as a result the Swiss bank started legal proceedings in the Bahamian Supreme Court.
It sought the return of the $34.2 million on the grounds that as the shares could no longer be transferred, the conditions for the initial payment could not be met. Therefore, Standard Chartered alleged it was entitled to a return of its money.
Sir Michael struck out the case on the grounds that it disclosed “no reasonable course of action”. He ruled that Standard Chartered’s claim “cannot be sustained”, and that it must bear the loss caused by the erosion of the fund shares’ value.
“It would be an abuse of process and a waste of judicial time to allow it to proceed,” he found, arguing that all the relevant evidence was before the Supreme Court.
However, the Court of Appeal disagreed. It noted that UBS (Bahamas) attorney, Brian Simms QC, said at the Supreme Court hearing that he would provide evidence the shares could be transferred by the funds’ liquidator. And Margaret Gonsalves-Sabola, for the Swiss bank, said she would produce expert witnesses.
This, the Court of Appeal found, contradicted Sir Michael’s findings that all evidence was in the affidavits before him, and suggested instead that it was “incomplete”.
And, “more indicative of the need for this matter to be remitted to the Supreme Court”, the Court of Appeal found the Chief Justice failed to take into account pleas cited by Standard Chartered other than the basis he used to strike it out.
“A matter cannot be entirely struck out, effectively barring a litigant from the ventilation of all his issues on the basis of an alleged deficiency in only one of the issues pleaded,” Justice Allen said.
Because the Chief Justice failed to account for all the issues raised, the Court of Appeal said this also made his ‘strike out’ decision “unsafe”.
The case has thus been reinstated, and sent back to the Supreme Court before a different judge.
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