The Cayman Islands Court of Appeal ruled last week that the defunct Argyle Funds SPC can sue several branches of the accounting firm BDO in a New York court for allegedly failing to spot fraud by two of the fund’s credit advisers.
Argyle, which is in liquidation in Cayman, originally sued BDO Cayman and several of its affiliates in the Supreme Court of the State of New York for at least US$86 million, because the fund said failing to spot the frauds cost it millions of dollars and caused it to enter liquidation. BDO Cayman and its affiliates have denied these claims, and Grand Court Justice Raj Parker has called some of Argyle’s allegations “weak claims.”
In February, Justice Parker granted BDO Cayman’s request for an anti-suit injunction against Argyle, restraining Argyle from continuing the New York proceedings against BDO Cayman and its affiliates – the Trinidad-based BDO Trinity was subcontracted by BDO Cayman to do some of the auditing work, and other affiliates BDO USA and Schwartz & Co. LLP were also allegedly involved in the process.
Argyle did not appeal Justice Parker’s order against suing BDO Cayman in New York – the fund is instead pursuing its claims via arbitration – but the fund did appeal the order against suing the other BDO branches.
At a court hearing in September, Argyle attorney Clare Stanley QC said that her client has issued a demand for arbitration against BDO Cayman, which would be held in private.
Ms. Stanley said at the September hearing that Argyle should be able to sue BDO Cayman’s affiliates in New York because the lawsuits involve allegations of fraud or willful misconduct. While Justice Parker called these allegations “weak” in his order, he should only prevent the New York lawsuit if the allegations meet the threshold of “vexatious” or “bogus and absurd,” Ms. Stanley argued.
Ms. Stanley also said the United States is likely the only venue where her client could sue the affiliates.
BDO’s attorney, Graham Chapman QC, countered that even if it were the case that Argyle could not get the BDO Cayman affiliates to submit to this jurisdiction, that was a risk the fund ran when it signed its contract.
Mr. Chapman also said at the September hearing that the contract between Argyle and BDO Cayman clearly stipulates that disputes should be handled here. However, the appeals court rejected Mr. Chapman’s arguments.
“Mr. Chapman argued that Argyle, in agreeing to the Exclusive Jurisdiction Clause, took the risk that a third party sued under the carve-out would not be subject to the jurisdiction of the Cayman Islands’ Courts. I reject this contention,” wrote Justice of Appeal Sir Richard Field in his judgment, concluding, “It follows that there was no sustainable basis for restraining Argyle from continuing the New York proceedings against the Affiliates in respect of the 2011, 2012 and 2013 audits.”