Aforge Finance SAS and Others v HSBC Institutional Trust Services (Irl) Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 10 January 2011
• Neutral Citation: [2011] IEHC 6
• Court: High Court
• Date: 10 January 2011

[2011] IEHC 6

THE HIGH COURT

[No. 2938 S/2009]

[No. 3097 S/2009]

[No. 3098 S/2009]

Aforge Finance SAS & Ors v HSBC Institutional Trust Services (Irl) Ltd

COMMERCIAL

BETWEEN

AFORGE FINANCE S.A.S. AND AFORGE GESTION S.A.S.

PLAINTIFFS

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

DEFENDANT

AND

PINET S.A.

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

AND

AFORGE GESTION S.A.S., ALLOCATION SEQUENCE 1 "C", AXIS 2 SICAV "C", AXIS 3 SICAV "C" AND AXIS 4 SICAV "C")

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

DEFENDANTS

AND RELATED CASES

AFORGE FINANCE SAS & ORS v HSBC INSTITUTIONAL TRUST SERVICES (IRL) LTD UNREP CLARKE 21.12.2009 2009/3/536 2009 IEHC 565

EEC DIR 85/611 ART 1.7

EEC DIR 85/611 SECTION VI

EEC DIR 85/611 ART 27

EEC DIR 85/611 ART 27.2

EEC DIR 85/611 ART 28.2

EEC DIR 85/611 ART 28.3

EEC DIR 85/611 SCHED B

EUROPEAN COMMUNITIES (UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES) REGS 1989 SI 78/1989 REG 39(D)

BROOKE BOND & CO LTDS TRUST DEED, IN RE; BROOKE & ANOR v BROOKE BOND & CO LTD & ORS 1963 CH 357 1963 2 WLR 320 1963 1 AER 454

PUBLIC TRUSTEE ACT 1906 S4

LEMAN BROS INTERNATIONAL (EUROPE) (IN ADMINISTRATION) v CRC CREDIT FUND LTD & ORS 2011 BUS LR 277 2011 1 CMLR 27

CMSN v IRELAND 2010 ENV LR 8 2009 ECR I-6277

COMPANY LAW

Obligation to account

UCITS Directive and Regulations - Investment fund - Depository - Trustee - Fiduciary duty - Certainty - Intention of directive to establish common basic rules for publishing of information by investment company - Obligation on depository to report on conduct of investment company to 'shareholders' - Whether obligation on defendant to account to plaintiff - Whether obligations of trustee can go beyond those specified by statute where relationship is created and governed by statute - Whether implementing measure of EU directive can create fiduciary relationship - Whether defendant trustee in equity - Whether relationship between plaintiff and defendant carrying obligation to account beyond that created by statute - Brook v Brook Bond [1963] 2 WLR 320; CRC Credit Fund Ltd v GLC Investments PLC Sub Fund [2010] EWCA Civ. 917; Commission v Ireland (Case 427/07) [2009] ECR I-6277 considered - European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 (SI 211/2003), reg 39 - Council Directive 85/611/EEC - Directions as to further prosecution of claim given (2009/2938, 2009/3097 & 2029/3098S - Clarke J - 10/1/2011) [2011] IEHC 6

Aforge Finance SAS v HSBC Institutional Trust Services (Ireland) Ltd

Facts The issue in these sets of proceedings related to the obligations of the defendant to account to either a fund of which it was a depository under the UCITS Directive and the UCITS Regulation or to account to investors in such a fund. In particular, the question of whether it was appropriate to characterise a party in the position of the defendant as a trustee under the law of equity in this jurisdiction, required to be tried. The Court previously directed that other parties to what has become known as the Madoff litigation should also be permitted to be heard at this hearing as there were related issues in both sets of proceedings. Part of the claim brought by the various plaintiffs in the related proceedings involved a contention that the defendant was a trustee owing fiduciary obligations to the relevant plaintiffs. It was suggested on behalf of the plaintiffs that a natural and necessary consequence of the set of legal relations which arose between a depository in the position of the defendant and a fund and its investors created a fiduciary relationship between that party and both the fund concerned and the investors in the fund, such as carried with it either generally, or in the particular circumstances of this case, an obligation to account for its activities as such a fiduciary by the provision of much more detailed information than has, heretofore, been forthcoming from the defendant. The plaintiff also relied on the particular circumstances of this case in support of its contention that the defendant had a duty to account, namely that the fund was unable to make available any assets for return to the investors concerned.

