SPV Osus Ltd v HSBC Institutional Trust Services (Ireland) Ltd

• Jurisdiction: Ireland
• Judge: O'Donnell J.,Mr. Justice Clarke
• Judgment Date: 31 July 2018
• Neutral Citation: [2018] IESC 44
• Court: Supreme Court
• Docket Number: S:AP:IE:2017:000062,[S.C. No. 62 of 2017]
• Date: 31 July 2018

[2018] IESC 44

AN CHÚIRT UACHTARACH

THE SUPREME COURT

Clarke C.J.

O'Donnell Donal J.

Clarke C.J.

O'Donnell Donal J.

McKechnie J.

Dunne J.

Finlay Geoghegan J.

S:AP:IE:2017:000062

Between/

SPV Osus Limited

Plaintiff/Appellant

AND

HSBC Institutional Trust Services (Ireland) Limited,

HSBC Security Services (Ireland) Limited,

Optimal Investment Services S.A.

and

Banco Santander S.A.

Defendants/Respondents

Negligence – Investments – Public policy – Appellant seeking to institute proceedings against the defendants for negligence and other civil wrongs arising from their stewardship of investments – Whether High Court erred in failing to apply the appropriate standard and burden of proof in an application to dismiss the proceedings

Facts: Optimal Strategic US Equity Ltd was a trading subsidiary of Optimal Multiadvisors Ltd (OML) which was itself a subsidiary of Banco Santander SA Investors put money into two OML Funds which that company transmitted to Optimal Strategic for investment with Bernard L Madoff Investments LLC. The respondents, the two HSBC defendants, were appointed as custodians and administrators in respect of those assets. The activities of Mr Madoff resulted in massive losses and the appointment of a trustee in bankruptcy under the Securities Investors Protection Act 1970. That official sought to recover assets as far as possible and admitted certain losses as being Allowed Customer Claims which would be repaid if sufficient funds could be collected. Optimal Strategic had such a claim admitted in the amount of some US$1.5 billion. The appellant, SPV Optimal Osus Ltd (SPV), received an assignment of the claim from Optimal Strategic which included a bundle of rights and interests. SPV instituted proceedings against the HSBC defendants for negligence and other civil wrongs arising from their stewardship of the investments. SPV maintained the claim on the basis that the assignment encompassed the right to sue HSBC. The two HSBC defendants sought to have the assignment declared contrary to public policy, void and unenforceable as being champertous in nature because it transferred a "bare right to litigate" and otherwise constituted "trafficking in litigation". It was agreed that the defendants' claim in this regard would be heard and determined in the High Court as a preliminary issue. On 5th October 2015, Costello J found in favour of HSBC on both grounds and made an order dismissing the proceedings. SPV appealed that decision to the Court of Appeal. On 2nd March 2017, Ryan P, Peart and Irvine JJ upheld that decision. The Supreme Court granted leave to appeal to pursue the following issues: (a) the circumstances in which, as a matter of Irish law, an assignment of a cause of action will be recognised as valid (insofar as potentially relevant to the circumstances of the case); and (b) the application of the principles identified in the answer to (a) to the facts of the case for the purposes of determining whether the Court of Appeal was correct to determine that the assignment on which SPV relied should not be recognised as a matter of Irish law.

Held by O'Donnell J that the purpose of the assignment to SPV, in much the same way as the assignment in Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629, was designed and intended to permit onward transactions (which indeed occurred) and, on this view, involved trading in claims. If it is true that Irish law would not enforce the assignment of this claim under the format of assignment approved by the Trustee in the New York court if the assignee was an unconnected third party, it cannot, in O'Donnell J's view, uphold an assignment to a connected party with a view to facilitating third parties obtaining control of, and ultimately benefitting from, the cause of action.

O'Donnell J held that the appeal would be dismissed.

Appeal dismissed.

Judgment of Mr. Justice Clarke , Chief Justice delivered 31st July 2018

1. Introduction

1.1 I should first say that I agree fully with the legal analysis of the issues which arise on this appeal as is set out in the judgment of O'Donnell J. It follows that I also agree with the order which he proposes.

