Thema International Fund Plc v HSBC Institutional Trust Services (Ireland) Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 25 January 2013
• Neutral Citation: [2013] IESC 3
• Court: Supreme Court
• Docket Number: [Appeal No: 377/2012],[S.C. No. 377 of 2012]
• Date: 25 January 2013

Between/

Thema International Fund plc

Plaintiff/Respondent

and

HSBC Institutional Trust Services (Ireland) Limited

Defendant/Appellant

and

Thema Asset Management Limited and 2020 Medici AG

Third Parties

[2013] IESC 3

[Appeal No: 377/2012]

THE SUPREME COURT

Litigation – Investment schemes - Discovery - Procurement - Possession or power - Separate companies - European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 - Rules of the Superior Courts - Interpretation of legislation

Facts: The plaintiff was a company within a larger business structure that operated a fund established in Ireland under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 (the "UCITS Regulations"). The defendant, part of the HSBC group, had entered into a custodian agreement with the plaintiff on the 30th May 1996. It was alleged by the plaintiff that the defendant was negligent in its duty as custodian by entering into a 'ponzi' scheme that led to the loss of the notional value of its funds being €483,144,279.24 and US$498,799,662.15. The plaintiff sought to recover those amounts with interest. In the course of proceedings, the issue of the defendant"s discovery obligations arose. The High Court ruled that the defendant was obligated to make discovery in respect of documents held by other companies with the HSBC group due to them being both relevant and necessary. The defendant appealed to the Supreme Court against this decision.

The plaintiff argued that Order 31, r 12 of the Rules of the Superior Courts had been modified by a 2009 amendment by the addition of the word 'procurement' meaning that discovery could be made for documents beyond the traditional circumstances where documents were held by a company by possession or power. This had been accepted by the High Court. The defendant argued that the High Court"s interpretation of Order 31, r 12 had been erroneous and that there was no legal provision that could require a company to request documents of a non-specific nature from another company, even where the companies were part of the same business group.

Held by Clarke J that in terms of case law, the scope of discovery ordered by the High Court in this case went beyond anything previous in that the documents sought were not only in possession of separate companies to the defendant, but involved documents of a non-specified nature from companies that were not part of the Irish jurisdiction. These documents were not in the possession of the defendant nor did they have the power to require possession.

The case of Johnson v Church of Scientology [2001] 1 I.R. 682 outlined the Irish jurisdiction"s approach to discovery, which was in line with the approach of most common law jurisdictions. It held that where documents were relevant and necessary, they must be discovered only if they were in the possession or power of a party to proceedings. In considering whether the addition of the word 'procurement' to 31, r 12 of the Rules of the Superior Courts, it was held that this was intended to come within the definition of power or possession as opposed to extending it as evidenced by the fact that the three words were usually cited together in various judgments prior to the amendment being made. There was nothing to suggest that the Rules Committee intended to extend to the definition when they drafted the amendment and indeed, it would have been expected that the amendment would have included a mention of the extension if that was the intention.

Appeal allowed.

Mr. Justice Clarke

Judgment of Mr. Justice Clarke delivered the 25th January, 2013.

1 1. Introduction

1.1 Many significant commercial enterprises operate through large, and frequently complex, groups of companies often involving different corporations incorporated in different jurisdictions and sometimes involving entities which provide specialist services across all or significant parts of the relevant group. There are many reasons both of commercial advantage, limited liability, taxation or administrative convenience why such structures are put in place. Where disputes arise involving one company within such a structure a range of legal complications can, however, emerge. One such difficulty, being the availability for disclosure in the litigation process of documentation held not by a party to the relevant litigation but by other companies within the structure, lies at the heart of this appeal. To what extent can an Irish court require disclosure through the discovery process of documents which are held by a connected company, which is not party to the Irish proceedings concerned and is not, by virtue of not having a sufficient presence in or connection with Ireland, ordinarily amenable to orders of the Irish courts?

