The High Court held that HSBC Institutional Trust Services (Ireland) Limited (HTIE), as depositary for the Thema investment fund, must prepare the report required by Regulation 39(d) of Ireland’s UCITS Regulations and make it directly available to investors if it is not included in the fund’s annual report.
In a judgment delivered on 10 January 2011, Mr Justice Clarke said the reporting obligation extended to a person who reasonably appeared to HTIE to be the beneficial owner of an investment in Thema. But the court rejected the argument that HTIE’s reporting or accounting duty went beyond the requirements set out in Regulation 39(d), regardless of whether its relationship with investors was fiduciary.
The ruling addressed the substantive reporting issue in three Aforge proceedings, while also hearing submissions from parties in related Madoff litigation. Aforge and supporting parties argued that the relationship between a depositary, a fund and its investors gave rise to fiduciary duties requiring a fuller account of HTIE’s activities. They pointed to the exceptional circumstances in which most or all of the fund’s assets appeared to have been lost following the collapse of the Madoff business.
HTIE argued that additional, broadly defined reporting duties would sit uneasily with the UCITS regime’s common reporting rules and the need for investors across EU member states to have clear, predictable rights. The judge accepted that concern. He said that where legislation already specifies reporting obligations, a court should not ordinarily add further imprecise duties under the same heading through a claimed trustee-beneficiary relationship.
Regulation 39(d) requires the trustee, the term used in the regulation for the depositary, to report on the investment company’s conduct to shareholders. The report is to be delivered to the company in time for inclusion in its annual report. The judge construed “shareholders” broadly enough to include a person who reasonably appears to have a beneficial interest. If the report is not made available through the annual report, the depositary must provide it directly to an investor who seeks it.
The judgment did not decide whether HTIE was a trustee owing fiduciary duties to Thema or its investors, except to the extent necessary to resolve the reporting issue. Nor did the judge determine whether HTIE had failed to make the required information available. He said that point had not been fully explored and would hear further submissions from Aforge and HTIE before deciding what precise orders, if any, should be made.