Kalix Fund Ltd v HSBC Institutional Trust Services (Ireland) Ltd & Unione DI Banche Italiane Societa Cooperativa Per Azioni (t/a Ubi Banca) v Thema International Fund Plc & HSBC Institutional Trust Services (Ireland) Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 16 October 2009
• Neutral Citation: [2009] IEHC 457
• Court: High Court
• Docket Number: [2009 No. 3152P]
• Date: 16 October 2009

Kalix Fund Limited v HSBC Institutional Trust Services (Ireland) Limited & Unione DI Banche Italiane Societa Cooperativa Per Azioni (t/a Ubi Banca) v Thema International Fund Plc & HSBC Institutional Trust Services (Ireland) Limited

BETWEEN

KALIX FUND LIMITED

PLAINTIFF

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

DEFENDANT

AND

BETWEEN

UNIONE DI BANCHE ITALIANE SOCIETA COOPERATIVA PER AZIONI TRADING AS UBI BANCA

PLAINTIFF

AND

THEMA INTERNATIONAL FUND PLC

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

DEFENDANTS

[2009] IEHC 457

[No. 3152 P/2009]

[No. 7819 P/2009]

THE HIGH COURT

PRACTICE AND PROCEDURE

Stay

Inherent jurisdiction of court - Multiplicity of litigation - Series of connected cases - Significant factual and legal overlap between cases - Application seeking order staying proceedings pending determination by court of separate proceedings - Proper course of action that court should adopt when confronted with multiplicity of actions - 47 sets of proceedings - Procedural history of relevant cases - Issues common to proceedings - Directions for conduct of proceedings - Effect of stay - Meaning of stay - Basis upon which stay sought - Relevant factors in determining which proceedings ought progress to trial Rationale - Principles and considerations to be applied - Risk of conflicting decisions - Jurisdiction of court to make directions - Criteria to be applied - Discretion - Extent to which first case to be tried likely to bind all other cases - Foss v Harbottle (1843) 2 Hare 461; McGrory v ESB [2003] IR 407; Barry v Buckley [1981] IR 306; Reichold Norway ASA v Goldman Sachs International [2000] 1 WLR 173; Racy v Hawila [2004] EWCA Civ 209, (Unrep, Court of Appeal, 18/2/2004); LTW Developments Plc v Della [2003] NSWCA 140, (Unrep, Court of Appeal, 5/6/2003) ; Cork Plastics Manufacturing v Ineos Compounds Ltd [2008] IEHC 93, (Unrep, HC, Clarke J, 7/3/2008); Re Norton Healthcare Ltd [2005] IEHC 411, [2006] 3 IR 321and Kelly v Lennon [2009] IEHC 320, (Unrep, HC, Clarke J, 2/7/2009) considered - Rules of the Superior Courts 1986 (SI 15/1986) O 63A, r 5 - Specific directions in each case to be given; proceedings to be linked, managed together and come to trial together as sequenced trial (2009/3152P & 2009/7819P - Clarke J - 16/10/2009) [2009] IEHC 457

Kalix Fund Ltd v HSBC Institutional Trust Services (Ireland) Ltd

Facts: Proceedings were instituted in a number of cases arising out of the collapse of Bernard L. Madoff Investments Securities LLC, an investment service controlled by a disgraced and imprisoned financier. The respective plaintiffs were investors in funds maintained by the first named defendant. As a result of the collapse, the investors lost very substantial sums and the proceedings were brought with a view to recovering those funds. In the context of the multiplicity of litigation arising from the collapse, two applications were before the Court, where an order was sought staying the proceedings pending a determination by the Court of the proceedings. The issue arose as to the proper course of action that the Court would adopt when confronted with the multiplicity of actions in being or contemplated. Thema was established in the State under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003. Kalix was an investment company incorporated in the British Virgin Islands. The Kalix proceedings concerned an assertion by Kalix that Thema acted in breach of contract, in breach of trust, in breach of duty and/ or in breach of the UCITS Regulations and Directive in relation to the appointment of a Madoff company as sub-custodian to Thema. Substantially similar proceedings were instituted shortly thereafter by UBI Banca, Thema and AA. Allegations were made in the proceedings whereby assertions were made that the terms of the prospectus had been breached as had a custodian agreement. The issue arose as to the appropriate directions that the Court would grant pursuant to its powers to give directions for the conduct of proceedings entered into the Commercial list of the High Court pursuant to O. 63 A, r. 5 of the Rules of the Superior Courts.

Held by Clarke J. that all proceedings where an allegation was made against Thema or HTIE would be linked for the purposes of case management and trial with a view that the management of all such proceedings should be conducted together by a single judge. The Court was minded favourably to consider applications to admit into the Commercial list all cases coming within the definition of such similar cases, even if they would not on a stand-alone basis warrant entry into the list. The overriding consideration was the efficient administration of justice. Kalix, UBI Banca, Thema and AA cases would be tried together. The risk of not following a streamlined procedure was great. The trial would be a sequenced trial.

