The Court of Appeal has ruled in favor of Standard Chartered Bank (Switzerland) in an appeal against a ruling by the chief justice which had struck out the bank's claim to be owed $34.2 million by UBS (Bahamas) in a case related to the Bernie Madoff scandal.
Justices Anita Allen, Christopher Blackman and Neville Adderley sent the case back to the Supreme Court for trial after deeming the chief justice's ruling on the matter "unsafe", and based on "incomplete evidence".
The case revolves around a number of shares held as collateral for a loan by UBS (Bahamas) which the Bahamas office of the Swiss bank had agreed to transfer to Standard Chartered Bank (Switzerland), according to court documents.
The shares were beneficially owned by a mutual customer of the two banks, CIF, in 2008, who owed UBS (Bahamas) "in excess of $30 million".
According to the Court of Appeal judgment on the matter, an agreement to transfer the shares from UBS (Bahamas) to Standard Chartered (Switzerland) took place via the SWIFT messaging system in November 2008, after CIF obtained a loan from Standard Chartered Bank to pay its debt to UBS (Bahamas).
The two banks agreed to transfer the shares to Standard Chartered (Switzerland) once the Swiss bank sent $34.2 million - the amount of its loan to CIF to cover its UBS debt - to UBS.
On November 12, 2008, Standard Chartered (Switzerland) transferred the funds to UBS (Bahamas) and UBS (Bahamas) began initiating the process of transferring the shares - comprising 98,068 shares in Kingate Global Fund Limited and 36,356.58 shares in Thema Fund Limited.
However, in the meantime, the Bernie Madoff fraud led to a collapse in the value of the shares and a suspension of trading in them.
"The value of the shares collapsed as a result of the well-publicized Bernie Madoff fraud. On the 12th of December, 2008, before the shares were transferred, trading in the shares were suspended and this action was commenced on the basis that the shares could no longer be transferred," said the judgment on Standard Chartered's appeal against the chief justice's ruling.
"The plaintiff (Standard Chartered) had requested the return of the $34.2 million on the grounds that as the shares had not been and could no longer be transferred to it, the condition for payment had not been satisfied and therefore the plaintiff said it was entitled to the return of its money."
Standard Chartered (Switzerland) asserted that since the shares were not transferred following its transferral of $34.2 million to UBS, the "consideration for the payment under the contract had wholly failed".
Explaining part of the grounds for their claim, Standard Chartered (Switzerland) said that in their view, "the contract between [UBS Bahamas] and itself was made partly in writing and partly by conduct. The terms of the contract were also partly to be implied from the nature of the transaction and/or from the previous course of dealing between the two banks."
However, UBS said that "it had performed all that was required of it under the contract".
The chief justice struck out the matter on the grounds of "no reasonable cause of action". He relied on affidavit evidence while, Standard and Chartered argued, this was prohibited.
In its appeal, Standard Chartered (Switzerland) alleged that the chief justice had failed to appreciate the central issues arising in the action, had made errors in construing the expressed and implied terms of the contract, had made inconsistent findings, and improperly exercised discretion in striking out the action, among other issues.
The Court of Appeal allowed their appeal, sending the matter back to the Supreme Court for trial before a different judge, and calling for the costs of the appeal to be awarded to Standard Chartered (Switzerland).
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