The Judicial Committee of the Privy Council Decisions

FFSB Ltd (Formerly known as Fortis Fund Services (Bahamas) Ltd v. Seward & Kissel LLP (The Bahamas ) [2007] UKPC 16 (13 March 2007)

Privy Council Appeal No 71 of 2005

FFSB Limited (Formerly known as

Fortis Fund Services (Bahamas) Limited) Appellant

v.

Seward & Kissel LLP Respondent

FROM

THE COURT OF APPEAL OF

THE COMMONWEALTH OF THE BAHAMAS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 13th March 2007

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Present at the hearing:-

Lord Hoffmann

Lord Hope of Craighead

Lord Walker of Gestingthorpe

Baroness Hale of Richmond

Sir Christopher Rose

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[Delivered by Lord Hoffmann]

1. In the early 1990s, cash-starved local authorities in the United States tried to find innovative ways of raising money. One of these was to assign at a discount their rights to arrears of property taxes, secured by liens over the properties. These Tax Sales Certificates ("TSCs") were attractive to purchasers who were willing and able to use energetic methods of collection. In some cases they could obtain good returns by making loans at high rates of interest to debt-laden home owners who wanted to avoid foreclosure and in others they could make capital gains by foreclosure and resale. But such investments, although potentially profitable, were not particularly liquid. The collection of debts from defaulted debtors or the foreclosure and sale of their properties needs time.
2. Among the participants in this market was the Breen Capital Group ("Breen") of New Jersey, which acquired a substantial portfolio of such liens, mainly over houses in New Jersey and Florida. In 1993 Breen and a Mr William Rafter, an investment fund manager of Philadelphia, set up a scheme to make investment in TSCs available to a wider public through a mutual fund. In order to attract European investors, the fund was established off-shore, at first in the Cayman Islands and afterwards in The Bahamas. The Bahamian fund took the form of a company named Oracle Fund Limited ("the Fund"), incorporated under the International Business Companies Act 1989 on 3 May 1995 and licensed under the Mutual Funds Act 1995.
3. Investors were invited by an "Offering Memorandum" to subscribe for "A" or "B" Investor Shares, the former being redeemable after three months and the latter after two years. Over the next four years, very substantial sums were subscribed for these shares. The Fund advanced the money it had raised to Breen companies (described in the Memorandum as "Special Purpose Corporations") against promissory notes paying an attractive rate of interest. There was in this arrangement an inherent mismatch between the liquidity promised to shareholders, having a right of redemption on relatively short notice, and the illiquidity of the company's investments, which were realisable only to the extent that the Breen companies were able to raise cash from their TSCs. This mismatch plagued the Fund throughout its life and eventually led to its collapse. As Mr Rafter ruefully commented in 1998 [IIIb/741] "I have learned that liquidity and investment are mutually exclusive states of being".
4. The first serious indication of trouble came towards the end of 1996 from Coopers & Lybrand, the Fund's Bahamian auditors, when they signed off the accounts for the period from the commencement of operations in The Bahamas until 31 December 1995. Although Mr Johnson, the local partner, dated his formal letter of Comments and Suggestions 7 January 1997, he appears in accordance with normal practice to have discussed its terms in advance with Mr Rafter. Mr Johnson's main point was that the Fund was fully invested in Breen promissory notes which were not due for redemption until late in 1997. It was therefore entirely illiquid and in the absence of a credit facility would be unable to meet demands for redemption of shares which exceeded the new money being invested. The auditors suggested that a portion of the Fund be kept in liquid assets such as Treasury bills. Mr Johnson also pointed out that the promissory notes did not give the Fund any security over the TSCs held by Breen or prevent Breen from borrowing money from other sources on security which conferred priority over the Fund. He raised a number of other points which it is not presently necessary to mention.
5. Mr Rafter tried to deal with the question of liquidity by setting up a company in the Cayman Islands named Guarnerius Investment Ltd to provide what he called a "liquidity facility", to which the Fund would lend money for investment in easily realisable securities. For one reason or another, this did not prove satisfactory and he incorporated an Isle of Man company named Arquebus Ltd for the same purpose. Both of these companies were funded by loans made by the Fund.
6. Mr Rafter's main difficulty with the auditors was to persuade Mr Johnson that the advances to Breen were fully recoverable and that no provision needed to be made. He tried to obtain valuations of the Breen portfolio which would satisfy Mr Johnson that the indebtedness to the Fund was fully covered by realisable assets. He even arranged a transaction by which Arquebus (with money borrowed from the Fund) paid for a purchase of some of Breen's foreclosed properties in order to provide evidence of their value in the open market. But all to no avail. Coopers & Lybrand refused to give an unqualified report on the accounts for the years ending 31 December 1996 and 1997. In consequence, the Fund's operations were suspended and on 12 July 2000 it went into voluntary liquidation. An order for compulsory winding up was made on 11 September 2000. The investment in Guarnerius appears to have been redeemed without loss in 1998 but there was a deficiency of about $200m on realisation of the investments in Breen and Arquebus.
