Kingate Global Fund Ltd and Another v Kingate Management Ltd and Others

CourtSupreme Court (Bermuda)
Judgment Date25 September 2015
Neutral Citation[2015] SC Bda 65 Com
Date25 September 2015

[2015] SC (Bda) 65 Com

In The Supreme Court of Bermuda



(1) Kingate Global Fund Limited (In Liquidation)
(2) Kingate Euro Fund Limited (In Liquidation)
(1) Kingate Management Limited
(2) Fim Limited
(3) Fim Advisers LLP
(4) First Peninsula Trustees Limited (as Trustee of the Ashby Trust)
(5) Port Of Hercules Trustees Limited (as Trustee of the El Prela Trust)
(6) Ashby Holding Services Limited
(7) EL Prela Group Holding Services Limited
(8) Mr Carlo Grosso
(9) Mr Federico Ceretti
(10) Ashby Investment Services Limited
(11) EL Prela Trading Investments Limited
(12) Alpine Trustees Limited

Mr Adrian Beltrami QC and Mr Alex Potts, Sedgwick Chudleigh Ltd, for the Plaintiffs

Mr Saul Froomkin QC and Ms Venous Memari, Liberty Law Chambers Limited, for the First Defendant

Mr Thomas Lowe QC and Ms Sarah-Jane Hurrion, Hurrion & Associates Ltd, for the Second, Third, Eighth and Ninth Defendants

Mr Alan Boyle QC and Ms Katie Tornari, Marshall Diel & Myers Limited, for the Fourth to Seventh and Tenth to Twelfth Defendants

(In Court)

As this is quite a long judgment, it may assist the reader if I set out the different sections in a table of contents. References in brackets are to paragraph numbers. All the parties have met with some measure of success, albeit the Defendants more so than the Plaintiffs.

  • (1) Introduction (2 – 3)

  • (2) The parties (4 – 11)

  • (3) The Funds' pleaded claims (12 – 21)

  • (4) The preliminary issues (22 – 24)

  • (5) The contractual framework (25 – 74)

    • (i) Articles of Association (30 – 42)

    • (ii) Information Memoranda (43 – 52)

    • (iii) Administration Agreements (53 – 60)

    • (iv) Manager Agreements (61 – 74)

  • (6) Issue (1)(b) (75 – 116)

  • (7) Issue (1)(a) (117 – 126)

  • (8) Issue (2) (127)

  • (9) Issue (3) (128 – 134)

  • (10) Issue (4) (135)

  • (11) Issue (5) (136 – 142)

  • (12) Issue (6) 143 – 152)

  • (13) Issue (7) (153 – 175)

  • (14) Summary (176 – 178).


This is a ruling on the trial of a number of preliminary issues. They are all concerned with whether management fees (‘the Disputed Fees’) paid to the First Defendant (‘KML’) by the Plaintiffs (‘Kingate Global’ and ‘Kingate Euro’, together ‘the Funds’) under various management agreements (‘the Manager Agreements’) were contractually due to KML and, if so, whether the Funds are precluded from asserting a claim in unjust enrichment against KML and the various Defendants to whom the fees received by KML or their proceeds have been distributed.


Applications for the trial of these preliminary issues were prompted by the decision of the Privy Council in Fairfield Sentry Ltd v Migani & Ors [2014] 1 CLC 611; [2014] UKPC 9 (‘ Fairfield’). The applications have been brought by the Trust Defendants (as defined below) and KML respectively.

The parties

The Funds were investment companies incorporated in the British Virgin Islands (‘BVI’). Kingate Global was incorporated on 11 th February 1994 and Kingate Euro on 19 th April 2000. They were established as open-ended investment funds issuing non-participating, redeemable shares offered for subscription by means of information memoranda. Over time, they became ‘feeder funds’ to Bernard L Madoff Investment Securities LLC (‘BLMIS’), an investment company established and operated by the notorious fraudster Bernard L Madoff which acted as the Funds' investment adviser. The vast majority of monies raised by the Funds were transferred to BLMIS for investment on the Funds' behalf. In fact Mr Madoff was running a Ponzi scheme and none of the monies were invested. Upon Mr Madoff's arrest in December 2008 the Funds collapsed and were placed in liquidation in the BVI and Bermuda.


Kingate Global commenced operations on 1 st March 1994. There was a single class of shares, called Common Shares. On 1 st March 1995 Kingate Global was recapitalised. It renamed the Common Shares as Class A Common Shares (‘Class A Shares’) and introduced a new class of shares called Class B Common Shares (‘Class B Shares’). On 1 st December 1995 the Fund introduced a further class of shares called DM Class Common Shares (‘DM Shares’). Kingate Global redeemed the Class A Shares in 1997 and cancelled that share class designation in 1998, although Class B Shares continued to be named as such. On 1 st January 1999 the DM Shares were renamed as Euro Class Shares and from 1 st May 2000 the Class B Shares were renamed as US Dollar Shares. In around 2000 the DM Shares were ‘hived down’ into Kingate Euro, ie shareholders of Kingate Global were given equal numbers of shares in Kingate Euro and the assets allocated to the DM Shares were transferred to Kingate Euro.


