A JUDGE has thrown out a £7.3 million damages claim brought by the liquidators of a hedge fund against a Scots law firm.

Lord Tyre ruled at the Court of Session that the liquidators of Heather Capital did not bring their action against Burness Paull & Williamsons within the time permitted by law.

The judge made the ruling after hearing legal submissions earlier this year about the law firm’s alleged wrongdoing when it acted in a number of financial transactions for Heather Capital in 2006.

The £400m investment fund – which was founded by Scots businessman Gregory King in 2004 – collapsed in 2010.

But, in a written judgment issued at the Court of Session, Lord Tyre ruled legislation states the liquidators should have brought their action against the law firm within five years of the alleged wrongdoing taking place.

The judge said the liquidators had failed to show in their legal arguments why they should be allowed to continue with the action.

In the judgement, Lord Tyre writes: “The onus, as I have said, rests upon the pursuer to aver and prove circumstances entitling it to protection from prescription under one or other provision.

“In my opinion, it has failed to do so. In these circumstances, I shall sustain the defenders third plea in law and grant decree of absolvitor.”

The judgment tells of how the investment fund was incorporated on the Isle of Man in August 2005.
The judgment also tells of how alleged frauds involving the fund were allowed to take place.

Lord Tyre wrote: “The pursuer avers that, during its operation, it and its investors were defrauded by the diversion of invested funds exceeding £90m, under the guise of fictitious loans to various shelf companies.

“The mechanism of the fraud is said to have been the same in each case. Companies owned and or controlled by Gregory King were incorporated in Gibraltar.

“The pursuer then entered into a number of credit facility agreements with these companies. (referred to in the pleadings as ‘First level SPVs’)

Each agreement was secured by a debenture. The pursuer recorded loans to the various first level SPVs in its books of account. In fact the money was never paid to them.

“In many cases the money was paid into the bank account of a London trader named Nicholas Levene.
“Mr Levene is currently serving a 13-year prison sentence, having pled guilty to 14 charges of fraud, false accounting and obtaining money by deception.”

The judgment tells of how the law firm was instructed to act on behalf of the fund with regard to loans which were to be made by  the fund to companies based in Gibraltar.

The liquidators claimed the law firm’s banking partner transferred £3.3m to a bank account in the name of Nicholas Levene and £4m to a company called Mathon plc.

Lawyers acting for the liquidator claimed the law firm’s banking partner transferred the money after receiving instructions from an individual.

They claimed this individual  had no authority to act in how Heather Capital transferred its money.

The judgment also tells of how the liquidators first became aware of what happened with the law firm in 2012.

The Heather Capital liquidators claimed the law firm acted in ‘breach of trust’ during the deals and that they had breached a ‘fiduciary duty’ to the fund when they acted in the transactions.

The law firm also claimed the action should be dismissed because it hadn’t been raised within five years of the alleged wrong doing taking place.

The liquidators claimed they should have been allowed to pursue their action as they couldn’t have learned of the alleged  wrong doing before their 2012 discovery.

However, Lord Tyre ruled the action should be discontinued, saying liquidators hadn’t proven a case for an exemption.He wrote: “I conclude that the pursuer has failed to aver circumstances in which it could not, with reasonable diligence, have become aware of the loss until a date less than five years before the action was raised.”