7. The joint liquidators of the Fund then considered who could be held responsible for the loss. Mr Rafter had arranged for the Fund to be administered in The Bahamas by MeesPierson Fund Service Ltd, afterwards Fortis Fund Services (Bahamas) Ltd, a subsidiary of the well known Fortis international banking and insurance group based in the Netherlands and Belgium. After a change of ownership, their subsidary is now called FFSB Ltd ("FFSB"). Employees of FFSB were appointed directors of the Fund and FFSB entered into an Administration Agreement which set out its duties ("the general administration of [the Fund's] business and affairs") and contained an exemption clause by which FFSB was to be liable only for losses attributable to "wilful misfeasance, bad faith or gross negligence". Mr Rafter himself (acting through a company in Philadelphia) acted as the Fund's investment adviser in return for a fee calculated as a percentage of the assets. He also received a commission or "sponsor payment" from Breen calculated on the sums advanced by the Fund. Seward & Kissel LLP ("S & K") of New York, who have been described as "the top hedge fund lawyers", acted as legal advisers to the Fund and were so described on all the Offer Memoranda. They drafted the Memoranda, the promissory notes issued by Breen and some of the documentation relating to the formation of Guarnerius, Arquebus and the funding of the purchase of the Breen properties. The advice which they provided to the Fund appears to have been almost entirely through the medium of Mr Rafter, who passed it on to the directors in Nassau. Direct communications with the Fund were largely confined to submitting their bills for payment. This no doubt reflected a realistic appreciation of the Fund's decision-making processes.
8. On 10 April 2001 the Fund (in liquidation) issued a writ against FFSB and four individuals alleged to have been members of the board. One of them, Mr Barry Herman, was originally an employee of FFSB but left them in July 1996. He nevertheless remained a director until the end of 1998. The others were FFSB employees. The Statement of Claim alleged against FFSB that it had acted in breach of the Administration Agreement and its statutory duties under the Mutual Funds Act 1995. FFSB was also alleged to have owed the Fund a common law duty of care and to have been in breach by allowing the funds to be invested in Breen, Guarnerius and Arquebus. The directors were also alleged to have been in breach of their duties of care to the Fund in causing or permitting the investments to be made.
9. Fortis and Mr Herman filed separate defences in which they denied liability. Mr Herman's defence denied that he had been negligent, saying that he had followed the recommendations of Mr Rafter which were "known to the auditors and lawyers of the Fund", with whom Mr Rafter had regular meetings and whose advice he had reported to FFSB. In paragraph 24 he said that reports were made to the Fund by Mr Rafter and S & K, "the Fund's legal advisers" and that the directors were entitled to rely on them.
10. On 21 May 2002 FFSB issued a third party notice, accompanied by a statement of claim, against Mr Herman. It claimed that if (which was denied) FFSB was liable to the Fund, it was entitled to a contribution or indemnity from Mr Herman as a joint tortfeasor under the Tortfeasors Act 1995.
11. On 14 June 2002 FFSB applied ex parte to Small J for leave to issue another third party notice, this time against S & K, for service out of the jurisdiction at their offices in New York. The application was supported by a short affidavit by Claire Hepburn, a partner in FFSB's solicitors in Nassau. She said that if FFSB was liable to the Fund for breaches of duties owed (inter alia) in tort, then both Mr Herman and S & K were liable in respect of the same damage and were liable to contribute to any damages for which FFSB was liable. The main allegation against S & K was that at all material times it was "the Fund's attorneys" and that "by reason of its knowledge and of the relationship between it and the Fund" it owed it a duty to advise as to the propriety of its investment policy. Small J granted leave and the third party notice was served.
12. S & K then applied to discharge the order giving leave to serve them. Mr Rigney, who had been principally involved in advising Mr Rafter, swore an affidavit in support dated 11 October 2002. Early in 2003 the Fund's action against FFSB was settled for $60 million and its action against Mr Herman was settled for $100,000. But the third party proceedings remained alive and on 31 March 2004 Small J gave directions for the filing of evidence in opposition and reply with a view to a hearing of S & K's application to discharge on 24 May 2004. Pursuant to this order, on 2 April 2004 Mr Hull of Richards Butler swore a lengthy affidavit in opposition, exhibiting a number of documents and Mr Rigney swore a short affidavit in reply on 21 April. That was the state of the evidence when the application came before Small J, as arranged, on 24 May 2004 and was heard over 5 days.
13. Small J dismissed the application but S & K appealed to the Court of Appeal (Churaman, Ganpatsingh, Osadebay JJA) which set aside the leave to serve. FFSB appeals to Her Majesty in Council.
14. Order 11 of the Rules of the Supreme Court contains a list of cases in which service out of the jurisdiction is permissible. FFSB relies upon two: paragraph (h):

