The majority of the Court of Appeal has upheld the High Court decision (see Buddle Findlay's summary here) that the liquidators of Ross Asset Management Limited (RAM) can recover the fictitious profits obtained by Mr McIntosh ($454,047), but not his initial investment ($500,000).

Mr McIntosh's defence of giving 'value' or 'valuable consideration' under section 349 of the Property Law Act and section 296(3) of the Companies Act was upheld as "real and substantial" and "quantifiable and equivalent" in respect of his initial investment.  When RAM misappropriated the funds into the Ponzi scheme, Mr McIntosh's intent to give value or lack thereof was irrelevant: RAM had breached the bare trust arrangement with Mr McIntosh and, objectively, that breach gave corresponding value to RAM's assets.

The majority considered that the liquidators could recover the fictitious profits because payment of this amount did not discharge RAM's liability to Mr McIntosh in equitable damages and was "notionally calculated from a fabricated foundation of non-existent securities"; Mr McIntosh had given no value for the $454,047, so could not retain it.

Miller J dissented, stating that Mr McIntosh should fully disgorge both amounts and share rateably in the liquidation; Mr McIntosh was not a trade creditor, instead supplying money – not an identifiable asset.  Mr McIntosh's initial investment was immediately misappropriated and pooled, as RAM was insolvent at all material times due to its Ponzi scheme.

Both sides might therefore seek leave to appeal to the Supreme Court.

See Court decision here.