The High Court has ruled that two investors who held interests in the Thema investment fund through nominees cannot maintain their claims against the fund and its depositary over assets lost in the Madoff fraud. The ruling followed a joint hearing of preliminary legal issues; the court reserved the form of the order for a further hearing.
The plaintiffs, Alico Life International Limited and Shmuel Harlap, said they had invested in Thema but were not registered shareholders. They claimed the notional value of their investments, together with damages for missed opportunities or assumed investment growth. Thema and its depositary, HSBC Institutional Trust Services (Ireland) Limited, argued that the plaintiffs had no actionable duty claim because they were not unit-holders. In the alternative, they argued that the claims were barred by company law principles, including the rule against reflective loss.
Justice Costello held that, for an investment company such as Thema, a unit is a share and a unit-holder is a registered shareholder. She found that neither plaintiff was a registered shareholder and rejected the argument that indirect investors counted as unit-holders under the relevant UCITS rules. She concluded that the plaintiffs’ statutory claims could not proceed and that they could not maintain separate claims in contract, negligence or fiduciary duty on the case presented.
The judge also considered a second issue on the assumption that the plaintiffs were unit-holders. She held that the relevant EU directive and Irish regulation did not create a direct right for unit-holders in an investment company to sue its depositary. She further concluded that the plaintiffs could not sue for losses belonging to Thema under the rule in Foss v Harbottle, and that their personal claims were barred by the rule against reflective loss.
The fund’s assets had been frozen by a US court in December 2008 amid the liquidation of Bernard Madoff’s investment business. Thema later sued HTIE over the fund losses. That case settled conditionally in 2013 after shareholders approved the settlement; the judgment said the settlement money had been remitted to Thema but had not been distributed while a US trustee’s claim remained pending.
Justice Costello said the losses claimed by Alico Life and Harlap were the same losses Thema had claimed, making them reflective of the company’s loss. She held that the reflective-loss rule barred all causes of action in the two statements of claim. The judgment did not set out a final order: the court said it would hear the parties on the form of order to be made.