The High Court has ruled that Defender Limited’s $141 million claim against HSBC Institutional Trust Services (Ireland) Limited is reduced to zero because Defender settled an earlier claim with Bernard L Madoff Investment Securities LLC. The decision resolved a preliminary legal issue; the court did not hear evidence or decide whether HSBC was negligent or in breach of contract.
Mr Justice Twomey delivered the judgment on 4 December 2018 in the Commercial Court. Defender alleged that it invested $540 million with Madoff and that HSBC, its custodian, failed to monitor Madoff adequately. HSBC denied liability. For the preliminary hearing only, however, the court assumed Defender’s case against HSBC at its strongest, including that HSBC was negligent and that it and Madoff were concurrent wrongdoers responsible for the same loss.
Defender had settled with Madoff’s liquidation trustee in 2015. Under the agreement, the trustee allowed a $522 million claim and paid Defender a $254 million distribution. The judgment said Defender had received about $334 million by the time of the hearing. Defender expected total recovery of at least 75% of its original investment, based on the market value of claims in the liquidation. That expected recovery was not a court finding about the final amount Defender would receive.
The dispute turned on section 17(2) of the Civil Liability Act 1961. The court held that the settlement was an “accord” for the purposes of the Act and that Irish law governed its effect in the Irish proceedings. Under sections 17(2) and 35(1)(h), Defender was treated as identified with Madoff for calculating the reduction to its claim against HSBC.
The judge then considered, hypothetically, how much Madoff would have had to contribute to HSBC if HSBC had first paid Defender’s full claim. Applying the Act’s “just and equitable” test, the court concluded that Madoff’s criminal fraud was categorically more blameworthy than HSBC’s assumed civil wrongdoing. It therefore found that Madoff would have been liable to contribute 100%, reducing Defender’s claim against HSBC by 100%.
The court also said that, even taking Defender’s case at its strongest, it could not see how HSBC could be found more than 25% liable—a level the court understood was needed for the substantive claim to succeed given the expected Madoff recovery. That observation was not a finding on HSBC’s liability after a trial.
The substantive hearing, scheduled for about five months, had been adjourned before the first witness gave evidence while the preliminary issue was heard. The court said the substantive case would cease following its decision, while noting that Defender could appeal and HSBC might consider a constitutional challenge. The judgment did not determine those possible steps or the underlying negligence and contract claims.