The Supreme Court in McIntosh v Fisk upheld the Court of Appeal decision permitting the liquidators of Ross Asset Management Ltd (RAM) to claw back the fictitious profits paid out to Mr McIntosh. However the claw back did not apply to the original investment of $500,000.
The majority found that McIntosh had a defence for the $500,000 as he had provided "real and substantial valuable consideration". Once RAM misappropriated the $500,000 it became indebted to McIntosh for that amount, this equated to the provision of valuable consideration.
As in the lower courts, the Supreme Court had no issue with bifurcating the $954,047 payment made by RAM into the $500,000 original investment and the $454,047 fictitious profits. McIntosh could not prove that he had given valuable consideration for the fictitious profits or that he had changed his position in reliance of obtaining them. The liquidator was therefore entitled to claw back the $454,047.
Glazebrook J disagreed with the majority and stated that the full $945,047 should be clawed back. McIntosh had not given value for the $500,000 either at time of payment or when the funds were misappropriated due to the existing trust relationship between the parties. The funds were only misappropriated by RAM to perpetuate a fraud that was of no real value to RAM.
See the Court decision here.