Privy Council Dismisses Final Appeal In Long-Running Hedge Fund Investor Litigation

In a judgment delivered on 18 June 2018, the Privy Council has dismissed the appeal by Emirati businessman Riad Tawfiq Al Sadik against judgments of the Grand Court and the Cayman Islands Court of Appeal which had both dismissed his claim to recover in excess of US$50 million in leveraged investment losses in hedge funds that were suffered during the 2008 financial crisis.1

The Privy Council rejected all of the arguments advanced by Mr Al Sadik in an attempt to establish liability on the part of Investcorp Bank BSC ("Investcorp") for his investment losses. The judgment highlights the robust approach taken by the courts to wide-ranging but weak claims brought by investors against a fund's promoter in an attempt to recover investment losses. The judgment also addresses the consequences, and potential injustice, of excessive delay by a court in the delivery of its judgment.

Background

Mr Al Sadik is a wealthy businessman based in Dubai who in early 2008 invested approximately US$136 million in a Cayman Islands hedge fund structure promoted by the investment firm Investcorp. The investments were leveraged and during the ensuing global financial crisis they sustained heavy losses. When Mr Al Sadik redeemed his investments in December 2009 he crystallised losses of some US$56 million (i.e. 41%).

Grand Court and Court of Appeal proceedings

In proceedings commenced in 2009 in the Grand Court of the Cayman Islands, Mr Al Sadik pursued wide-ranging and serious claims against Investcorp, including allegations of fraudulent misrepresentation, unauthorized leveraging which was deceitfully not disclosed, and breach of trust. Mr Al Sadik also claimed that a collateral contract existed whereby Investcorp effectively guaranteed him a 45% return on investment over three years.

Mr Al Sadik initially claimed Investcorp had wrongfully leveraged his investments for its own purposes (to fund its own liquidity needs), however that allegation was abandoned on day 26 of the ten-week trial.

All of the claims were rejected by both Mr Justice Jones QC at first instance and subsequently by the Cayman Islands Court of Appeal. The first instance judgment was delivered promptly, however there was an unexplained delay of three years and ten months in the delivery of judgment by the Court of Appeal.

Appeal to the Privy Council

Undeterred, Mr Al Sadik pursued an appeal to the Privy Council, maintaining the allegations that Investcorp had (i) breached the share purchase...