The Financial Services Division of the Grand Court of the Cayman Islands has ruled to dismiss in their entirety claims made by Palladyne International Asset Management (PIAM) against three Cayman Islands investment funds. These claims were largely based on serious criminal allegations against the Libyan Investment Authority (LIA) and the two directors of the Cayman funds (Dr Ahmed Jehani and Mr Ali Baruni) appointed by the LIA in 2014.
The allegations involved USD 700 million invested in 2007/08 in the funds, whose shares were owned by the LIA and other Libyan bodies. These assets were frozen under UN Sanctions backed with the force of the criminal law in the Cayman Islands. The LIA had resolved in 2014 to remove PIAM as a director of the Cayman funds because of concerns about PIAM arising from a Dutch criminal investigation into PIAM, proceedings in the US, the lack of transparency in the management of the funds, the high management fees, PIAM’s lack of a track record and concerns regarding the circumstances in which the Plaintiff had originally been appointed. PIAM’s response to the LIA’s decision to remove PIAM as the director and investment manager of these funds was to claim that the reasons given for concern were false and that the true reason for their removal was a criminal scheme by the LIA and the incoming directors to violate sanctions and was, in any event, not properly authorised by the relevant Libyan state bodies. This, they claimed, meant that PIAM’s removal was unlawful and void and that the new directors were not entitled to information about what had become of the funds’ assets.
Appleby acted for the funds and their directors in their successful defence of these claims in a trial that lasted two weeks. The Defendants’ legal team was led at trial by two Queen’s Counsel, Dinah Rose QC of Blackstone Chambers and Peter McMaster QC of Appleby.
The judge dismissed PIAM’s allegations and claims in resounding fashion. He found “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” and that the Defendants’ witnesses, who included members of the 2014 LIA Board and the incoming directors were “honest”.
The judge found expressly, the “concerns regarding the risks faced by the Libyan Investors in leaving [PIAM] in control of the substantial investments held for the Libyan state were real and genuine… Once it became clear just how much was being managed by [PIAM] for the Libyan Investors and that extent of the LIA’s interest and exposure the level of scrutiny increased. There were clearly a number of grounds for concern which included fees, performance and the absence or slow delivery of information.” The judge also found that the steps which authorised the change of directors in 2014 were entirely valid.
Mr Baruni and Dr Jehani have expressed their satisfaction that they have been entirely vindicated by the Grand Court’s judgment. Mr Justice Segal accepted the “clear evidence that the [Defendants] each had no intention of breaching sanctions or of circumventing the need to comply with the sanctions regime and obtain licences when and where required”.
Shortly prior to the judgment being handed down by the Grand Court, one of the three parties currently claiming to be the Chairman of the LIA, Dr Ali Hassan Mahmoud, purportedly acted to re-appoint PIAM as sole director of the three funds and to remove the directors named by the LIA in 2014. That led to an attempt by PIAM to have the handing down of the Grand Court judgment restrained although that attempt was abandoned shortly thereafter. Dr Mahmoud was a member of the board of the LIA that had in 2014 originally resolved to remove PIAM because of the concerns set out above. Dr Mahmoud’s actions are therefore an attempt to reverse the 2014 decision of which he was part.
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