Summary
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.
Factual background
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.
Held
Appeal allowed in part. The judgment was delivered as a single judgment to which all five members of the Board contributed.
- 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.
- 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.
- 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.
- 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.
The court’s approach to earlier authorities
Available to signed-in members.
Appellate history
- 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.
Appeal route
- Appealed from2019 (2) CILR 1This appealappeal allowed in part
- This judgment [2023] UKPC 40 Privy Council
Key cases cited
The 30 most senior of 58 authorities cited.
- Canada Square Operations Ltd v Potter [2023] UKSC 41
- AIC Ltd v Federal Airports Authority of Nigeria [2022] UKSC 16
- Burnett or Grant v International Insurance Company of Hanover Ltd [2021] UKSC 12
- Test Claimants in the Franked Investment Income Group Litigation and others v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 47
- Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC and others [2020] UKSC 24
- O (A Child) v Rhodes (Rhodes v OPO) [2015] UKSC 32
- Law Society (Original Respondents and Cross-appellants)v.Sephton & Co (a firm) (Original Appellants and Cross-respondents) and another and others (Original Appellants and Cross-respondents) [2006] UKHL 22
- Regina v. G and another (Appellants) (On Appeal from the Court of Appeal (Criminal Division)). [2003] UKHL 50
- Standard Chartered Bank (Respondents) v Pakistan National Shipping Corporation (Appellants) Standard Chartered Bank (Appellants) v Pakistan National Shipping Corporation and Others and Another (Respondents) and Others [2002] UKHL 43
- Cave v. Robinson Jarvis & Rolf (A Firm) [2002] UKHL 18
- Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (formerly Edward Erdman) (No 2) [1997] 1 WLR 1627
- Forsikringsaktieselskapet Vesta v Butcher (Bain Dawes Ltd v Aquacultural Insurance Services Ltd) [1989] AC 852
- Farrell v Alexander [1977] AC 59
- Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555
- Wilsons & Clyde Coal Co v English [1938] AC 57
- Deeley v Lloyds Bank Ltd [1912] AC 756
- Henderson v Henderson (1843) 3 Hare 100
- Canada Square Operations Ltd v Potter [2021] EWCA Civ 339
- UK Learning Academy Ltd v Secretary of State for Education [2020] EWCA Civ 370
- Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337
- Singh v Dass [2019] EWCA Civ 360
- Fage UK Ltd & Anor v Chobani UK Ltd & Anor [2014] EWCA Civ 5
- Co-Operative Group (CWS) Ltd v Pritchard [2011] EWCA Civ 329
- AIC Ltd v ITS Testing Services (UK) Ltd "The Kriti Palm" [2006] EWCA Civ 1601
- Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041
- Jones v MBNA International Bank [2000] EWCA Civ 514
- Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602
- Barclays Bank Plc v Fairclough Building Ltd [1995] QB 214
- Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59
- Thomas v Quartermaine (1887) 18 QBD 685
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Cases citing this case
9 later cases · 6 positive · 3 neutral
Most senior citing decisions:
- Ian Green v Public Service Commission (Trinidad and Tobago); Ian Green and another v Public Service Commission No 2 (Trinidad and Tobago) [2026] UKPC 20 applied
- THG Plc v Zedra Trust Company (Jersey) Ltd [2026] UKSC 6 considered
- Nasir v Zavarco plc [2025] UKSC 5 considered
- The Special Tribunal v The Estate Police Association (Trinidad and Tobago) [2024] UKPC 13
- Yello Voice Solutions Limited v Onecom Partners Limited [2026] EWHC 1856 (Comm)
- Sutton and East Surrey Water Plc v Monarch Chemicals Limited & Anor [2026] EWHC 1260 (TCC)
- Laurence Pagden & Ors v Mark Robert Fry & Anor [2025] EWHC 1918 (Ch)
- Sean Lindsay v Jared O’Loughnane & Ors [2025] EWHC 973 (KB)
- Vesuvius Plc & Ors v Glenn Cowie [2025] EAT 183
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