Primeo Fund (in Official Liquidation) v Bank of Bermuda (Cayman) Ltd and another (Cayman Islands)

A claimant who pays money to a custodian operating a fraudulent Ponzi scheme suffers real and measurable loss when the money is misappropriated, even if later repayments mitigate the loss and precise quantification is difficult. The counterfactual must reflect the true position, not the fraudster’s apparent records.

An appellate court should permit a new point only with great caution after a full trial. Finality prevails where further evidence or inquiry is needed, or the respondent would suffer prejudice. Under the Limitation Act (1996 Revision), deliberate means conscious and intentional; recklessness is insufficient. An independent contractor may be an agent for limitation purposes. Contributory negligence may reduce damages for concurrent contractual and tortious duties, but not for a specific contractual safeguards obligation lacking a concurrent tort duty.

Primeo, an investment fund placed into liquidation after the collapse of Bernard Madoff’s Ponzi scheme, claimed damages from HSBC Securities Services (Luxembourg) SA and Bank of Bermuda (Cayman) Ltd for breaches of custodial and administration duties.

The Grand Court found breaches but dismissed the claims on reflective-loss, causation, limitation and loss grounds, and would have reduced damages against the Bank of Bermuda by 75%: 2017 (2) CILR 334. The Cayman Islands Court of Appeal upheld the reflective-loss defence, allowed the strict-liability loss claim, directed further consideration of loss of chance and appropriation issues, held contributory negligence available against HSBC, and reduced the Bank of Bermuda deduction to 50%: 2019 (2) CILR 1.

Following the Board’s earlier decision on reflective loss, [2021] UKPC 22, the remaining issues concerned custodial loss, administration negligence, limitation, appellate finality and contributory negligence.

Appeal allowed in part. The judgment was delivered as a single judgment to which all five members of the Board contributed.

1. Loss and administration. Primeo suffered immediate, real and measurable loss whenever BLMIS misappropriated investment cash. The true counterfactual was compliance with the safekeeping duty, not the continued operation of the fraud. The Herald Transfer did not rectify earlier breaches or eliminate Primeo’s claims. Repayments were relevant to mitigation. The Bank of Bermuda was negligent from 2002 and grossly negligent from April or early May 2005, remaining grossly negligent after the KPMG reports because there had been no independent, multi-source verification of the assets underpinning the NAV.
2. Finality on appeal. A pure point of law may sometimes be raised for the first time on appeal, but great caution is required after a full trial. The assumption-of-responsibility, appropriation, running-account and loss-of-chance arguments required evidence or further factual inquiry and risked prejudice. They were therefore too late. The Court of Appeal should not have remitted those matters for a further assessment.
3. Limitation. Under section 37(2) of the Limitation Act (1996 Revision), deliberate commission requires a conscious and intentional breach; recklessness is insufficient. Fault-based causes accruing before 20 February 2007 were time-barred. BLMIS was nevertheless HSBC’s agent when performing HSBC’s custodial obligations. Its deliberate concealment was therefore attributable to HSBC under section 37(1)(b), preserving the strict-liability claim.
4. Contributory negligence. The defence is available for a contractual duty of care concurrent with a tortious duty. It applied to the Bank of Bermuda’s administration claim. HSBC’s obligation was instead a specific contractual safeguards duty, and no concurrent tort duty was established; contributory negligence was unavailable against HSBC. The 50% reduction against the Bank of Bermuda was within the proper appellate assessment.

• Privy Council: On the present appeal, the Board allowed the appeal in part.
• Cayman Islands Court of Appeal: The Court dismissed the reflective-loss claim, allowed the strict-liability loss claim, directed further consideration of causation and appropriation, held contributory negligence available against HSBC, and reduced the Bank of Bermuda’s deduction to 50%: 2019 (2) CILR 1.
• Grand Court of the Cayman Islands: The trial judge found breaches but dismissed the claims on reflective-loss, causation, limitation and loss grounds, and assessed a possible 75% contributory-negligence reduction against the Bank of Bermuda: 2017 (2) CILR 334.