A Cayman based fund made share redemption payments to the Respondent shortly before it went into liquidation and the liquidator applied to recover those payments as preferences under Cayman legislation.
Various defences were raised around the Fund’s solvency at the time of the payments and the alleged intention to prefer, which failed on the facts. The Respondent also argued that the preference claim was a claim for restitution entitling it to rely on the common law defence of unjust enrichment and change of position.
The Respondent argued that, if the payments were preferences, it had not been enriched from them because it had received them as nominee for third parties and had changed its position by paying them on to those third parties.
Whilst the UK legislation provides for the relief that the court can order on a preference claim, the Cayman legislation is silent on relief leaving the courts to order relief as a matter of common law restitution. The Respondent therefore argued that common law defences were available to the action. The Privy Council agreed with the Respondent, and disagreed with the Cayman Court of Appeal on that point.
However, whilst the defence was available, the Privy Council found that the Respondent was unable to rely on it, as trustee, not as agent, even if it had been enriched by the payment. In any event, the Privy Council found that “change of position” was incompatible with the statutory scheme enabling the recovery of preferences since it would disrupt the pari passu principle.
Whilst the UK legislation provides a statutory, rather than a common law, route to recovering preferences, this case provides useful authority against a recipient raising such common law defences.
Skandinaviska Enskilda Banken AB v Conway and others [2019] UKPC 36
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