Counterfactuals, concealment and contributory negligence: what the latest instalment in the Primeo litigation has to tell us about loss and limitation

Articles & Publications
17 November 2023

On 15 November 2023, the Judicial Committee of the Privy Council (“the Privy Council”) handed down judgment in the second part of the appeal by Primeo Fund (in Official Liquidation) against the dismissal of its claims against two HSBC Group companies by the Grand Court of the Cayman Islands in 2017 (further dismissed on appeal by the Court of Appeal of the Cayman Islands in 2019)[1].  The claims had their origin in Bernard Madoff’s now infamous “Ponzi” scheme. The first part of the dispute before the Privy Council concerned reflective loss[2]. In this article, Helen Evans KC and Benjamin Fowler explain what the recently released second part has to say about contrived counterfactuals, when a claimant suffers loss and what loss it suffers, deliberate concealment and contributory negligence.

Background facts

Primeo, a Cayman Islands investment fund, had unwittingly invested in a Ponzi scheme, perpetrated through Bernard L Madoff Investment Securities LLC (“Madoff Investments”).  After the fraud came to light, Primeo claimed $2bn in damages from its former administrator, Bank of Bermuda (Cayman) Ltd (“the Bank”) and custodian, HSBC Securities Services (Luxembourg) SA (“HSBC”).  [3]

Primeo alleged that HSBC had breached its contractual duties owed as custodian by appointing Madoff Investments as sub-custodian, and was liable for Madoff Investments’ wilful breaches.  It is important to note that the claim against HSBC was based on a form of strict liability.

By contrast, the claim against the Bank was based on Primeo claiming that it had breached the duties owed as administrator in maintaining Primeo’s books and records and/or determining Primeo’s value from time to time.  This part of the claim was founded on the Bank’s alleged duty to act with reasonable skill and care and was not based on strict liability.

The Grand Court of the Cayman Islands dismissed Primeo’s claims on the grounds they infringed the rules against recovery of reflective loss, causation and limitation.  In the alternative, the judge held that any sum awarded against the Bank would have been reduced by 75% on account of Primeo’s contributory negligence (but that contributory negligence was not a defence that was available to HSBC in the strict liability claim).

Thereafter, the Court of Appeal of the Cayman Islands upheld the dismissal of Primeo’s claim because of the rules against recovery of reflective loss (but on an obiter basis cut down the finding of contributory negligence in the claim against the Bank).  The reflective loss issue was subsequently determined in Primeo’s favour by the Privy Council in August 2021, opening the dispute back up again.

The second tranche of the appeal hearing therefore involved determining multiple strands of issues, including:

  • What counterfactuals can plausibly be put forward to cut down loss in a claim of this nature;
  • When loss was suffered and what that loss consisted of;
  • Whether reckless breaches of contract amounted to a deliberate commission of a breach of duty for the purposes of limitation;[4]
  • Whether the Bank was HSBC’s “agent” for the purposes of deliberate concealment[5];
  • Whether contributory negligence is available in principle as a defence to a breach of contract claim;
  • Whether the Court of Appeal was entitled to substitute its own assessment of the level of contributory negligence in the claim against the Bank for that of the trial judge.


It is useful background to recall that the use of counterfactuals met with a frosty reception in the Supreme Court’s judgment in MBS v Grant Thornton [2021] 3 WLR 81, an audit negligence claim. In that case, Lords Hodge and Sales alluded to “the danger of manipulation, in argument, of the parameters of the counterfactual world” and the tendency of counterfactuals to generate “abstruse and highly debatable arguments”. In Primeo, the counterfactuals proffered by the Respondents were also regarded as open  to question. The Respondents argued that so far as the strict liability claim against HSBC was concerned, the fund could not recover because even if Madoff Investments had complied with its safeguarding duty in respect of cash it received, Primeo would still have suffered the same loss. There were various manifestations of this argument, but one was that even if Madoff Investments had held Primeo’s cash safely, it would have perpetrated the Ponzi fraud with other investors’ money, and Primeo would only have been left with an unsecured right of recovery. The Privy Council concluded that such an argument “could not be sustained” [63]. In its view the relevant counterfactual analysis was to assume that Madoff Investments had not carried on a Ponzi Scheme at all- and not that it had carried out a Ponzi Scheme excluding the Primeo money.

