The Commercial Court recently gave directions in the multiple claims being brought by two Irish registered funds and its shareholders which invested in Madoff. In effect, the Commercial Court has sanctioned a “super trial” whereby two “test case” shareholder actions and two actions by affected funds will be heard sequentially. This is a novel approach to case management, and is the first time this approach has been proposed by the Court. In addition, the Commercial Court has recently directed in three summary proceedings cases brought by shareholders that there will be a trial of the preliminary issue as to whether a fund custodian owes a fiduciary duty to account to either the fund or its investors. Consequently, this will be the first legal issue arising out of the Madoff US fraud to be determined, and will be closely watched by other jurisdictions.
Proceedings were issued by two Irish registered funds that were affected by the US Madoff fraud in late 2008 against HSBC Institutional Trust Services (Ireland) Limited, who acted as custodian to the funds. One claim is for nearly US$1 billion, whilst the other is in excess of US$108 million. The proceedings were entered into the Commercial Court list on 2 February 2009. In April 2009, proceedings were instituted against HSBC on behalf of one beneficial shareholder in one of the funds. Subsequent to this, a further set of forty six proceedings were issued by shareholders in the same fund against both HSBC and the fund. HSBC brought an application seeking a stay of the shareholder proceedings pending the outcome of the claim brought by the fund. Judgement was delivered by Judge Clarke on 16 October last in which he ruled that two fund and two “test case” shareholder actions should be heard together.
What the Court envisages is that the two fund actions and the two “test case” shareholder actions should be “linked, managed together, come to trial together, but that trial will be a sequenced trial”. The order in which issues will be tried will be determined nearer to the trial date, and not all parties will necessarily be required to participate at each part of the sequence. Therefore, all common issues in a number of cases will be tried together. The Court decided that it would not be necessary to progress any of the remaining shareholder proceedings at present, save to the extent that there may potentially be issues specific to an individual case which should be progressed sufficiently to allow that case to come to immediate trial as soon as the issues in the four “linked” cases have been fully clarified.
This novel approach is an attempt to case manage the excess of fifty Madoff related cases in a just, efficient and timely manner and to minimise the risk of waste of court time and resources. It remains to be seen if this objective is achieved. What seems likely is that as the cases are before the Commercial Court, Ireland will be the first jurisdiction to adjudicate on the core legal issues arising out of the Madoff US fraud. These adjudications are likely to be closely watched by other jurisdictions involved in the global Madoff fraud litigation.
Furthermore, three shareholders in one of the funds have also brought summary proceedings seeking an account of various matters from HSBC, as custodian to the fund. The Court ruled on 21 December last that there will be a trial of the preliminary issue as to whether a custodian owes a duty to account to funds or its investors. This trial will involve looking at the nature and duties, including fiduciary duties, of a fund custodian, particularly in the context of the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive. In this context, the Court has invited parties in the four “linked” cases to make submissions on the preliminary issue. Hence, this will be the first legal issue determined in the Irish Madoff litigation.