Zoe O’Sullivan, instructed by Pitmans LLP, acted for Andrew Madoff and the estate of his late brother Mark Madoff in the action brought against them by the liquidators of Bernard Madoff’s London trading operation, Madoff Securities International Limited (“MSIL”). The liquidators alleged that both the Madoff brothers, in common with other former directors of MSIL, had committed fraudulent and dishonest breaches of their duties as directors of the company in permitting the company to make certain payments, including payments to Mrs Sonja Kohn for her introduction of investors to Bernard Madoff. The liquidators alleged negligent breaches of duty in the alternative.
On 18 October 2013 Popplewell J dismissed all the claims against all the directors of MSIL, including the Madoff brothers, and against Mrs Kohn, commenting that “their honesty and integrity has been vindicated.” He criticised the liquidators for bringing an “unfounded claim” involving serious personal allegations of dishonesty.
Popplewell J found that none of the directors were in breach of their duties of good faith to the company. He also held that the company had not suffered any loss as a result of making any of the payments, and that the acts of the directors had been ratified by the shareholders in accordance with the principle in Re Duomatic Ltd [1969] Ch 363. He considered that a defence based on illegality failed because MSIL’s claim was not founded on any illegality (applying the recent Court of Appeal decision in Jetivia SA v Brunscweiler v Bilta (UK) Limited (in liquidation) [2013] ERWCA Civ 968 which upholds the “reliance test”). However, he would have been willing to attribute Bernard Madoff’s fraud to MSIL for the purposes of the illegality defence: the defendant directors themselves had no knowledge of the fraud and the principle in Re Hampshire Land [1896] 2 Ch 743 did not fall to be applied.
Limitation applied to defeat all claims in negligence 6 years prior to the issue of proceedings. The liquidators’ allegations of deliberate and dishonest breaches of duty and deliberate concealment of the supposed breaches, advanced to defeat the limitation defence, were not made out.
Finally, the judge held that had liability been established, he would have considered it an appropriate case for each of the directors to be relieved from liability under section 1157 of the Companies Act 2006 on the grounds that they had acted reasonably and honestly.