Reporter: E.F.

EEC DIR 85/611 ART 14

EUROPEAN COMMUNITIES (UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES) REGS 2003 SI 211/2003 REG 37(1)

EEC DIR 85/611 ART 16

EUROPEAN COMMUNITIES (UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES) REGS 2003 SI 211/2003 REG 43

FOSS v HARBOTTLE 1843 2 HARE 461 67 ER 189

RSC O.63A r5

MCGRORY v ELECTRICITY SUPPLY BOARD 2003 3 IR 407 2003/41/9768

BARRY v BUCKLEY 1981 IR 306 1981/9/1485

REICHHOLD NORWAY ASA & ANOR v GOLDMAN SACHS INTERNATIONAL (A FIRM) 2000 1 WLR 173 2000 2 AER 679 1999 2 AER (COMM) 174 1999 2 LLOYDS 567

RACY v HAWILA UNREP 18.2.2004 2004 EWCA CIV 209

L & W DEVELOPMENTS PTY LTD v DELLA UNREP 5.6.2003 2003 NSWCA 140

CORK PLASTICS (MANUFACTURING) & ORS v INEOS COMPOUND UK LTD & ORS UNREP CLARKE 7.3.2008 2008/8/1638 2008 IEHC 93

NORTON HEALTH CARE LTD, IN RE 2006 3 IR 321 2006 1 ILRM 209 2005/44/9286 2005 IEHC 411

LENNON & O'SULLIVAN v LENNON UNREP CLARKE 2.7.2009 2009 IEHC 320

1. Introduction

2 1.1 These two proceedings are amongst a large number of cases which have been brought arising out the collapse of Bernard L. Madoff Investments Securities LLC ("BLMIS") an investment service formerly controlled by Bernard Madoff the disgraced and imprisoned financier. The respective plaintiffs ("Kalix") and ("UBI Banca") were investors in funds maintained by the first named defendant in the UBI Banca proceedings, Thema International Bank plc ("Thema"). As a result of the collapse of BLMIS it would appear that those investors lost very substantial sums. Both bring their respective proceedings for the purposes of recovering those funds.

3 1.2 However, for the purposes of the application with which I am concerned, it is also important to note that there are a large number of other proceedings brought by other investors in the relevant fund. In addition there are proceedings brought by Thema against HSBC Institutional Trust Services (Ireland) Limited ("HTIE") (who are, of course, the defendant in the Kalix proceedings and the second named defendant in the UBI Banca proceedings). The proceedings between Thema and HTIE arise out of the same circumstances as the proceedings brought by both Kalix and UBI Banca and, indeed, the other investors. Furthermore, it is, on one view, of relevance to note that there is a further set of proceedings in being in which AA (Alternative Advantage) Plc ("AA") has brought proceedings against HTIE, arising out of an analogous allegation against HTIE concerning losses which also flow from the collapse of BLMIS although relating to a separate fund.

4 1.3 It is in the context of that multiplicity of litigation arising out of the collapse of BLMIS that the two applications currently before the court arise. HTIE has brought an application in both proceedings which seeks an order staying the relevant proceedings pending a determination by this Court of the proceedings in which Thema sues HTIE (the "Thema proceedings"). This judgment is directed to that issue. It is clear, however, that the real question that arises as and between the parties is as to the proper course of action that the court should adopt when confronted with the multiplicity of actions currently in being or contemplated. In those circumstances it is appropriate to turn first to the general background of the proceedings.

2 Background

2 2.1 Thema is established in the State under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 (the "UCITS Regulations") and their parent directive, Directive 85/611/EC, as amended (the "UCITS Directive"). As such Thema operates as a UCITS fund vehicle and, as is stated by the respective plaintiffs, was set up as an umbrella open-ended investment company with variable capital and segregated liability between its sub-funds so that the assets of one sub-fund are not available to meet the liabilities of another. Kalix and UBI Banca are each investors in a Thema sub-fund ("Thema Fund"), which is also established under the UCITS regime. The common defendant in all proceedings, HTIE, is the custodian/trustee of Thema Fund, on foot of a custodian agreement between it and Thema.

3 2.2 BLMIS was appointed as sub-custodian to the assets of Thema Fund. Kalix, UBI Banca and Thema all claim that, in appointing BLMIS as sub-custodian, HTIE failed to carry out any or any adequate or appropriate check or due diligence or monitoring or supervision of the performance of BLMIS as sub-custodian of Thema Fund. All proceedings also involve the question of the application of the UCITS Regulations and the UCITS Directive.

4 2.3 The Kalix proceedings concern an assertion by Kalix that it is the beneficial owner of shares in Thema Fund. Kalix alleges that Thema acted in breach of contract, in breach of trust, in breach of duty and/or in breach of the UCITS Regulations and...