Client Money Update - Client Money Application - Supreme Court Judgment - 29/02/2012

This update concerns the application issued by the Joint Administrators on 1 May 2009 seeking directions from the Court concerning LBIE's obligations in relation to the handling of client money received prior to the time of administration (the "Client Money Application"). Further background to the Client Money Application can be found in earlier updates posted on the Client Money website.

As stated in the Client Money Update 21/12/2010, in December 2010 GLG Investments Plc Sub-Fund: European Equity Fund was granted permission to appeal the Court of Appeal judgment. Following a four day hearing in November 2011, judgment on the appeal was handed down on 29 February 2012. A copy of the judgment is available here.

The Supreme Court has upheld the decision of the Court of Appeal.  There were 3 issues before the Supreme Court, further details of which are set out below.

1. When does the statutory client money trust arise?
   Upholding the decision of Mr Justice Briggs and the Court of Appeal, the Supreme Court held that the statutory trust arose at the point of receipt of money by LBIE and not at the point of segregation. This means that client money (if any) held outside of LBIE’s segregated accounts will still be subject to the terms of the trust and so does not form part of the general estate.
   

2. Do the primary pooling arrangements apply to client money in house accounts?
   Upholding the Court of Appeal, the Supreme Court held that the client money pool includes all client money in any account of LBIE into which client money was paid.
   

3. Is participation in the pool dependent on actual segregation?
   Upholding the Court of Appeal, the Supreme Court held that client money should be distributed to clients “in accordance with their client money entitlements under CASS 7 construed in accordance with [the Supreme Court’s judgment]” (per Lord Dyson, para 169 of the judgment) and not by reference to what was in fact segregated for them.
   

The Joint Administrators are reviewing the judgment carefully to assess its implications for LBIE's client money claimants and creditors. If further assistance from the Court is required, the Supreme Court has held that such further guidance must be sought from Mr Justice Briggs, as the judge overseeing LBIE’s administration. A further update on these issues will be provided in due course.

The parties to the proceedings are currently seeking to agree the terms of an order reflecting the Supreme Court’s judgment.

Should you have any questions regarding this update, please contact the Communications and Counterparty Management team at generalqueries@lbia-eu.com .