The approach taken by the Privy Council therefore cements the scepticism expressed in MBS v Grant Thornton towards counterfactuals that appear arguably artificial, or too favourable to one party.

When and what loss was suffered?

The next issue tackled by the Privy Council was when and what loss was suffered. The Court of Appeal of the Cayman Islands had held that Primeo suffered loss each time it remitted money to Madoff Investments and Madoff Investments misappropriated the money to keep the Ponzi scheme going.

The Respondents attacked these conclusions in reliance on Nykredit Mortgage Bank plc v Edward Erdman Group Ltd [1997] 1 WLR 1627 and Law Society v Sephton [2006] 2 AC 543. The first case- Nykredit- is authority for the proposition that in lenders’ claims involving overvalued properties at least, the lender does not suffer damage merely by entering into a transaction in circumstances where a borrower’s covenant to repay is adequate to make up the shortfall. The second case- Sephton– concerns losses arising on a contingency, such as the exposure to the risk of future claims. The Respondents sought apply these two authorities, which are more usually applied in the context of limitation, in support of arguments that Primeo’s losses were not suffered until they were measurable, which would not happen until the Ponzi scheme collapsed – until then, an investor might be lucky and receive a full redemption of their investment.

The Privy Council found that the attempt to rely on Nykredit was misplaced. On the facts of the Madoff fraud, Primeo suffered a loss in principle which was capable of being measured as soon as it paid its money to Madoff Investments.  According to the facts known as at the date of trial, Madoff Investments was hopelessly insolvent when Primeo made its investments and its promises to keep them safe and repay were valueless and were to be treated as such, even if they could not be quantified until a later date [89]-[92].  The Privy Council also distinguished Sephton on the basis that Primeo’s loss was not contingent – the possibility that Madoff Investments might have made repayments (which it in fact did) was a matter going to mitigation only and was not a contingency as such [95].  Sephton therefore remains a lonely example of contingent loss, and yet another attempt to apply it has failed.[6]

However, the Privy Council did accept that Primeo’s claims against HSBC had failed to take account of redemption payments actually made by Madoff Investments to the fund [98].  At trial, Primeo had framed its claim by reference to the net loss it had suffered. However, in respect of the periods to which the strict liability claims against HSBC were found by the trial judge to be relevant, Primeo had in fact received more from Madoff Investments than it paid.  To overcome this, Primeo had to succeed in showing that it was entitled to introduce (as it had sought to do before the Court of Appeal) a new basis for its damages claim against HSBC arising from its strict liability claim.  This was a claim that HSBC had assumed responsibility for the value of the funds in which Primeo invested, such that its loss was the lost chance to withdraw its investments and invest elsewhere.

This attempt to broaden out the claim was rejected by the Privy Council on grounds of finality.  It set out a detailed review of the principles on finality generally (starting with the rule in Henderson v Henderson (1873) 3 Hare 100); the need to advance a full case at trial; and the caution to be adopted when an appellate court allows a new point to be taken on appeal.  Five reasons were given for refusing to allow the new argument on assumption of responsibility [165]-[169]:

  • Primeo could have addressed the quantification of its claim on the hypothesis that the judge might decide that the period of its strict liability claim was more limited that it had pleaded- in other words, it could have seen the problem coming;
  • It should therefore have advanced any arguments about the quantum of its claim and the evidence in support at trial;
  • The Privy Council rejected the argument that no new evidence would be required to mount a case of assumption of responsibility;
  • Had this been raised at trial, the evidence would likely have been different. It had been incumbent for Primeo to drive that evidence out at trial; and
  • The Respondents would suffer prejudice if, after such a long trial, the case could be reopened on this ground.

