Defender Ltd v HSBC Institutional Trust Services (Ireland) Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Costello
• Judgment Date: 16 December 2019
• Neutral Citation: [2019] IECA 337
• Court: Court of Appeal (Ireland)
• Docket Number: Appeal No. 2019/17
• Date: 16 December 2019

BETWEEN/

DEFENDER LIMITED

PLAINTIFF/APPELLANT

- AND -

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

DEFENDANT/RESPONDENT

- AND -

RELIANCE MANAGEMENT (BVI) LIMITED, RELIANCE INTERNATIONAL RESEARCH LLC, FIMAN LIMITED

AND

DAVID WHITEHEAD

THIRD PARTIES

[2019] IECA 337

Baker J.

Costello J.

Power J.

Appeal No. 2019/17

THE COURT OF APPEAL

Recusal – Objective bias – Error in law – Appellant seeking to appeal decisions of the trial judge in relation to a recusal application – Whether the trial judge had erred in law

Facts: The appellant, Defender Ltd, claimed that the respondent, HSBC Institutional Trust Services (Ireland) Ltd, was negligent and in breach of contract in its role as custodian under a custodian agreement. The Court decided that it was appropriate to hear a preliminary legal issue arising from the defence of HSBC relying on s. 17(2) of the Civil Liability Act 1961 (CLA). The Court delivered its judgment on 4 December 2018. The trial judge held that the appellant and Bernard L. Madoff Investment Securities, LLC (BLMIS) were concurrent wrongdoers pursuant to s. 11 of the CLA, that the settlement agreement entered into on 23 March 2015 between Mr Picard, the Trustee in Bankruptcy of BLMIS, and the appellant amounted to an accord for the purposes of the CLA, that the law of New York had no application to determining the effect of the settlement agreement nor respective contributions, and that, as a concurrent wrongdoer, the appellant’s total claim against HSBC was reduced by 100% pursuant to s. 17(2) of the CLA. The appellant sought the recusal of the trial judge. The application arose out of certain passages in his judgment of 4 December 2018 which, it was said, indicated an antipathy towards the claim that amounted to objective bias. The appellant appealed the decisions of the trial judge in relation to the recusal application. It said that the trial judge had erred in law on the grounds that: (1) the order of 21 December 2018 and the decisions of 16 January 2019 and 22 January 2019 were tantamount to a refusal by the trial judge to hear the recusal motion; (2) he had failed to deal with and hear the recusal motion in a manner consistent with the appellant’s right to a fair trial within a reasonable time, and the appellant’s constitutional right to appeal; (3) he adjourned the recusal motion without reading the papers grounding the application and without hearing any submissions from the appellant and/or on the basis that the application would take three/five days of judicial time; and (4) he failed to recuse himself from any further hearing of the proceedings as a reasonable person in possession of all the relevant facts in all the circumstances of the case would have a reasonable apprehension that the appellant would not obtain a fair trial having regard to the contents of the judgment delivered by the trial judge on 4 December 2018, [2018] IEHC 706, and the subsequent comments of the trial judge on 17, 19 and 21 December 2018 and 16 and 22 January 2019.

Held by the Court of Appeal (Costello J) that the order of 21 December 2018 and the decisions of 16 and 22 January 2019 adjourned the appellant’s application that the trial judge recuse himself from further hearing of the proceedings generally with liberty to apply. Costello J held that those decisions were not tantamount to declining, or refusing, to hear the motion. Costello J held that the question whether or not to adjourn the motion generally with liberty to apply constituted the exercise by the trial judge of his discretion in relation to the conduct of complex litigation; it was an order within his discretion to make. Costello J noted that, in the circumstances of the case, the trial judge heard and considered the arguments of the appellant opposing the adjournment of the motion generally with liberty to apply and he assessed those arguments in light of the competing claims on the resources of the court and reached his decision; in doing so, he took account of matters to which it was appropriate for him to have regard and he did not have regard to matters which were irrelevant or inappropriate to consider. Costello J held that the appellant had not established that it was greatly prejudiced by the decision or, indeed, that the progress of the proceedings would be unduly delayed as a result of the decision. Costello J held that, having reached this conclusion, it was accordingly not appropriate for the Court to engage in the substance of the application and, therefore, Costello J made no observation on the merits of the application.

Costello J held that the appeal would be refused.

Appeal refused.

