Thema International Fund Plc & A.A (Alternative Advantage) Plc v HSBC Institutional Trust Services (Ireland) and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 26 January 2010
• Neutral Citation: [2010] IEHC 19
• Court: High Court
• Date: 26 January 2010

Thema International Fund Plc & A.A (Alternative Advantage) Plc v HSBC Institutional Trust Services (Ireland) & Ors

COMMERCIAL

BETWEEN

THEMA INTERNATIONAL FUND PLC

PLAINTIFF

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND)

DEFENDANT

AND

THEMA ASSET MANAGEMENT LIMITED AND 2020 MEDICI AG

THIRD PARTIES

AND

A.A. (ALTERNATIVE ADVANTAGE) PLC

PLAINTIFF

AND

HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED

DEFENDANTS

AND

Thema International Fund Plc & A.A (Alternative Advantage) Plc v HSBC Institutional Trust Services (Ireland) & Ors

M & B CAPITAL ADVISERS JESTION SGHCSA

AND

M & B CAPITAL ADVISERS SOCIEDAD DE VALORES SA

THIRD PARTIES

[2010] IEHC 19

[No. 10983 P/2008]

[No. 10981 P/2008]

THE HIGH COURT

PRACTICE & PROCEDURE

Particulars

Commercial court - Adequacy of replies to particulars - Clarity of pleadings - Parameters of discovery - Possibility of injustice - Requirement of witness statements - Whether defendant required to specify case to extent reasonably possible - Whether witness statements reduce the need for clarity - Whether particulars required before discovery - Whether necessary for defendant to amend pleadings or particulars to explain case - Ryanair plc v Aer Rianta CPT (Unrep, SC, 2/12/2003); Independent Newspapers v Murphy [2006] IEHC 276, [2006] 3 IR 566; Yap v Children's University Hospital (Temple St Ltd) [2006] IEHC 308, [2006] 4 IR 298; Hartside Ltd v Heineken Ireland Ltd [2010] IEHC 3, (Unrep, Clarke J, 15/1/2010); National Education Welfare Board v Ryan [2007] IEHC 428, [2008] 2 IR 816 and Ryanair v Bravofly [2009] IEHC 41, (Unrep, De Valera J, 26/1/2007) considered - Application granted (2008/19083P - Clarke J - 26/1/2010) [2010] IEHC 19

Thema International Fund plc v HSBC Institutional Trust Services (Ireland)

Facts: The proceedings related to a series of cases relating to "Madoff" litigation, relating to fraudulent investment dealings of Bernard. Madoff Investment Securities LLC, which were the subject of case management procedures. In the current proceedings, the plaintiffs claimed damages from the defendant and the question of the adequacy of replies given by the defendant to requests for particulars was raised. The issue arose specifically as to the extent that the defendants HTIE had adequately set out its defence. HTIE asserted that Madoff entities were appointed to three separate roles as to the plaintiffs, Thema and AA funds- sub-custodian, dealer/ broker and investment manager, which facilitated the fraud.

Held by Clark J. that there was an issue of fact as to the capacity in which any relevant Madoff entity actually received funds from HTIE. The case made orally on behalf of HTIE had to be incorporated in the pleadings. The real concern expressed on the part of Thema and AA was that significant discovery might be embarked on which would be unnecessary eventually. It was vital to identify at the earliest possible stage whether significant funds were handed over in two respective capacities. The explanation for the case of HTIE had to be incorporated as well as the extent to which it was contended that monies were paid to relevant Madoff entities in either the capacity of sub-custodian or dealer/ broker. Other points would be dealt with in an oral judgment.

Reporter: E.F.

KALIX FUND LTD & ANOR v HSBC INSTITUTIONAL TRUST SERVICES (IRL) LTD UNREP CLARKE 16.10.2009 2009 IEHC 457

RYANAIR PLC v AER RIANTA CPT 2003 4 IR 264 2004 1 ILRM 241 2003/46/11374

INDEPENDENT NEWSPAPERS (IRL) LTD v MURPHY 2006 3 IR 566 2006/30/6324 2006 IEHC 276

YAP v CHILDRENS UNIVERSITY HOSPITAL TEMPLE STREET LTD 2006 4 IR 298 2006 2006/59/12510 2006 IEHC 308

HARTSIDE LTD v HEINEKEN IRL LTD UNREP CLARKE 15.1.2010 2010 IEHC 3

NATIONAL EDUCATIONAL WELFARE BOARD v RYAN & ORS 2008 2 IR 816 2007/44/9243 2007 IEHC 428

RYANAIR LTD v BRAVOFLY & TRAVELFUSION LTD UNREP CLARKE 29.1.2009 2009 IEHC 41

1. Introduction

2 2 1.1 The above two proceedings are some of the cases currently being collectively managed as part of the so called "Madoff" litigation. For a general history of the circumstances in which the series of linked cases come to be managed together see my judgment in Kalix Fund v. HSBC International Services (Ireland) Ltd [2009] IEHC 457. In the two cases with which I am currently concerned the plaintiffs (respectively "Thema" and "AA") claim damages under a number of headings against the defendants ("HTIE"). The respective third parties in both proceedings are not directly relevant to the issue which I now have to decide.