1.2 That general question arises in these proceedings which are part of a series of cases before the Irish courts arising out of the collapse of the empire associated with Bernard Madoff. The plaintiff ("Thema") operates a fund established in Ireland under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 (the "UCITS Regulations"). The defendant ("HTIE") is the custodian of Thema pursuant to a custodian agreement entered into in its original form on the 30th May, 1996. Such a custodian has, amongst other things, a specified statutory role under the UCITS Regulations. HTIE is a part of the HSBC group. A company associated with Bernard Madoff being Bernard L. Madoff Investment Securities LLC acted in a number of capacities in relation to the fund. Mr. Madoff has been sentenced in the United States having admitted operating a so called "ponzi" scheme whereby newly subscribed monies, instead of being, as clients believed and were informed, invested, were simply used to pay off other existing clients who wished to have their investment returned. On that basis it would appear that much of the assets which, it would appear, ought to have been available to the investors in Thema have disappeared and are, at least to a significant extent, unlikely to be recovered. In that context, Thema alleges various failings on the part of HTIE in the manner in which HTIE carried out its obligations as custodian. Relying on that alleged wrongdoing Thema seeks recovery of the notional value of its funds being €483,144,279.24 and US$498,799,662.15 together with interest on both those sums. On that basis the total claim probably exceeds €1 billion.

1.3 These proceedings, together with other proceedings involving HTIE and Thema arising out of the same general circumstances, have been collectively case managed by the High Court. These proceedings are listed for trial in early course. As part of the case management process the question of discovery arose. An order of the court of the 11th November, 2010 providing for discovery by HTIE was made by agreement between the parties. However, in circumstances which it will be necessary to address, a dispute arose between the parties as to the precise obligations of HTIE to make discovery in respect of documents held by other companies within the HSBC group. That dispute ultimately came before Charleton J. who made an order (dated the 27th July, 2012), to which more detailed reference will be made in due course, requiring a level of further discovery to be made by HTIE of documents held within certain specified companies within the HSBC group. It is against that order of Charleton J. that HTIE appeals to this Court. In order to fully understand the important issues which arise on this appeal, it is necessary to say a little more about the procedural history of the discovery process in this case.

2 2. Procedural History

2.1 The genesis of the specific issue which this Court now has to consider can be traced back to the original request for discovery sent by Thema to HTIE. In that request Thema defined the term "defendant" (by reference to which discovery was sought) to include not just HTIE but also any other HSBC group entities. In response, HTIE refused to agree to produce documents held by any other HSBC entity. As a result a motion was brought before the High Court on the 5th October, 2010, which sought to resolve that question.

2.2 Ultimately that motion was compromised, with the court being informed by counsel that the parties had agreed the jurisprudence which was applicable. However, it seems clear from subsequent correspondence that there had been no true meeting of minds and that there were different views between the parties as to the precise application of the relevant jurisprudence.

2.3 HTIE delivered its affidavit of discovery, sworn by a Mr. Ronnie Griffin, on the 13th March, 2012. That affidavit makes clear that HTIE had obtained documents from four other HSBC entities namely:

(a) HSBC Security Services (Ireland) Limited;

(b) HSBC Bank plc;

(c) HSBC Security Services (Luxembourg) SA and

(d) HSBC Bank Bermuda Limited.

Those documents were included in the discovery made.

2.4 HTIE says that those four entities are ones to which HTIE delegated certain functions and roles. HTIE goes on to aver that no other companies within the HSBC group carried out any other delegated roles on behalf of HTIE. On that basis, HTIE asserted that it could have no obligation to make discovery of any documents held by other entities within the HSBC group beyond those specifically identified in the affidavit of discovery of Mr. Griffin.

2.5 On the other hand, Thema asserted that it was clear from some of the documents discovered by HTIE that there had been contact between other entities within the HSBC group (beyond those specified) and Madoff-related entities and other actions taken by such other entities in relation to Madoff generally such that there must, it was said, be documents relevant...