The Grand Court has dismissed allegations that several Cayman-registered funds and their directors were a part of a scheme to violate international sanctions placed on Libya.
The case stems from former Libya dictator Muammar Gaddafi being overthrown and killed by Western-backed rebels in that country in 2011.
After the Gaddafi regime was overthrown, disputes started over the control of the Libyan Investment Authority – a state-owned sovereign wealth fund that was meant to assist economic development in Libya – which controls and has some US$700 million invested in the Cayman-registered funds. The judgment states that the dispute over the Libyan Investment Authority has continued since October 2014, and Libya is widely considered to be a failed state to this day.
In 2014, the directors of the Libyan Investment Authority decided to remove the Dutch-based Palladyne International Asset Management as the director of the Cayman-registered funds. They decided to do this after finding out that Palladyne’s director, Ismael Abudher – who had ties to the Gaddafi regime – was allegedly being investigated for fraud in Amsterdam.
Mr. Abudher’s father-in-law served as Mr. Gaddafi’s prime minister.
In July 2014, the directors sent letters to Palladyne, notifying the company that they were removing all its authority over the Cayman-registered funds. The letters allege that Palladyne director Mr. Abudher had initiated a scam consultancy agreement with his brother-in-law, and transferred hundreds of thousands of dollars to him.
The letters also state that Palladyne and its director are being investigated for money-laundering and forgery in the Netherlands.
“It goes without saying that this investigation can be damaging to the reputation of [the Cayman funds] and the Libyan Investment Authority and is evidence that [Palladyne] has not acted in the best interests of [the Cayman funds],” the letter states.
However, Palladyne disputed the decision to remove it as the director of the Cayman funds, and sued the directors in Cayman.
Palladyne alleged that the decision to remove it as the director violated international sanctions placed on Libya in early 2011, leading up to the regime-change there. Palladyne also argued that the directors were knowingly violating the international sanctions, and were trying to take control of the funds’ resources for their own use.
“[Palladyne] contended that the evidence established that the Defendants were knowingly and intentionally participating in [activities], the object or effect of which was to circumvent [international sanctions],” states the Grand Court judgment, adding that Palladyne said the point of circumventing the sanctions was “liquidating the assets and/or unfreezing them and/or enabling the Libyan Investment Authority to have greater control over their management.”
The Libyan Investment Authority strongly disputed the allegations levied by Palladyne.
The Libyan Investment Authority stated that directors of the Cayman fund wanted to remove Palladyne so that the assets of the Cayman funds can be liquidated and converted from securities to cash. However, it was never their intention to actually take control of the funds, the judgment states.
“Ownership or control of the Funds (or even control of the assets, in the sense of being able to prevent any other person from using or dissipating them) is not the same thing as having access to them or being able to use them,” the defendants argued. “The Sanctions Order does not prohibit the control of funds, a point made clear in the EU guidance.”
The defendants’ evidence also included a letter from Financial Secretary Kenneth Jefferson, who stated that the actions by the Libyan investors are not subject to this jurisdiction’s sanctions.
Grand Court Justice Nicholas Segal sided against Palladyne, ruling that there was no evidence that the defendants intended to violate international sanctions.
“The evidence of the Defendants’ witnesses and the contemporary documents make it clear that the individuals concerned always had in mind the need to comply with the UN sanctions regime,” he stated in his judgment.
Further, Justice Segal stated that the Libyan Investment Authority had valid reasons for wanting to remove Palladyne as the director of the funds.
“[The] concerns regarding the risks faced by the Libyan Investors in leaving [Palladyne] in control of the substantial investments held for the Libyan state were real and genuine,” he stated. “There were clearly a number of grounds for concern which included fees, performance and the absence or slow delivery of information.”
A press release from Appleby, which represented the defendants, states that a party claiming to be chairman of the Libyan Investment Authority has attempted to reappoint Palladyne as the sole director of the Cayman funds and remove the other directors. This was done shortly before the judgment was rendered, according to Appleby.