"if the action begun by the writ is founded on a tort committed within the jurisdiction"

and paragraph (j):

"if the action begun by the writ being properly brought against a person duly served within the jurisdiction, a person out of the jurisdiction is a necessary or proper party thereto."

15. The Board will first consider paragraph (h). Mr Smith QC, who appeared for S & K, submitted that for seven reasons FFSB was not entitled to rely upon it.
16. First, the summons said nothing about paragraph (h) and referred only to paragraph (j). Mr Smith referred to Parker v Schuller (1901) 17 TLR 299, in which an applicant who had obtained leave to serve out under one paragraph of RSC Ord 11 was not allowed to abandon that ground and adopt another in the Court of Appeal. Collins LJ said that —

"the plaintiff had tied himself, by the affidavit upon which he obtained leave to issue the writ and to serve notice thereof out of the jurisdiction, to the [abandoned] cause of action".

17. But that cannot be said of the affidavit in this case. Ms Hepburn's affidavit, although it did not refer in terms to paragraph (h), clearly alleged that S & K had committed a tort within the jurisdiction:

"2.4 Further, I am advised that insofar as advice was tendered by S & K in America to Mr Herman or otherwise to the Fund in the Bahamas, then such advice, if tortious, is considered as a matter of law to have been tendered at the place where the communication was received, or in other words, within the Bahamas."

18. The question of whether the case fell within paragraph (h) was fully debated before Small J and the Board has no doubt that if objection had been made, the judge would have given leave to amend the summons. The Board therefore considers that Small J was right to consider the application under both paragraphs.
19. Secondly, Mr Smith says that FFSB's alleged cause of action is not "founded upon" a tort committed within the jurisdiction. FFSB does not allege a tort against itself. The claim is for contribution under section 3(c) of the Tortfeasors Act 1995:

"Where damage is suffered by any person as a result of a tort…any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise…"

20. Such a cause of action, says Mr Smith, is founded not upon a tort but upon the statute. He relies upon Harvey v R G O'Dell Ltd [1958] 2 QB 78, in which McNair J decided that a right of contribution under the equivalent provision of the English Law Reform (Married Women and Tortfeasors) Act 1935 was "a right sui generis conferred by statute" and not "in respect of a cause of action in tort" within the meaning of section 1(3) of the Law Reform (Miscellaneous Provisions) Act 1934. This ruling was approved by the Court of Appeal in Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398.
21. The Board would not cast the slightest doubt upon these decisions. But their context was altogether different. Section 1(1) of the 1934 Act abrogated the ancient rule that a cause of action in tort did not survive the death of the defendant. But section 1(3) provided that proceedings in respect of a cause of action in tort which survived by virtue of subsection (1) against the estate of a deceased person should not be maintainable unless proceedings were commenced within six months of representation being granted to his personal representative. In Harvey v O'Dell Ltd the plaintiff was injured on 29 February 1952 in a motor accident caused by the defendant's employee, in which the latter was killed. Letters of administration were granted to the employee's widow on 24 May 1952. The plaintiff sued the defendant as vicariously liable for the negligence of the employee. A statement of claim was delivered on 9 April 1954. On 14 March 1955 the defendant issued a third party notice against the widow, claiming contribution under the 1935 Act. McNair J held that the third party claim was not barred by section 1(3). It would plainly have been unreasonable to expect the defendant to commence proceedings under the 1935 Act before any claim had been made against him. The limitation context shows that "a cause of action in tort" in section 1(3) must mean a cause of action against the plaintiff.
22. In the present case, however, the basis of paragraph (h) is that if someone commits a tort in the Bahamas, it is reasonable that he should have to answer for that tort in the courts of the Bahamas. For the purposes of this rule, there is no reason why it should matter whether the claim is made by the victim of the tort or by another tortfeasor seeking contribution. The language of the paragraph can accommodate both cases. It is true that the claim for contribution is a statutory cause of action and not a cause of action in tort. But it is founded upon a tort. The Board therefore considers that it falls within paragraph (h).
23. Thirdly, Mr Smith submits that even if S & K was liable in tort to FFSB, it was not a "tortfeasor" within the meaning of the 1995 Act. Section 2(1) provides a special definition of "tortfeasor":