Held by Clarke J.: That the UCITS Directive was designed to harmonise the provisions in respect of investment funds within the European Union. The fund in question herein was a UCITS fund and therefore was subject to the UCITS Directive and Regulation. A principal feature of the Directive was an intent to establish common basic rules in respect of the information which collective investment undertakings must publish. The Directive specified a detailed regime for the reporting by an investment company on a periodic basis and consequently, an investment company had extensive reporting obligations to its unit holders. The Directive did not contain any express provision requiring a depository, such as the defendant to report either to the investment company or to investors in the investment company. However, the Regulation contained such an obligation in Regulation 39 (d). It was clear from the express statutory regime that an investment company had an obligation to produce half yearly and yearly reports to its investors. A depository or trustee had an obligation to report on the conduct of the investment company to the shareholders. It was, at the level of principle, possible for a fiduciary relationship to arise under statute in circumstanes where the relationship carried with it duties which did not derive from the statute itself. However, a statute could also expressly, or by necessary implication, limit those obligations. It was not necessary to determine whether, at the level of principle, the relationship between the defendant and the respective investors was one of trustee/beneficiary. Even if the defendant was a trustee, its reporting or accounting obligation to the investors would not go beyond the obligation which was carefully set out in the Irish implementing measure in Regulation 39(d). The terms of that Regulation complied with the principle of legal certainty. The imposition of other larger, vaguer and imprecise obligations contended for on behalf of the plaintiffs would not comply with the principle of legal certainty.

Reporter: L.O'S.

1. Introduction

2 2 1.1 On 21 ^st December last, I gave judgment on certain issues arising in the three proceedings set out above [2009] IEHC 565 ("the Aforge cases"). For the reasons set out in the earlier judgment ("the earlier judgment"), I directed that the issues between the parties to same should be determined at a full trial, but that that trial could be conducted on the basis of the motion then before the court with such further evidence as might be permitted. I also directed that the other parties to what has become known as the Madoff litigation should also be permitted to be heard at that hearing in that an aspect of the central issue that arises between the parties to the Aforge cases is also material to some of the issues which arise in the related proceedings. Parties are described and terms are used in this judgment in the same way as in the earlier judgment which should be read in conjunction with this judgment.

3 3 1.2 As pointed out at para. 5.1 of the earlier judgment, the issues which required to be tried related to the obligations of the defendant ("HTIE") to account to either a fund of which it was a depository under the UCITS Directive and the UCITS Regulation or investors in such a fund. In particular, the question of whether it was appropriate to characterise a party in the position of HTIE as a trustee under the law of equity in this jurisdiction, required to be tried. It was that question which had the potential to be common, not only to the Aforge cases, but also to the related proceedings in that part of the claim brought by the various plaintiffs in the related proceedings involves a contention that HTIE was a trustee owing fiduciary obligations to the relevant plaintiffs.

4 4 1.3 This is, therefore, the first judgment that relates to a substantive, rather than a procedural, issue in the Madoff litigation generally. Against that background, it is necessary to briefly note the procedural history of this litigation since the earlier judgment.

2. Procedural History

2 2 2.1 Subsequent to the delivery of the earlier judgment, case management was put in place at which all parties to the other proceedings within the Madoff litigation generally were invited to indicate whether they wished to participate. Kalix Fund Ltd. ("Kalix") (being the plaintiff in one of the relevant proceedings), Thema International Fund Plc. ("Thelma") (being a plaintiff in one set of proceedings and a defendant in others), and Unione Di Banche Italiane Società Cooperativa per Azioni (Trading as UBI Banca) and ABJ Vermoegensverwaltung MBH & Co. KG ("collectively UBI Banca"), (being a plaintiff in another of the relevant proceedings) each indicated a desire to participate, filed written submissions, and attended at the oral hearing for the purposes of making such submissions.

3 3 2.2 In addition, certain further affidavit evidence was filed on behalf of HTIE with replying affidavits on behalf of the plaintiffs in the Aforge cases ("Aforge"). It will be necessary to refer to some of that evidence in due course.

4 4 2.3 In the course of both the written and oral submissions, it is fair to say that the dispute between the parties came to be significantly more refined than might have appeared to have been the case in the course of the hearing which gave rise to the earlier judgment. In that context I, therefore, turn to the issues between the parties.

3. The Issues

2 2 3.1 As is clear from the earlier judgment, the...