1.2 My purpose in writing this judgment is to repeat, in the context of this case, some of the sentiments which I expressed in Persona Digital Telephony Ltd & anor v. Minister for Public Enterprise & ors [2017] IESC 27. In so doing I would wish to emphasise that nothing in this judgment should be taken as in any way disagreeing with the views of O'Donnell J. as to the law as it is today.

2. Some Observations

2.1 As I noted in Persona, there is a significant and, arguably, increasing problem with access to justice which arises in the context of the increasingly complex world in which we live, which in turn has increased the complexity of much litigation not least in the commercial field. The burden of complying with disclosure obligations in such litigation has itself grown almost exponentially with the vast growth in the amount of electronically stored information which requires to be assembled and searched for relevance. These problems have been well rehearsed on many occasions both in some judgments of the courts of this and other jurisdictions and also in academic commentary.

2.2 I would wish to emphasise that I remain strongly of the view that it is necessary that some measures be taken to attempt to address this problem. Indeed, the observations which I made in my concurring judgment in Persona were precisely designed to suggest that there is a problem which requires to be addressed, but that by far the best way of attempting to provide solutions is by means of legislation. This is not just a case where legislation may be considered as the appropriate constitutional route because of the separation of powers between the courts and the legislature. It is at least arguable that permitting entirely unregulated third party funding, as was at issue in Persona, or the unregulated assignment of causes of action, as is at issue in this case, as a means of solving the problem of access to justice runs the real risk of creating more problems than it solves.

2.3 That is not to say that the issues which arise in respect of third party funding are the same as those which arise in the context of a potential assignment such as is at issue here. In the case of third party funding, the party (whether corporate or natural) who suffered the wrong continues to maintain the cause of action themselves, albeit in circumstances where some of the proceeds of a successful case may go to the third party funder. In the case of an assignment, the entire beneficial interest in the proceeds of the cause of action passes to the assignee so that the proceedings are thereafter wholly maintained by a party who did not suffer the original alleged wrong. There may, therefore, be entirely legitimate policy considerations which might lead the legislature to take a different view of, on the one hand, third party funding and, on the other hand, assignments of causes of action.

2.4 Be that as it may, it seems to me that there are compelling reasons for considering that any significant change of the law in either of these areas should take place in the context of an attempt to establish a properly regulated scheme or structure which would ensure that the potential benefits of liberalisation are not outweighed by any disadvantages which might flow from an entirely unregulated commoditisation of litigation.

2.5 However, I remain very concerned that there are cases where persons or entities have suffered from wrongdoing but where those persons or entities are unable effectively to vindicate their rights because of the cost of going to court. That is a problem to which solutions require to be found. It does seem to me that this is an issue to which the legislature should give urgent consideration. But it is not open to the courts to fashion a carefully regulated scheme that balances advantages and risks. I agree with the views expressed by O'Donnell J. to the effect that it is impossible to define an exception to the general rule to cover this case. It follows that to take a different view of the proper result of this appeal requires discarding the rule which would allow in turn for the recognition of the assignment of a cause of action in potentially a wide range of cases. This would run the risk of unintended consequences in the shape of an unregulated market in causes of action. In like fashion, a re-interpretation of the law of maintenance and champerty, such as was urged on this court in Persona, would have run a similar risk in respect of unregulated third party funding.

2.6 That is not to say that either third party funding or permitting the assignment of causes of action may not form part of a solution. However, what the best solution may be and what rules should be applied to the solution chosen, are primarily a matter for the legislature.

2.7 In coming to that view I have not ignored the fact that there can, sometimes, be something of an artificiality about the distinctions which can be drawn between one type of transaction and another where the distinction is based on form rather than substance. Where the original wronged party is a corporate entity, then it has never been suggested that it is impermissible for the shares in that entity to be transferred to a third party so that the ultimate beneficial interest in the proceeds as to the cause of action will, in substance, also transfer. Even where there are complications deriving from the fact that the allegedly wronged corporate entity has other assets or liabilities, it is unlikely to be beyond the abilities of corporate lawyers and advisors to devise a re-structuring of the corporate entity concerned in such a way that the relevant cause of action remains in the hands of the same entity to whom the wrong was done...