"a person who commits a wrong or breach of duty, arising independently of contract…"

24. In the present case, there was a contractual relationship between the Fund and S & K. That was evidenced by the fact that S & K charged the Fund for its services. Mr Smith accepts that, in addition to its contractual duties, S & K could also have owed the Fund a concurrent duty of care in tort: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. But the content of that duty of care would be determined by the terms of the contractual relationship (see Lord Browne-Wilkinson in Henderson at p. 206) and therefore the breach of duty cannot be said to arise "independently of contract".
25. The definition of "tortfeasor" does not appear in the UK 1935 Act, from which the Bahamian statute is derived. Under the English legislation, a tortfeasor is simply someone who commits a tort. The Board thinks it unlikely that the Bahamian definition was intended to narrow the concept of a tortfeasor. On the contrary, the purpose was to extend it to any cause of action in respect of the same damage which was not ex contractu. In this case, the alleged cause of action in negligence arose independently of contract because although its content was determined by the responsibilities undertaken by S & K under their contractual retainer, the liability did not depend upon those responsibilities having been contractual. It would have made no difference if they had been undertaken gratuitously and without consideration. The Board therefore rejects Mr Smith's submission on this point.
26. Fourthly, Mr Smith submits that any claim which the Fund might have had against S & K would not have been for "the same damage" as the claim which the Fund had against FFSB or Mr Herman. This argument was accepted by the Court of Appeal, which said that the damage for which FFSB was liable was the loss on the realisation of its improper investments in loans to Breen and Arquebus, while the damage for which S & K was alleged to be liable was the value of the security over the TSCs and other assets which it should have been advised to obtain. The case of Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14; [2002] 1 WLR 1397 shows that it is not enough that the damage caused by the tortfeasors should be similar. They must be the same in the sense that both parties are liable in common for a single head of damage.
27. The Board of course accepts this principle but respectfully disagrees with the Court of Appeal's characterisation of the damage alleged to have been caused by the negligence of S & K, which they consider to be too restrictive. Like FFSB and the directors, S & K are alleged to have been in breach of a duty to take steps which would have prevented the fund from making improper investments. In the case of S & K, it is said that they should have given the directors appropriate advice about the unsecured nature of the Fund's loans, which might have resulted either in the Fund obtaining security or in it not making the loans. In either case, the alleged damage is the loss of the funds invested. The Board therefore considers that the alleged damage is the same.
28. Fifthly, Mr Smith submits that there is no evidence that S & K accepted any responsibility for advising the Fund about the propriety of its investments. Whether it should invest in the loans to Breen and Arquebus was a business decision on which the Fund was advised by Mr Rafter, a fund manager, and not lawyers like S & K.
29. At this interlocutory stage it is impossible to say anything very definite about the nature of the duty which S & K owed to the Fund and the Board thinks that it would be unwise to try to do so. The only question is whether the allegation that S & K owed a relevant duty in relation to the propriety of the investments is supported by evidence which discloses a serious issue to be tried: see Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438, 456G. The extent of a lawyer's duty is very sensitive to the particular facts and surrounding circumstances. As Lord Scott of Foscote said in Pickersgill v Riley [2004] UKPC 14; [2004] PNLR 31:

"It is plain that when a solicitor is instructed by a client to act in a transaction, a duty of care arises. But it is also plain that the scope of that duty of care is variable. It will depend, first and foremost, upon the content of the instructions given to the solicitor by the client. It will depend also on the particular circumstances of the case. It is a duty that it is not helpful to try to describe in the abstract. The scope of the duty may vary depending on the characteristics of the client, in so far as they are apparent to the solicitor. A youthful client, unversed in business affairs, might need explanation and advice from his solicitor before entering into a commercial transaction that it would be pointless, or even sometimes an impertinence, for the solicitor to offer to an obviously experienced businessman."