3 3 1.2 In the course of dealing with case management, the question of the adequacy of certain replies given by HTIE to requests for particulars concerning its defence, have been raised by both Thema and AA. While a number of specific and technical questions are raised by Thema, there is one common and significant issue which arises in both the Thema and AA proceedings. The principal purpose of this judgment is to deal with that issue. It concerns the extent to which HTIE has adequately set out its defence in relation to an important aspect of these proceedings. In order to understand the issue which has arisen and which is common to both of these proceedings, it is necessary to turn briefly to a broad description of what appears to be (on the basis of the evidence and arguments currently put forward), part of the factual background to the issues which arise in both of these proceedings. I turn to that background.

2. Factual Background

2 2 2.1 Both Thema and AA operate funds in this jurisdiction into which investors placed monies. The funds were kept in a liquid form so that an investor would have ready access to the current value of the fund on short notice. HTIE was the so called custodian of each fund. There are issues between the parties (and, indeed, between HTIE and certain investors who have maintained independent proceedings) as to the precise scope of the duties of HTIE in those circumstances. However, it is clear that, in general terms, HTIE had an obligation to preserve the funds entrusted to it. It would also appear that most of the monies comprised in both the fund operated by Thema ("Thema Fund") and AA ("AA Fund") are now lost as a result of fraudulent activity on the part of Bernard Madoff and companies associated with him. The responsibility for those losses is at the heart of all of the linked proceedings.

3 3 2.2 However, in the context of the issue that I now have to decide, the question which arises concerns monies which were held by HTIE as custodian of the respective Thema and AA funds but which were handed over to companies controlled by Bernard Madoff. It is the capacity in which those monies were handed over to and received by Madoff related entities that is in issue. In that context, it is necessary to refer first to the pleadings including the particulars raised in respect of those pleadings.

The Pleadings

2 2 3.1 In its amended defence in the Thema proceedings, HTIE denies, at para. 11 the claims made by Thema to the effect that HTIE entered into an agreement with entities related to Bernard Madoff as sub-custodian of the assets of Thema. Paragraph 11 states as follows:-

"Paragraph 16 [of Thema's statement of claim] is denied. It is denied that the defendant, by itself or its global sub-custodian entered into an agreement with Bernard L Madoff Investment Securities LLC ("Madoff LLC") and/or other companies controlled by and/or affiliated to Bernard Madoff and/or Bernard Madoff in his personal capacity (and together with Madoff LLC, "BMIS") as sub-custodian of the assets of the plaintiff, as pleaded at para. 16 of the statement of claim. The defendant pleads that any agreement as it did enter with Madoff LLC was done at the direction and/or request of the plaintiff and/or with the approval of the plaintiff."

A similar denial is to be found at para. 12 of HTIE's defence in the AA proceedings.

3 3 3.2 The solicitors for HTIE further stated in correspondence to the solicitors for AA on 13th November, 2009, and 1st December, 2009, that they are not prepared at this stage to state that the relevant funds were handed over to Bernard L Madoff Investment Securities LLC ("Madoff LLC") in the capacity of sub-custodian. In its letter of 13th November, 2009, the solicitors for HTIC stated that it "accepts that it entered into a document entitled "Sub-Custody Agreement" with Madoff LLC...but is not prepared at this stage to admit that the legal characterisation of the capacity in which Madoff LLC received assets of the plaintiff was, or that the execution of that agreement is such as to appoint Madoff LLC as a sub-custodian" in relation to the relevant assets. In a subsequent letter of 1st December, 2009, to the solicitors for AA, the solicitors for HTIE repeat that their client was not "prepared to admit the legal characterisation of the capacity in which Madoff LLC received the said assets or that the extent of the agreement entitled "Sub-Custody Agreement" was such to appoint Madoff LLC as sub-custodian" in relation to the relevant assets. There was an almost identical exchange of correspondence in relation to the Thema proceedings.

4 4 3.3 As appears from the documentation which has passed between the parties, HTIE does not, at this stage, admit that funds which were, it would appear, undoubtedly passed on to Madoff entities were so passed on in circumstances where it is proper to characterise Madoff LLC as a sub-custodian. It is said that proper characterisation is a matter for submission. However, both Thema and AA are anxious to obtain greater clarity about precisely what it is that HTIE is saying in this regard. A principal reason for seeking such additional clarity is said to be that it will be highly material as a means of defining the parameters within which discovery of...