The High Court has deferred its decision on whether Headstart Global Fund Limited can recover US$5 million paid into a fund account and later transferred to an account held by RMF Market Neutral Strategies (Master) Limited at Citco Bank Nederland NV.
In a judgment delivered on 30 July 2010, Mr Justice Clarke found on the evidence before him that the payment was part of a fraudulent scheme by Dr Alberto Micalizzi to obtain money from Headstart to meet urgent cash-flow demands. The money was transferred through accounts associated with the DD funds and used in part to pay a debt owed to RMF. The funds in RMF’s Citco account had been frozen pending the proceedings.
Headstart alleged that the payment followed a fraudulent repo transaction and argued that the money remained its property as it passed through the accounts. RMF did not dispute that it was owed at least US$5 million by DD2X, or that the payment it received discharged a genuine debt. It contested Headstart’s claim to the money. Citco made no accusation against itself and agreed to abide by the court’s order. Nexus Management Pty Limited did not appear or take part.
The judge said the evidence showed that Dr Micalizzi had knowingly given investors a false picture of the DD funds’ condition and liquidity. He was not satisfied, however, that Nexus knew of Dr Micalizzi’s fraudulent intent. The court also found that Dr Micalizzi’s absence as a party did not prevent it from considering the evidence, because no relief was sought against him and the judgment could not bind him.
The unresolved issue was whether the relevant DD funds could be held responsible for the fraud and whether Headstart could trace its money through their accounts. Those funds were in insolvency proceedings in the Cayman Islands. The judge said a ruling in Headstart’s favour could affect the funds’ property interests and the rights of their creditors, including the funds’ liquidators and other creditors who were not parties to the case. They needed an opportunity to be heard before the court made findings affecting those interests.
The court made no final order on ownership or recovery of the money. Justice Clarke invited the parties to make submissions on the consequences of his judgment and said the matter would be relisted for further consideration.