Primeo is a Cayman Islands investment fund (in liquidation) which invested with the infamous Bernard L Madoff Investment Securities LLC from 1993 to 2008. Primeo appointed BBCL (Bank of Bermuda (Cayman) Ltd) and HSSL (HSBC Securities Services (Luxembourg) S.A.) as administrator and custodian respectively when both entities were under the umbrella of the Bank of Bermuda group of companies – both of which were acquired by HSBC in 2004. In 2003, Primeo began investing indirectly by investing in two Madoff feeder funds – “Alpha” and “Herald”.

Primeo entered into liquidation in the fall out from Madoff’s arrest in 2008 and the joint official liquidators sued BBCL and HSSL as administrator and custodian in 2013. At first instance, the Grand Court held that the rule against reflective loss barred the recovery of Primeo’s alleged loss as it was seeking to recover its loss on foot of the diminution of its shareholdings in Alpha and Herald. (That is to say that the loss is indistinguishable from the loss to the company and is merely reflective of the loss suffered by the company. Its recovery by shareholders is prohibited on the grounds of double recovery and for policy reasons.) The Court also found that Primeo had failed to prove a breach of duty on the parts of BBCL and HSSL.

Primeo appealed against the decision of the Grand Court and judgment in the appeal was handed down on 13 June 2019. In a wide-ranging judgment, the Court of Appeal dismissed Primeo’s arguments on reflective loss. The Court of Appeal found, on the facts, that where claims brought against HSSL and other HSBC defendants by Alpha and Herald in Luxembourg had a real prospect of success, there was no reason to interfere with the Grand Court’s findings at first instance. The Court of Appeal’s findings disposed of Primeo’s appeal in its entirety but the Court went on to consider (obiter) various other aspects of Primeo’s appeal, including the claims made against the custodian and administrator, the causation issue, contributory negligence and the limitation period.

The decision affirms the importance of litigation being commenced by the correct plaintiffs. It is a useful guideline for Madoff litigants and the Cayman Islands funds industry at large.