30. An unusual feature of this case is that S & K for the most part communicated their advice and put forward draft documents to Mr Rafter, who appears to have been a very experienced businessman and fund manager, but whose interests may not have wholly coincided with those of the Fund. As the Fund was S & K's client, it is arguable that they owed it a duty to provide more direct and explicit advice on matters which may have been obvious to Mr Rafter. At any rate, their Lordships consider that there is a serious issue to be tried as to whether S & K owed a relevant duty of care.
31. Sixthly, Mr Smith says that even if S & K were in breach of a relevant duty of care, there is nothing to show that such breach took place in the Bahamas. Mr Rigney, in his affidavit in support of the application to discharge, was insistent that neither he nor any member of his firm had gone to the Bahamas to advise the Fund. They were a New York firm and if the Fund had wanted advice in the Bahamas, it could no doubt have found local lawyers for the purpose.
32. It seems to the Board to be at least arguable that in providing advice to Mr Rafter and drafting documents such as the Offer Memoranda and the promissory notes, S & K must have known that the purpose of such advice and documents was to be communicated to the Fund in the Bahamas for the Fund to use the documents and act upon the advice. In Distillers Co (Biochemicals) Ltd v Thompson [1971] AC 458, 469 the Judicial Committee held that a UK manufacturer which exported a drug to New South Wales but failed to include a warning of potential side effects committed a tort in New South Wales:

"The plaintiff is entitled to complain of the lack of such communication in New South Wales as negligence by the defendant in New South Wales causing injury to the plaintiff there."

33. Likewise in Diamond v Bank of London and Montreal Ltd [1979] 1 QB 333, 346 Lord Denning MR said:

"The truth is that each tort has to be considered on its own to see where it is committed…. In the case of fraudulent misrepresentation it seems to me that the tort is committed at the place where the representation is received and acted upon; and not the place from which it was sent. Logically, it seems to me, the same applies to a negligent misrepresentation by telephone or by telex. It is committed where it is received and acted upon."

