The High Court dismissed Headstart Global Fund Limited’s claim to US$5 million it said had been procured through a fraudulent scheme and ultimately reached an RMF account at Citco in Dublin. The judgment gave several independent grounds for dismissal, including that relevant funds were not parties to the case and that the money could not be traced to the account on Headstart’s case.
Mr Justice Clarke delivered the judgment on 10 January 2011, following a partial judgment in July 2010. In that earlier decision, the court had found that Dr Micalizzi operated a fraudulent scheme that led to Headstart’s money being paid over. It had not found that Nexus Management Pty Limited knowingly participated in the fraud. The current judgment said Nexus was no longer relevant to the claim.
Headstart claimed the funds had passed through accounts associated with the Master Fund and DD2X before reaching RMF. RMF argued that it received the payment in discharge of a legitimate debt and retained ownership. Citco said it would abide by any court order. The liquidators of the Master Fund and DD2X said the money held by RMF should be repaid and expressed the view that Headstart’s claims against the funds belonged in their Cayman Islands liquidation proceedings. Headstart did not apply to join the liquidators or the funds to this case.
The judge held that deciding who owned the money at stages when it was held by funds absent from the proceedings could affect their interests. He dismissed the claim on that ground, while also addressing the merits in case that conclusion was wrong.
On tracing, the court applied the rule in Clayton’s case, under which money paid into an account is generally treated as leaving in the order it arrived. The Master Fund account already held substantial funds when Headstart’s US$5 million arrived. The judge concluded that the payment out to DD2X could not be treated as Headstart’s money simply because it followed soon after. He said the tracing claim would therefore stop at the Master Fund account.
The judge also found that RMF received payment for value because it gave up part of its investment interest in return for redemption proceeds. It had no notice of any defect in title and qualified as a bona fide purchaser for value. Separately, the court concluded that the US$5 million had been paid out of the Citco account in ordinary business before the account was frozen on 1 April 2009, leaving no continuing claim to the funds in that account.
The court considered allegations that a private investigator had improperly obtained transaction information. It made no finding on whether wrongdoing occurred, saying there was no evidence to decide between the possible explanations. The judge said that, even if improper conduct had been established, it would not have justified refusing relief if Headstart had otherwise proved entitlement to the money.
The proceedings were dismissed. The court made no order in Headstart’s favour.