The same analysis applied to new cases on causation and loss of chance which Primeo had sought to advance for the first time before the Court of Appeal (including the argument about whether there was a real and substantial chance that the auditors would have resigned if HSBC had declined to give custody confirmations and the auditors had sought access to Madoff Investment’s books- which it was contended would have revealed the fraud sooner) [190].

This aspect of the case is a reminder of the difficulties that arise when “fall back” positions on loss are not or cannot be- for whatever reason- identified at the outset when the claim is pleaded.  However, it is often very difficult to anticipate what these alternative positions might be, particularly if cases take unexpected turns.


As in the Supreme Court’s decision in Canada Square v Potter [2023] UKSC 41, released on the same day, the Privy Council also had to consider deliberate concealment. [7]S. 37(2) of the Cayman Islands’ Limitation Act is similar to s. 32 of the Limitation Act 1980 in England & Wales. In particular, it delays the running of time where the defendant has deliberately concealed any fact relevant to the claimant’s cause of action (s. 37(1)(b)), or deliberately committed a breach of duty (s. 37(2)).

The courts below in the Cayman Islands had held that:

  • Primeo could not rely on s. 37(2) since the reference to “deliberate commission of a breach of duty” required that the respondents committed the relevant breach knowing that it was a breach; recklessness was insufficient; and
  • In respect of the strict liability claim, Primeo could rely on s. 37(1)(b) to postpone the start of the limitation period, because Madoff Investments was to be treated as HSBC’s agent, thereby attributing its deliberate concealment of relevant facts to HSBC.

The approach set out above shows that the Cayman Islands courts had therefore taken a less “claimant friendly” approach to what was meant by “deliberate” conduct than the English Court of Appeal had done in Canada Square. The Cayman Islands courts turned out to be right.

In respect of deliberate concealment under s. 37(2), the Privy Council’s decision was the same as that reached by the Supreme Court in Canada Square v Potter. By direct application of the decision of the House of Lords in Cave v Robinson Jarvis & Rolf [2002] UKHL 18, the Privy Council upheld the view that recklessness was insufficient to amount to “deliberate” conduct [225].

As to s. 37(1)(b), the critical question in Primeo[8] was whether Madoff Investments was HSBC’s “agent” for the purpose of the section as it applied to the strict liability claim.  The Privy Council held that it was; the word “agent” was not defined in the Act; it was therefore to be given its usual meaning according to the general law [242].  On the facts, when Madoff Investments purported to comply with the sub-custody agreement, it did so as HSBC’s agent to perform its obligations to Primeo [276]. Madoff Investments deliberately concealed facts about its wrongdoing, and this was sufficient to delay the running of time in the claims against HSBC (for whom it was acting as agent)[281].

Contributory Negligence

The final issue was contributory negligence. This fell into two parts.

The first part concerned whether the statutory defence of contributory negligence[9] applied to a claim in contract.  Surprisingly, given the frequency with which the issue is raised, it had never been conclusively resolved at appellate level.

At first instance in Vesta v Butcher [1986] 2 All ER 488, Hobhouse J had held that contributory negligence was available where the defendant’s liability in contract is same as his liability in the tort of negligence, independently of the existence of a contract.  This was approved by the Court of Appeal in Vesta, but obiter.  In Primeo, the Privy Council carried out a comprehensive review of the authorities (including authorities preceding the 1945 Act and commonwealth authorities) as well as academic commentary.  Despite some suggestions to the contrary in some cases and academic articles[10], the Privy Council concluded that Vesta v Butcher was correctly decided and sound in principle. It placed particular emphasis upon the need for certainty in the law (pointing out that Vesta had been regarded as settled law for some 35 years in England and Wales and other jurisdictions)[353].