34. These principles appear to the Board to be equally applicable to the communication of negligent advice (or the failure to communicate proper advice) whether directly or through an intermediary like Mr Rafter. The tort is committed where the advice was, or should have been, received and acted upon. It is therefore arguable that the alleged tort was committed in the Bahamas.
35. Seventhly, Mr Smith submits that FFSB has not shown that it was "liable" in respect of the damage for which it claims contribution. It denied liability in its pleadings and although it paid $60 million in settlement of the claim, the terms of the settlement have not been disclosed and, so far as S & K knows, it was not accompanied by any admission of liability. In Stott v West Yorkshire Road Car Co Ltd [1971] 2 QB 651 the Court of Appeal held that a defendant need not submit to judgment in order to make a claim for contribution. He can settle the claim and then sue on the footing that he was in fact jointly liable. But Lord Denning MR said (at p. 657) that the defendant claiming contribution must prove that if the claim had been fought out, he would have been held responsible in law.
36. The statute clearly requires that the party seeking a contribution should have been responsible in law for the damage in respect of which he seeks contribution, but the remarks in Stott's case about the burden of proof were obiter and the Board expresses no view on the point. It may be that the payment of $60 million discharges at least an evidential burden which requires the other tortfeasor to adduce some evidence to show that the party who paid was mistaken or in bad faith and was actually not liable at all. Such a case must be very rare. What is however clear is that this is not the stage of the proceedings at which the point can be taken. There is plainly a serious issue to be tried as to whether FFSB was liable.
37. The Board therefore rejects all Mr Smith's points on paragraph (h) and considers that Small J was right to hold that the requirements for service out of the jurisdiction under that paragraph were satisfied. It is therefore not strictly necessary to decide whether FFSB was also entitled to succeed under paragraph (j). For this purpose it seems that RSC Ord 16, rule 4 requires one to treat the "action" to which the defendant must be a necessary and proper party as the third party proceedings and not the original action commenced by the Fund: see McCheane v Gyles [1902] 1 Ch 287. The question is therefore whether S & K were necessary and proper parties to the first third party proceedings which FFSB brought against Mr Herman.
38. The Court of Appeal held that they were not, but the reason seems to have been that the damage for which Mr Herman was alleged to be liable was different from the damage for which S & K was alleged to be liable. On this basis, the Court said that the "sole or predominant reason" for commencing proceedings against Mr Herman was to enable an application for leave to serve S & K out of the jurisdiction to be made under paragraph (j). Whatever may be said about this reasoning, the Board considers that the basic premise, namely that Mr Herman and S & K were liable for different damage, is incorrect. There is nothing to show that the third party claim against Mr Herman (who, alone of the former directors, had been a director while not an employee of FFSB) was not made in good faith. Taking it at face value, the claim gives rise to issues of fact which overlap with those in the claim against S & K sufficiently to make them proper parties to the same proceedings.
39. Finally, S & K complained, both before Small J and in the Court of Appeal, of non-disclosure by FFSB in its affidavit sworn in support of the ex parte application. In his affidavit in support of the application to discharge, Mr Rigney complained of no less than 18 separate items of non-disclosure ("among others"). Most of these were points of law which it was said that FFSB should have told the court that S & K might wish to raise. Small J dealt with the question of non-disclosure by saying that he would treat the application to discharge as if it was a fresh application inter partes for leave. In effect, he made FFSB start again, which of course it would have been entitled to do if the application to discharge for non-disclosure had succeeded.
40. The Court of Appeal disapproved of the course taken by the judge. They said that it was "contrary to precedent" and "may have led to error". It seems to the Board, however, that this was a question of case management and procedure which lay within the discretion of the judge. As Balcombe LJ pointed out in Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350, 1358, the rule that an ex parte order will be discharged, irrespective of the merits, if it was obtained without full disclosure, has a two-fold purpose. One is to deprive the applicant of an advantage improperly obtained. This reason is important in the case of an ex parte injunction or Mareva or Anton Piller order, where the consequence of discharge is that the defendant will be able to enforce the cross-undertaking in damages. But it has little relevance to an order for leave to serve out, where the defendant is at liberty to apply to discharge the order and can suffer no prejudice which cannot be remedied by an order as to costs. The other purpose is disciplinary, imposing a cost penalty to deter the applicant and others from neglecting the duty of disclosure. Whether it is appropriate to impose such a penalty depends upon all the circumstances and in particular upon the seriousness with which the judge views the breach. In the present case, Small J may well have taken the view, after reading Mr Rigney's 18 heads of non-disclosure, that even if they were made out, it would be more sensible to decide inter partes whether they had any merit than to require FFSB to issue a fresh summons and delay the proceedings by another year or two. The Board considers that such a decision was well within his discretion.
41. In submissions to the Board, Mr Smith relied in particular upon the failure to mention the auditor's letter of 7 January 1997, to which reference has been made in paragraph 4 above. This, he said, was of critical importance because it showed that all the deficiencies in the investment of the Fund had been drawn to the attention of the directors at an early stage and any loss suffered thereafter was entirely their own fault. S & K submitted that they were "not privy" to this correspondence and "remained ignorant of it until Fortis served its evidence in response to S & K's application to set aside the leave granted to serve it out of the jurisdiction". So far as non-disclosure to the judge is concerned, the letter featured prominently in the Fund's statement of claim against FFSB, which was before him. As for S & K, it may well be true that they never received a copy of the formal Comments and Suggestions letter, but there is some evidence that they knew of the substance of the letter before it was sent. Among the services rendered to the Fund which are listed in their bill are "19 December 1996. Telcon BR re auditors comments re Breen entities" and "24 December 1996. Telcon C Johnson (Coopers) regarding Breen notes." Mr Rigney's affidavit in reply to the affidavit of Mr Hull, which exhibited the auditor's letter, contains no suggestion that it came as a surprise to him or that it fatally undermines FFSB's case. Whether it does so or not is a matter for the trial. It would appear that, in spite of the letter, Mr Rafter felt able to advise the Fund to continue with its investments in Breen and subsequently Arquebus and that S & K continued to provide advice.
42. The Board will therefore humbly advise Her Majesty that the appeal should be allowed and that, subject to one qualification, the order of Small J giving leave to serve out should be restored. The qualification is that the statement of claim as served on S & K included not only claims for contribution founded on common law negligence but also equitable claims for breach of fiduciary duty and dishonest assistance in a breach of trust. It is unnecessary to say anything about these claims, which were abandoned by Miss Dohmann QC on behalf of FFSB at the hearing before the Board. The leave to serve out is therefore confined to the claim based on negligence and the statement of claim must be amended to delete the other claims. The Board gives leave to amend for this purpose and if there is any dispute as to whether the amended statement of claim is within the terms of the leave granted by the Board, the question is remitted to the Supreme Court of the Bahamas. The parties are invited to make written submissions as to the costs of these proceedings within 14 days.