McIntosh v. Fisk – RAM Ponzi Scheme Supreme Court Judgment

McIntosh v. Fisk - RAM Ponzi Scheme Supreme Court Judgment 2

[vc_row][vc_column][vc_column_text]This Court’s judgment in McIntosh v Fisk [2017] NZSC 78 dismissed the
appellant’s appeal and the respondents’ cross-appeal and upheld the
order made in the High Court. That order required the appellant to pay
$454,047.62, received as part of the repayment of funds in a failed Ponzi
scheme, to the liquidators of the company, Ross Asset Management
The question of interest on the $454,047.62 outstanding was reserved in
the High Court. This Court gave the parties the opportunity to file
submissions on the point in the event they did not reach agreement. The
parties were not able to agree and submissions were filed. This Court’s
further judgment deals with the payment of interest.
RAM purported to offer investment management services but was in fact
operating a Ponzi scheme. The appellant had deposited $500,000 with
RAM. He was provided with reports that purportedly showed the returns
achieved on his investment. These returns were fictitious. Before the
fraud was discovered and the company was placed in receivership and
then liquidation, RAM paid the appellant $954,047.62, being his initial
investment of $500,000 plus fictitious profits of $454,047.62. The
respondents (the liquidators) then sought to set aside the payment of
$954,047.62 made to the appellant.
In the High Court, the liquidators’ claim was dismissed in respect of the
initial investment of $500,000, but upheld in respect of the fictitious profits
of $454,047.62. The appellant was ordered to pay this sum to the
liquidators. The appellant’s appeal and the liquidators’ cross-appeal to
the Court of Appeal were both dismissed. This Court, by majority
(Glazebrook J dissenting), upheld the decision of the lower Courts.
The liquidators sought an order that the appellant pay interest on the sum
outstanding from the date of their appointment (17 December 2012) at
the rate set pursuant to s 87(3) of the Judicature Act 1908 of five per cent
per annum.
The appellant accepted that the liquidators would normally be entitled to
interest on the claw back sum but he submitted various aspects of the
case meant no interest should be payable. In the alternative, the
appellant submitted that if interest was to be paid that payment should
run from the date of the High Court judgment (22 June 2015) or the date
of the liquidators filing their application to set aside the payment (17 July
2014). The appellant accepted that the rate of any interest payable
would be five per cent per annum.
It was not disputed that the Court has jurisdiction to order the payment of
interest, either under s 87(1) of the Judicature Act, s 295(c) of the
Companies Act 1993 or s 348(2) of the Property Law Act 2007.
This Court has found that the purpose of an interest award is not
punitive, but rather to compensate for the loss of the use of money in
circumstances where the party in receipt of the money has had the
benefit of its use. In this case, the appellant had the use of the money
since he was paid by RAM and as a result the company had been
deprived of the use of that money. Accordingly, there was no reason in
principle not to award interest in this case.
The Court has also found that the interest award should run from the
date the liquidators were appointed. Under s 87(1) of the Judicature Act
the interest may run from the date when the cause of action arose, and
with respect to the claim under the Companies Act that was the date the
liquidators were appointed. Establishing the date the cause of action
under the Property Law Act arose was more difficult, but this question did
not need to be resolved because interest in this case could be awarded
under either s 87(1) or s 295.
This Court has held that the appellant is required to pay interest at the
rate of five per cent per annum on the sum of $454,047.62 from the date
of the liquidators’ appointment (17 December 2012).

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