JUDGMENT of Ms. Justice Costello delivered on the 16th day of December, 2019

Introduction

1 This appeal arises out of the notorious fraud perpetuated by Bernard L. Madoff in what has been described as the world's largest ponzi scheme. The appellant is an investment fund. It entered into a Custodian Agreement on 3 May 2007 with HSBC International Trust Services (Ireland) Limited (“HSBC”) whereby the appellant appointed HSBC as its custodian for cash and other assets delivered to it. HSBC entered into a sub-custody agreement dated 4 May 2007 with Bernard L. Madoff Investment Securities, LLC (“BLMIS”), a company set up and owned by Mr. Madoff. The appellant invested over USD$500 million with BLMIS pursuant to the terms of the custody agreement which led to significant losses as it turned out that Mr. Madoff had in fact created a huge ponzi scheme. The appellant claims that HSBC was negligent and in breach of contract in its role as custodian under the custodian agreement.

2 On 12 December 2008 the assets of BLMIS and Mr. Madoff were frozen after Mr. Madoff was arrested by the FBI on 11 December 2008. Mr. Irving H. Picard was appointed the Trustee in Bankruptcy of BLMIS by the United States District Court for the Southern District of New York. The trustee administering the bankruptcy estate has engaged in claw-back litigation to recover assets to the insolvent funds. Based on his success up to October 2018, the appellant expects to recover 75% of the $540 million invested with BLMIS by the conclusion of the bankruptcy. On 16 April 2015, the US Bankruptcy Court approved a settlement agreement between the trustee, the plaintiff and other parties entered into on 23 March 2015 pursuant to which the trustee granted the plaintiff an allowed claim of $522,840,000 in the BLMIS bankruptcy. The trustee agreed to pay the plaintiff $161,317,906.40, which represented 48.545% of the allowed claim, plus a $500,000 advance provided to all claimants, less the plaintiff's settlement payment of $93,000,000. The trustee agreed to, and has paid, further distributions on the allowed claim subsequently, thereby reducing the losses sustained by the plaintiff.

3 The case had been the subject of considerable case management before a number of judges before coming on for trial in October 2018. It was listed for an estimated five months. The appellant opened the case over a period of two and a half days and HSBC replied. After the opening submissions the Court decided that it was appropriate to hear a preliminary legal issue arising from the defence of HSBC relying on s. 17(2) of the Civil Liability Act 1961 (“CLA”). The Court heard arguments from the parties on the CLA issue and delivered its judgment on 4 December 2018. The trial judge held that, for the purposes of the preliminary issue, the appellant and BLMIS were concurrent wrongdoers pursuant to s.11 of the CLA, that the settlement agreement entered into on 23 March 2015 between the trustee and the appellant amounted to an accord for the purposes of the CLA, that the law of New York had no application to determining the effect of the settlement agreement nor respective contributions, and that, as a concurrent wrongdoer, the appellant's total claim against HSBC is reduced by 100% pursuant to s.17(2) of the CLA.

4 The appellant notified the Attorney General that it intended to appeal the decision but, if it was unsuccessful in its appeal, it intended to bring a constitutional challenge to the applicable provisions of the CLA. This meant that the proceedings would have to come back before the High Court, either on the basis that the appellant succeeded on its appeal and the proceedings as currently constituted would resume, or to determine the appellant's constitutional challenge to the provisions of CLA.

5 The matter was listed again before the trial judge on 11 December 2018. Counsel for the appellant indicated that it was the intention of the appellant to appeal the decision on the CLA and, secondly, that it wanted to bring a motion later in the week requesting the trial judge to recuse himself from further involvement in the case if and when the case came back to the High Court following the appeal. The application arose out of certain passages in his judgment of 4 December 2018 which, it was said, indicated an antipathy towards the claim that amounted to objective bias. The passages of the judgment were paragraphs 15-22 as follows:-

“15. Professional negligence and breach of contract actions regularly appear before the High Court and they do not last any more than a few days or weeks at most. Yet, this case is listed to last for some five months of court time, although it appears that even this exceptionally long period of time may be an under-estimate, since during the opening of the case, submissions were made to the effect that it could last several days in excess of the 80 court days originally fixed.

16. In Fyffes v. D.C.C. plc [2007] IESC 36 at para. 7, in a case that went on for a similar length of time (88 days) and also involved a considerable amount of money, Fennelly J. remarked that:

‘It is difficult to escape the expression that the length of the trial was the product of the large amounts of money at stake and the depth of the...