By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
UBS (Bahamas) has seen its bid to appeal the reinstatement of a $34.2 million claim linked to Bernard Madoff’s infamous ‘Ponzi’ scheme to the Privy Council rejected by the Court of Appeal.
Court president, Justice Anita Allen, in a ruling backed by her two fellow appeal judges, reiterated that the case also involving Standard Chartered Bank (Switzerland) was “not a proper case for a strike out”.
Sir Michael Barnett, the Chief Justice, had struck out the action relating to a $34.2 million debt Standard Chartered had agreed to assume from UBS (Bahamas) at the preliminary stages in the Supreme Court.
However, Standard Chartered was successful in an earlier appeal to have the matter reinstated, with the Court of Appeal last year remitting the case back to the Supreme Court for a hearing on the merits.
However, UBS (Bahamas) and its attorney, Brian Simms QC of Lennox Paton, subsequently sought leave from the Court of Appeal to appeal its ‘action reinstatement’ decision to the Privy Council.
Justice Allen and her fellow judges rejected this, though, on the grounds that the legal issue raised by UBS (Bahamas) was “not one of general public importance”, and because the Privy Council could not deal with the matter prior to a Supreme Court trial on the merits of the case.
Mr Simms and UBS (Bahamas) argued that a ‘strike out’ would save time and costs, and that numerous such cases had been successfully argued at the Court of Appeal.
They argued that among the issues of public importance were whether UBS (Bahamas) was holding the shares at the centre of the dispute ‘on trust’ for Standard Chartered, and whether the Bahamian institution, having filled out the transfer form, had fulfilled all its obligation.
Justice Allen, though, found that these issues were ones “of fact” that needed to be determined by the Supreme Court, and that Sir Michael was wrong to dismiss these issues without trial.
“Consequently, we believe it would be premature to send the matter to the Privy Council when all of the facts have not been established,” Justice Allen said.
“We maintain that this matter was not a proper case for a strike-out. In the premises, the parties now have an opportunity to fully put before the court the facts on which they rely for a determination to be made on those facts.”
Justice Allen added that there was “no good reason” to grant UBS (Bahamas) leave to appeal to the Privy Council at this point, adding that the arguments between the two parties “demonstrate that the case was not a plain and obvious one for a strike out”.
The case stems from a dispute over 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 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 Mr Simms 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.
Comments
Reality_Check 9 years, 12 months ago
Sir Michael was right in his finding, assuming of course UBS had no prior knowledge of the impairment in value or transfer restrictions that would impact the security for the debt at the time it was sold/assigned to Standard Chartered. Consistent with the normal conventions between banks for inter-bank transactions such as this one, from the very instant UBS received the $34.2 million from Standard Chartered, UBS was no longer holding for the benefit of itself the security for the debt purchased by Standard Chartered. At that very instant UBS became a de facto custodial agent/trustee for Standard Chartered in holding the security for the debt now owned by Standard Chartered, which custody agent/trustee relationship was intended to remain in place pending whatever usual formalities would be required on UBS's part to effect the agreed transfer of the security for the debt to Standard Chartered. The fact that the value of the security for the debt plummeted in the intervening period, from the instant UBS received the $34.2 million to the time it was prevented (presumably by third parties acting pursuant to one or more Court orders) from transferring the security for the debt to Standard Chartered (as the new owner of the debt), does not absolve Standard Chartered from the risk of loss that it assumed on the "trade date" of the sale of debt transaction. Absent an express agreement between UBS and Standard Chartered to the effect that the former would retain the risk of loss pending the usual formalities to achieve the re-registration of the security for the debt now held by UBS as custody agent/trustee for Standard Chartered, then any loss in value of the security in the intervening period between trade and settlement date properly rests with Standard Chartered. Please, do we really need to waste the Supreme Court's time on this matter which can be easily decided by reference to the documentation supporting the transaction and/or generally well known conventions that exist between financial institutions for such common inter-bank activity?
Reality_Check 9 years, 12 months ago
I might add that the parties here never intended that UBS would at anytime be receiving from Standard Chartered a loan of $34.2 million that would be secured by the shares issued by the mutual funds concerned. This is essential the substance of the relationship that Standard Chartered is now trying to claim exists.....but does it really have any leg to stand on in doing so?!
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