A Bermuda Supreme Court judge has ordered $9 million held in a Bank of Bermuda HSBC account in the name of an insolvent Bernard Madoff feeder fund to be repaid to two institutions who invested the money shortly before the swindler's arrest last year.

Judge Ian Kawaley concluded in his 24-page judgement issued in court on Friday that $6 million from the account in the name of the Kingate Global Fund Ltd. should be repaid to the Cayman-based Knightsbridge Fund Ltd. and $3 million to the UK-based Standard Chartered Bank (SCB).

Kingate Global, which is managed by Bermuda-based Kingate Management Ltd., was given a 14-day stay to allow it to prepare a response to the judgement, but the judge ordered the fund to pay interest on the money owed at an annualised rate of seven percent.

The judgement concludes one aspect of a tangled web of litigation that has spread around the world since the revelation of Madoff's fraud. Madoff is serving a 150-year prison sentence after he admitted running a multi-billion dollar Ponzi scheme, in which money from new investors was used to pay off old ones.

The $9 million at issue in court on Friday has been held in Kingate's account in the Bank of Bermuda HSBC, since the two institutions invested their money with the fund in late November last year.

Before Kingate could issue the shares that the money was intended to pay for, Madoff was arrested in New York on December 11, 2008, causing Kingate to suspend all share issues and redemptions.

On December 15, the US District Court for the Southern District of New York appointed Irving Picard as trustee to liquidate the assets of Madoff's company, Bernard L Madoff Investment Securities LLC.

In reponse to the Madoff trustee's claims, the Bank of Bermuda HSBC froze all the monies it held in Kingate's account, including that submitted by Knightsbridge and SCB. In January, Kingate sued the bank, claiming that it did not have the right to freeze the funds held in Kingate's name.

In February this year, Mr. Picard made a claim on $100 million held by Kingate that had been wired to the fund by Madoff's company in the two months before Madoff was arrested.

According to documents submitted to a US bankruptcy court by Mr. Picard, two Kingate funds, Kingate Global and Kingate Euro, invested $1.73 billion with Madoff between March 1994 and December 11 last year.

Kingate placed itself into voluntary liquidation, in the British Virgin Islands, where the funds are registered, on May 8 this year and on May 26, Knightsbridge and SCB sued Kingate and the Bank of Bermuda HSBC, in attempt to retrieve the funds they had submitted.

In his judgement, Judge Kawaley said the two institutions were entitled to a declaration that the $6 million and $3 million, respectively, be "held upon trust for Knightsbridge and SCB and to an order that the said sums be paid".

Andrew Martin, of Mello Jones & Martin, representing the Bank of Bermuda HSBC, said the bank had taken no position on the ownership of the funds.

He said the bank had decided to freeze the monies in the Kingate account in the days after Madoff's arrest to ensure that true ownership of the money could be established.

And he argued that the bank should not have to pay costs in the case, as it was not involved in the dispute over who the $9 million belonged to.

Victor Lyon, QC, was representing SCB and Knightsbridge, along with Nathaniel Turner, of Attride-Stirling & Woloniecki.

Mr. Lyon argued that the bank had breached its contract with Kingate by freezing the account, an action it had taken because it had been "scared by what the Madoff trustees were doing".

He added that the $9 million claimed by his clients should have been held in a separate account.

Judge Kawaley suggested that the bank's cautious actions had been reasonable in the circumstances following Madoff's arrest.

Richard Horseman, of Wakefield Quin, representing Kingate, said he had not had sufficient time to prepare a response to the judgement, having been drafted in at very short notice because of the absence of a colleague.

Judge Kawaley granted Kingate a stay of 14 days, but said that decision was a matter of ensuring due process and added that it "should not be taken as an indication that there is a strong case for a stay".