The High Court has directed HSBC Institutional Trust Services (Ireland) to clarify its defence in two cases brought by investment funds over losses linked to Bernard Madoff’s fraud. The order requires the firm to set out its account of the roles played by Madoff-related entities and, in broad terms, the capacity in which funds were transferred to them.
The ruling concerns proceedings brought by Thema International Fund plc and A.A. (Alternative Advantage) plc. Both funds claim damages from the trust services firm, which acted as custodian. The claims and the firm’s liability remain unresolved.
Mr Justice Clarke said the firm accepted that a document appointing Bernard L. Madoff Investment Securities LLC as sub-custodian existed. Its position, explained by counsel at the hearing, was that Madoff-related entities also acted as dealer/broker and investment managers. The firm said transfers could have been made in either a sub-custodian or dealer/broker capacity. Whether that account is borne out, and the legal consequences, remain matters for trial.
The funds sought greater clarity before discovery, arguing that uncertainty in the defence could lead to unnecessarily broad and costly searches for documents. The judge said pleadings help define the issues that determine the relevance of documents sought in discovery, and that a balance must be struck between requiring sufficient detail and not demanding information a party could reasonably obtain only through later procedures.
The judge directed the firm to incorporate its explanation into the relevant pleadings or particulars and to specify, in general order-of-magnitude terms, the extent to which it contended that funds had been transferred in each capacity. He said it was vital to establish whether significant funds were said to have been transferred in both capacities, but an exact allocation was not required at this stage.
The judgment did not determine the capacity in which any particular transfer was made, the responsibility for the losses, or the parties’ liability. The judge said he would hear further submissions from the firm’s counsel on the time limit for providing the answer. He also said he would deal separately, in an oral judgment, with other points raised in the Thema proceedings.