Rising Standards Of Fund Governance: Fund Directors Beware

The Cayman Islands Court of Appeal has set-aside the order of Cayman Islands Grand Court in the case of Weavering Macro Fixed Income Fund Ltd. (in Liquidation) vs. The Stefan Peterson & Hanks Ekstrom whereby the Court of Appeals while concurring with the Grand Court that the Directors indeed acted negligently, held that there was no element of 'willful' negligence or 'default' on part of the Directors. Consequently, the Ruling against the Directors for damages of USD 111 million each was set-aside and the Directors were allowed to claim indemnity and exculpation from liability provided in the Fund's articles of association. The 2011 ruling given by the Grand Court of Cayman Islands in the case of Weavering Macro Fixed Income Fund Limited ("Fund") v. Stefan Peterson and Hans Ekstrom ("Ruling")1 had laid down certain stringent standards for directors' role in funds. The Ruling has now been set-aside by the Cayman Islands Court of Appeal's by its judgment dated February 12, 2015.2

The Court of Appeals has held that while the directors of the Fund ("Directors") acted negligently, there was no element of 'willful' negligence or default on their part. Therefore, the Directors are entitled to indemnity from the Fund, as provided under the Fund documents.

BACKGROUND

As a matter of brief background, the Fund was a Cayman Islands based hedge fund. The Fund appointed an investment manager to 'manage the affairs of the Fund subject to the overall supervision of the Directors'; and a professional...