Old Park Capital Maestro Fund Limited v Old Park Capital Limited (in liquidation) & Ors

The Fund invested in unrated, illiquid commercial paper issued by Kingsway Asset Management Ltd (the KAM CP) as part of its cash management for the Maestro strategy. The Offering Memorandum described the Maestro strategy and stated the Fund would invest in exchange traded futures and money market instruments. The court held that key passages in the Offering Memorandum did not fully and accurately describe the actual investment approach because they failed to disclose that the Fund would, in practice, invest materially in the KAM CP.

Mr Pannetier (BP) was held to have knowingly given, or to have been reckless about, misleading confirmations as to the completeness and accuracy of the Offering Memorandum and so was liable in deceit for losses from the unpaid tranches of KAM CP. Mr van Kuffeler (HVK) made inaccurate statements but the court found those statements arose from genuine mistake or reliance on BP and were not dishonest; his claims therefore failed. The court also found that OPC (the manager) breached its contractual and quasi‑trust duties by imprudently investing a large proportion of the Fund in illiquid KAM CP, but judgment against OPC was stayed by s130(2) Insolvency Act 1986.

Background and parties: The claimant, Old Park Capital Maestro Fund Limited (the Fund), is a Cayman Islands investment fund. Old Park Capital Limited (OPC) was the Fund's investment manager. The defendants were OPC, Mr Hugo van Kuffeler (HVK, COO of OPC and a Fund director) and Mr Bruno Pannetier (BP, OPC investment professional). The Fund invested in six tranches of commercial paper issued by Kingsway Asset Management Ltd (KAM). Three tranches defaulted and the Fund claimed against OPC, HVK and BP for various torts and breaches of duty.

Nature of the claim and relief sought: The Fund sued for breach of contract by OPC under the investment management agreement (IMA), breach of trust/misapplication of assets, deceit and misrepresentation, breach of fiduciary duties by directors, dishonest assistance, inducing breaches of contract, unlawful means conspiracy and consequential losses arising from unpaid KAM CP. It sought damages and other relief.

Principal issues:

• Whether a pre‑existing arrangement or "Consortium" (and an "Undisclosed Purpose") existed so that the Fund was in truth to cash‑flow Consortium projects.
• Whether the Offering Memorandum and oral assurances at the board meeting were false or incomplete representations as to the Fund's investment approach (in particular whether they concealed investment in illiquid KAM CP).
• Whether BP or HVK made representations dishonestly (deceit) or recklessly.
• Whether OPC, BP or HVK breached contractual, fiduciary or trust duties and whether any liability was excluded by contractual exoneration clauses.
• Limitation and mitigation issues.

Court reasoning and findings:

• The court found an arrangement or understanding pre‑launch between BP and TP for the Fund to invest in KAM CP, and that HVK was aware of that arrangement, though HVK did not form or control it.
• The Offering Memorandum permitted investment in "money market instruments" and did not absolutely prohibit illiquid instruments; however, the Offering Memorandum failed to disclose that the Fund would in practice invest materially in KAM CP, so the Offering Memorandum was incomplete for the purpose of informing investors and directors.
• HVK confirmed at the board meeting that the Offering Memorandum accurately and completely described the Fund's investment objectives and approach. BP had substantially settled the drafting. Those confirmations (the "Investment Strategy Representations") were held to have been made.
• BP knew the Offering Memorandum omitted that the Fund would in practice invest in KAM CP and gave the Investment Strategy Representations dishonestly (or recklessly). His motive was to avoid diluting the Fund's advertised returns by placing cash in higher‑yielding but riskier investments. That dishonesty satisfied the elements of deceit and causation: the Fund was induced to appoint OPC and the Fund invested in the KAM CP with losses flowing from Kingsway's defaults.
• HVK had made inaccurate statements but they were the product of mistaken recollection and reliance on BP's expertise; the court did not find HVK dishonest. His failures to disclose what he knew were at most negligent or omissions, and covered by contractual exoneration clauses in the DSA and the Fund's articles.
• OPC breached the IMA by imprudently concentrating a large proportion of Fund assets in illiquid KAM CP; that conduct also amounted to breach of fiduciary/quasi‑trust duties. The claim against OPC is stayed under s130(2) Insolvency Act 1986 and not finally determined.
• Limitation: the court rejected BP's limitation defence, finding the Fund could not, with reasonable diligence, have discovered the relevant concealed pre‑launch arrangement before disclosure arising later in the litigation.

Result: The deceit claim against BP succeeded in respect of losses on the unpaid KAM CP. All claims against HVK failed. OPC was found to have breached its contractual and fiduciary/quasi‑trust obligations, but judgment against OPC is stayed by insolvency.

At first instance the court held that the Fund's deceit claim against Mr Bruno Pannetier succeeds because he knowingly or recklessly induced the Fund (via false assurances as to the completeness of the Offering Memorandum) to appoint OPC and to invest in KAM CP; those representations were untrue and caused the Fund’s losses. All claims against Mr Hugo van Kuffeler fail: his inaccurate statements arose from mistake or reliance and were not dishonest. OPC breached contract and quasi‑trust duties by imprudently concentrating Fund assets in illiquid KAM CP, but judgment against OPC is stayed under s130(2) Insolvency Act 1986. The court awarded that damages for the unpaid KAM CP are recoverable from BP (quantum to be determined).