Court considers where “expert evidence” permitted on CASS dispute

IBP Markets, a wholesale investment broker,  is in special administration. All Blue Investments North Star 1 Limited (a BVI entity in liquidation) was an investment fund which transferred assets and funds to IBP in the course of their business relationship prior to IBP first agreeing to an FCA VREQ and then going into special administration.

All Blue believes that the relevant assets and funds should have been protected as client money under CASS, but was not. The IBP JSAs said the funds were not client moneys because they were held under a Title Transfer Collateral Arrangement.

If the funds in question were subject to TTCA terms, then the clients are not entitled to distribution of client moneys under CASS 7 nor the return of safe custody assets. So All Blue would just be an unsecured creditor in IBP’s estate. All Blue was not the only firm in this position.

At the time of the court hearing, the JSAs had received £54m of claims to client money from clients whose entitlement was not under dispute, and £23.2m of claims from “disputed” clients, of which All Blue’s claim is over £21m.

All Blue took advice, and submitted to the court that expert evidence was needed to address and help the Court properly to understand the issues that need to be determined, whereas the JSAs said the issues should be determined simply by construction of the IBP Terms of Business, for which no expert knowledge was needed.

The CPR say that expert evidence must be restricted to what is reasonable required to resolve proceedings, and the Court should not permit it merely because it may be helpful.

The Court queried what the expert would focus on, and concluded that All Blue could not “show with sufficient cogency” that the expert evidence could point to a market practice different from what IBP contended. It said the FCA/Cass rules did not need to be explained by a market expert and that no market practice to shed light on their application had been identified. However, the judge said he would permit a further application for permission to put in expert evidence if it included a draft of the expert report.