KML is a company incorporated in Bermuda which at all material times acted as Manager or Co-Manager of the Funds. Under the Manager Agreements, and unless it had been grossly negligent, KML was entitled to monthly management fees. Their amount was to be calculated by the relevant Fund's Administrator (‘the Administrator’) by reference to the month end net asset value (‘NAV’) of the Fund and class of shares to which the fees related. The successive Administrators were all independent financial services companies. These calculations served a dual purpose, as they were also used to determine the subscription and redemption prices paid to the Fund by incoming investors and by the Fund to outgoing investors. As appears below, in the absence of bad faith or manifest error the calculations carried out by the Administrator were final and binding as between the Funds and the investors. An important issue for determination by the Court is whether they were also final and binding as between the Funds and KML.


The Second and Third Defendants (‘FIM Ltd’ and ‘FIM Advisers’, together ‘FIM’) are respectively a company and a limited liability partnership, both incorporated in England and Wales. The Plaintiff alleges that at all material times until July 2005 FIM Ltd acted as a consultant to KML and the Funds, and that FIM Advisers acted in that capacity at all material times since July 2005. FIM dispute this.


The Eighth and Ninth Defendants (‘Mr Grosso’ and ‘Mr Ceretti’) were at all material times directors of FIM Ltd and principals of FIM Advisers. In this judgment I shall refer to the Second, Third, Eighth and Ninth Defendants collectively as ‘the FIM Defendants’.


The Fourth Defendant (‘Ashby’) is trustee of the Ashby Trust, of which Mr Grosso is a discretionary beneficiary, and the owner of the Sixth Defendant (‘Ashby Holding Services’). The Fifth Defendant (‘El Prela’) is trustee of the El Prela Trust, of which Mr Ceretti is a discretionary beneficiary, and the owner of the Seventh Defendant (‘El Prela Group Holding’).


The Twelfth Defendant (‘Alpine Trustees’) is a former trustee of the El Prela Trust. The Tenth and Eleventh Defendants (‘Ashby Investment Services’ and ‘El Prela Trading Investments’) are investment companies wholly owned by Ashby and El Prela respectively.


KML has at all material times been owned beneficially by Ashby and El Prela. At present, Ashby holds half of the issued share capital in KML indirectly through Ashby Holding Services and El Prela holds the other half indirectly through El Prela Group Holding. In this judgment I shall refer to the Fourth to Seventh and Tenth to Twelfth Defendants collectively as ‘the Trust Defendants’.

The Funds' pleaded claims

The Funds have brought various non-fault based claims against the Defendants. It is with these that this Ruling is directly concerned. In the ‘Summary’ section at the start of their Statement of Claim 2 they are summarised as follows:

16 In addition, from their establishment until November 2008, the Funds paid [KML] hundreds of millions of US dollars in fees. The fees were calculated by reference to the Funds' net asset values. Because of Mr Madoff's fraud, at all material times, the Funds' only significant asset was their money at the bank. Accordingly, the Funds' net asset values were massively overstated, and the fees mistakenly overpaid.

17 The Funds' claim is:

17.1 in unjust enrichment on the ground of mistake, for the recovery of the overpaid fees from [KML] and/or [various of the Trust Defendants], as ultimate recipients of the fees, and/or Mr Grosso and Mr Ceretti, as ultimate recipients of the fees and/or ultimate beneficial owners of the shares in [KML];

17.2 alternatively, for orders based on the Funds' retention of legal title to the overpaid fees and/or their traceable proceeds;

17.3 alternatively, for declarations that [KML] and/or [various of the Trust Defendants] and/or Mr Grosso and Mr Ceretti hold the overpaid fees, together with their traceable proceeds, on trust for the Funds; …


The Trust Defendants, supported by the other Defendants, say that they have a complete defence to these claims, namely that KML was contractually entitled to all the management fees that it was paid as those fees were calculated by the Administrator.


The Funds have addressed this defence in their Reply 3 to the Trust Defendants' Defence. Eg, they plead at para 15 that the Administrator made a manifest error in the calculation of the NAV in that:

15.1 it failed to verify the figures provided by BLMIS for the purpose of calculating the NAV; and/or

15.2 it ignored inconsistencies in the figures provided by BLMIS; and/or

15.3 it failed to consider and address inconsistencies in the figures provided by BLMIS adequately; and/or

15.4 it relied on [KML] and/or Mr Ceretti and/or Mr Grosso and/or FIM to verify the figures provided by BLMIS and/or to check the calculations of the NAV, and/or it permitted [KML] and/or Mr Ceretti and/or Mr Grosso and/or FIM to vary the calculations of the NAV, as pleaded in paragraph 18 below;

such that, in the premises, those...

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1 cases
  • A v A
    • Bermuda
    • Supreme Court (Bermuda)
    • 7 January 2016
    ...Court on the construction of contracts, some of which were reviewed recently by this Court in Kingate Global v Kingate Management [2015] SC Bda 65 (Com) at paras 83 – 90. Although these cases relate to the construction of commercial contracts, the principles which they have developed are of......

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