1. Manager and Service Provider Liability – Where are we now? World Alternative Investment Summit Canada 2010 Ingrid Pierce, Walkers

2. Overview Claims against directors Claims against the fund Third party service providers Auditor cases Administrators cases Investment manager liability New investor powers to liquidate funds

3. Where Are We Now? Litigation arising out of fund collapses and liquidity management Service providers in the firing line as investors seek to attribute blame and recoup losses Absence of contract between investors and third party service providers Other remedies may depend on jurisdiction Scope of protection afforded by indemnities and releases in service provider contracts

4. Claims Against Directors Responsibility for general oversight of the fund and all major decisions Cause the fund to hire third party service providers and negotiate agreements Duty to act in good faith in the best interests of the fund Fiduciary duties to the fund and not to individual investors

5. Claims Against Directors (cont) Democratic principle – majority rule No specific rights for minority shareholders unless derivative and wrongdoers are in control Directors and officers may be exonerated under constitution or directors’ services agreement No exoneration or indemnity for dishonesty

6. Claims Against the Fund Investor who never would have invested must first rescind subscription contract Bars to rescission Breach of class rights Breach of subscription agreement, representations or warranties Breach of offering document – contract or not? Damages?

7. Claims Against Service Providers No contract with the third party service providers Standard of care – reasonably competent professional with relevant expertise Can investors sue for negligence or misrepresentation inducing the subscription contract? Fund’s constitution: can service provider benefit from indemnity in articles? Limitations of liability and caps on liability Time limits for claims

8. Claims Against Auditors No contract between auditors and investors Engagement letter may limit liability Fund’s constitution may designate auditors as “officers” Recent litigation – auditor liability for negligent conduct of audit Class action claims against auditors arising out of Madoff Was the audit so deficient as to amount to no audit at all?

9. Claims Against Administrators No contract between administrators and investors Consider liability and indemnity under administration agreement Is there a special relationship between the administrator and investors? Do investors invest because of the chosen administrator? Recent litigation – alleged failure to calculate NAV or provide independent verification of prices

10. Claims Against Investment Managers No contract between investment manager and investors Did manager induce investor to invest? When is a sales pitch a material representation? Contractual limitation of liability and indemnity from fund assets Fund articles– can investment manager take advantage of indemnities? Recent litigation

11. Investors’ Powers to Liquidate Funds New wider powers to wind up companies if “just and equitable” Abusive for an investor to threaten winding up in order to improperly pressure fund Court has power to liquidate fund if impossible for fund to carry out investment objective Options for funds still holding illiquid securities

12. Lessons Investors and creditors taking a harder line with service providers Ensure duties spelled out in clear terms Review and update liability provisions over time Limit direct dealings with investors

13. Walker House 87 Mary Street, George Town Grand Cayman KY1-9001 Cayman Islands T +1 345 949 0100 E info@walkersglobal.com Ingrid Pierce Partner and Head of the Cayman Investment Funds Team T +1 345 814 4667 ] E ingrid.pierce@walkersglobal.com