The second part was whether the defence of contributory negligence was in fact available on the facts:

  • As to the strict liability claim against HSBC, the Privy Council concluded that the defence was not available. HSBC was not subject to obligations to act with reasonable care and skill and therefore it fell outside the type of case where Vesta recognised that contributory negligence could be raised [368];
  • The position in the claim against the Bank was different. That did fall within the scope of arguments allowed by Vesta, and so the focus of the argument was on whether the first instance judge had been correct to regard Primeo as largely the author of its own misfortune (so as to warrant a 75% reduction). The Bank relied on the fact that Primeo’s directors were industry professionals, and that the high risks inherent in Madoff Investments’ business model were clear. However, the Privy Council concluded that the first instance judge had failed to lay enough emphasis on the fact that the Bank was a professional service provider, and had over-estimated Primeo’s own responsibility for what went wrong. Even though the Bank was grossly negligent in certain periods [139], the Privy Council upheld the 50% contributory negligence deduction indicated by the Court of Appeal of the Cayman Islands (at [372] to [382]), an outcome which is in keeping with the case law in both solicitors’ and accountancy claims where the negligence of clients is contrasted with the negligence of their advisers.[11]


We consider that the decision in the second tranche of the Primeo appeal provides welcome clarity on deliberate concealment, and what arguments go to the mitigation rather than the suffering of loss in the first place. The decision also reminds practitioners of the dangers of counterfactuals that could be criticised as artificial, and the difficulty of trying to anticipate fall back positions on loss.

Disclaimer: this article is not to be relied upon as legal advice.  The circumstances of each case differ and legal advice specific to the individual case should always be sought.

© Helen Evans KC and Benjamin Fowler of 4 New Square, November 2023

Helen Evans KC was called in 2001 and appointed silk in March 2022. Helen specialises in professional liability, regulatory fraud and insurance work, with a large part of her practice focusing on lawyers’ and accountants’ liability and disciplinary matters. Helen is a co-editor of the solicitors and barristers chapters in Jackson & Powell on Professional Liability. Prior to taking silk, in November 2021 Helen was named “Professional Negligence Junior of the Year” and in April 2022 was named “Times Lawyer of the Week.”

Benjamin Fowler was called to the Bar in 2011.  He specialises in professional liability and construction (in which fields he is listed as a leading junior in the Legal 500) as well as insurance, costs and disciplinary work.

[1] Primeo Fund (in Official Liquidation) v Bank of Bermuda & Another [2023] UKPC 40.

[2] See article by Helen Evans KC and Usman Roohani entitled “Mirror Mirror: is the Law now Clear on Reflective Loss?

[3] From 1993 to 2003, Primeo held a managed account with Madoff Investments.  From 2003, it also invested in Madoff Investments indirectly through two feeder funds, Herald and Alpha.  Following a transfer in 2007, all Primeo’s investments with Madoff Investments were through its shareholdings in Herald and Alpha.

[4] Under s. 37(2) of the Cayman Islands’ Limitation Act 1996 Revision; the equivalent of s. 32(2) of the Limitation Act 1980.

[5] Section 37(1)(b) of the Cayman Islands’ Act, equivalent to s. 32(1)(b) of the Limitation Act 1980.

[6] See also for instance Axa Insurance Ltd v Akther & Darby [2010] 1 WLR 1662.

[7] For a helpful analysis of this decision, see the article by David Halpern KC and Anthony Jones here

[8] Albeit academic, given Primeo’s failure on loss on the strict liability claim

[9] Arising under s. 8(1) of the Cayman Torts (Reform) Act (1996 Revision), modelled on s. 1(1) of the Law Reform (Contributory Negligence) Act 1945.

[10] See the discussion at [326] to [329] of the judgment.

[11] See e.g. paras 11.348ff of Jackson & Powell on Professional Liability

Related areas

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Helen Evans KC

Call: 2001 Silk: 2022

Benjamin Fowler

Call: 2011



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