Heis & Ors v Attestor Value Master Fund LP & Anor

A distribution from a client money pool reduces the client’s parallel contractual claim and the amount provable in the firm’s insolvency. The client money trust remains directed to protecting clients’ contractual rights after a primary pooling event, despite the pooling and different valuation basis.

The rule against double proof is substantive. A client cannot prove both for a contractual claim and a shortfall claim where they are, in substance, claims for the same liability. That rule does not prevent proof of a trust shortfall exceeding the contractual claim, or where no contractual claim exists. Equitable compensation for breach of the client money trust is assessed by reference to the client’s express rights under the rules, so the excess shortfall may be proved.

The joint administrators of MF Global UK Limited sought directions concerning the interaction between distributions from the client money pool and claims against the company’s general estate.

The application concerned three issues: whether client money distributions reduced proofs for parallel contractual claims; whether a client could prove for a shortfall in the client money trust; and whether any shortfall claim was limited to the client’s contractual claim.

The respondents represented clients whose open positions had later closed out at values respectively below and above their market values at the primary pooling event.

1. Parallel claims. The client money arrangements protect clients by requiring segregated funds to be held for amounts due, or treated as due, under their contracts. That purpose continues after a primary pooling event. A distribution from the client money pool therefore reduces the client’s contractual liability and the amount for which the client may prove against the general estate. This applies whether the distribution occurs before or after submission of the proof.
2. Effect of a primary pooling event. CASS 7 and 7A create a single trust. The primary pooling event changes the beneficial interests in the pooled fund and provides a mechanism for distributing it, but does not create a new trust detached from the contracts. Market valuation at the event date is a proxy for the contractual claim and does not confer a windfall or sever the connection with the contract.
3. Double proof. The rule against double proof is a test of substance rather than form. The court must examine whether competing claims are, in substance, claims for payment of the same debt twice over. A shortfall claim and the balance of a contractual claim cannot both rank where payment of the former would reduce the latter. The shortfall claim is nevertheless provable to the extent that it exceeds the contractual claim, or where the client has no contractual claim.
4. Equitable compensation. The administrators’ reliance on Target Holdings Ltd v Redferns [1996] 1 AC 421 did not limit the shortfall claim to contractual loss. Where the firm failed to maintain the client money required by CASS 7 and clients consequently received less than their express client money entitlement, they suffered actual loss caused by breach of trust. The clients represented by Attestor could therefore prove for the excess shortfall.
5. The court accepted the administrators’ submissions on the first and second issues and rejected them on the third. The parties were invited to agree an order containing declarations or directions giving effect to those conclusions.