Victory could spell trouble for Caledonian
The English Commercial Court recently awarded a summary judgement to the liquidated Cayman Islands’ company Architects of Wine in a US$1.3 million claim against Barclays Bank PCL.
The judgement, if it withstands a possible appeal, will allow liquidator Chris Johnson Associates Ltd. to engage in a wider effort to recover some of the US$25 million lost by defrauded investors in a wine futures scheme.
Although he declined to specify from whom he would seek to recover funds, Mr. Johnson did offer some hints.
‘We would normally look at anyone that represented the company, including directors and advisors.’
The Caledonian Bank and Trust here in Cayman provided the directors of Architects of Wine and its parent company, Paradigm Holdings Limited, which was also put into liquidation last August.
Although Caledonian Bank only provided directors for Paradigm and AOW for less than two months between the end of July 2003 and 13 September 2003, Mr. Johnson was critical of its role in his report to the creditors of Paradigm and AOW dated 31 March 2005.
‘As a result of their involvement, Caledonian would, or should, have known the financial status of the [Paradigm group],’ the report stated.
Mr. Johnson pointed out in the report that for a time the directors and officers of both Paradigm and AOW were officers or employees of Caledonian and that the directors consisted of four people, including the bank’s managing director and two chartered accountants.
‘During this period of time, the bank maintained almost of all of the bank accounts of [Paradigm’s] Cayman subsidiaries and, since the directors signed the cheques, they should have been familiar with the transactions of these companies,’ the report stated.
The report’s conclusion, however, does not specifically find any wrongdoing by Caledonian.
‘Whilst no strict evidence of impropriety has yet come to light, the conduct of [Robert] Middlemiss and Caledonian directors is, if not reckless, certainly highly questionable.’
Paradigm’s sole shareholder was Australian national Robert Middlemiss. The company sold, through its many subsidiaries, wine futures contracts to investors, many of whom were physicians in the United States.
The scheme began to unravel after a Cease and Desist Order was issued against AOW in Arkansas, which caused Cayman’s First Caribbean International Bank to refuse any further transactions on the company’s accounts here.
Subsequently, more than US$1 million of cheques made payable to AOW for the purchase of wine contracts were instead deposited into a Barclays’ account in London owned by a separate UK-based entity, Architects of Wine (UK) Limited.
In the claim against Barclays, it was argued that acceptance of the funds of one company (AOW) into the account of another company (AOW UK) was wrongful conversion of AOW property.
Barclays contended, among other things, that Mr. Middlemiss, as the sole shareholder and the sole director at the time of Paradigm, he had the authority to reach an agreement with AOW UK so that the AOW cheques could be paid into its account
However, the Court did not accept Barclays’ arguments.
The Bank now has until Wednesday to appeal.
Mr. Johnson praised his London legal firm, SimmonsCooper Andrew, whose managing partner Seamus Andrew, was formerly with Walkers here in Cayman.
‘We are particularly pleased by the decision, especially as it is so hard to find a UK legal firm that is willing and able to sue a clearing bank,’ he said.
Mr. Johnson noted that a 2004 survey in The Lawyer magazine indicated that only four of the UK’s top 30 law firms would be willing to sue a clearing bank like Barclays due to the effect it would have on the corporate and finance aspirations of the firm.
The victory over Barclays is unprecedented in the world of liquidators, Mr. Johnson said, likening it to David versus Goliath.