The High Court's ruling in Priest v Ross Asset Management Ltd (In Liq) [2016] NZHC 1803 arose out of the devastation of the Ponzi scheme effected by David Ross of Ross Asset Management Limited (In Liquidation) (RAM) and Dagger Nominees Limited (Dagger).  For many years RAM and Dagger reported spectacular returns for investors before their illusion was revealed, the Financial Markets Authority became involved and liquidators were appointed.

Duncan and Nora Priest (Priests) subsequently argued that their investment in RAM (Priest Holdings) had been held on bare trust for them and that as a consequence the Priest Holdings did not form part of the pool of assets that the liquidators could distribute amongst all of the investors, but rather could only be returned to the Priests. The liquidators disagreed.

The Court found in favour of the Priests, noting that they had separated themselves from the other investors, in that the Priests directed the purchase of all shares, provided valuable consideration for the same and there were no fictitious profits involved.  The Priests had not given Mr Ross discretionary powers to manage investments on their behalf and so had remained the equitable owners of the shares purchased through Dagger and RAM as bare trustees. 

Of note, at all times the Priest Holdings were recorded accurately in RAM's and Dagger's books as allocated to the Priests, so the other investors could not demonstrate any proprietary right to the Priest Holdings.

The Court made it clear that, to the extent that it might be argued the other investors temporarily funded the purchase of the Priest Holdings, the value of that contribution was restored to the trust funds of the other investors when the Priests discharged their debt to RAM and Dagger.

The case raises complex issues as to fungibility and tracing and, as is always the case in such matters, turned on its own facts.

The liquidators are reported to be making an appeal against the judgment.

See Court decision here.