In July 2011 U.S. District Judge Paul C. Huck ruled in a U.S. class action suit between foreign investors and Banco Santander S.A. and several other defendants, including PwC Ireland and HSBC Securities Services (Ireland) Limited, that Ireland is a more appropriate forum for the proceedings.

The claim was for €3 billion following investments made on behalf of foreign investors in a Bahamian Madoff feeder fund, Optimal Strategic U.S. Equity fund, by Banco Santander S.A.  The investors’ case was that the defendants failed, amongst other allegations, to conduct adequate due diligence regarding Madoff and made misstatements in respect of various share sales.

In his order, Judge Huck stated that;

“… the Court lacks personal jurisdiction over half (and apparently some of the most important) of the Defendants in this action … it makes little sense to try an expensive and time-consuming case in Florida while another court, in a virtually duplicative proceeding over four thousand miles away, potentially adjudicates the same legal and factual issues”.

He subsequently ruled that;

“… the Court finds that it lacks personal jurisdiction over PwC Ireland, the HSBC Defendants, PwC Bermuda, Anthony Inder Rieden, and Brian Wilkinson, and that the case should be dismissed for forum non conveniens in favor of Ireland as a more convenient forum.”

Issues considered included:

  1. Whether or not a European court, and in this context an Irish Court, would recognise a class action judgment and/or decline to enforce a judgment in favour of absent class members.  The Court was of the view that the inherent risk that an Irish Court would not recognise the U.S. judgment supported trying the case in Ireland;
  2. That, while Ireland does not operate a class action mechanism, there are other mechanisms available that would be “an adequate substitute for the opt-out class action provided by the Federal Rules of Civil Procedure”.  Unsurprisingly there was a significant level of disagreement between the parties as to the suitability and efficacy of any such mechanisms, primarily in respect of the Irish concepts of representative actions and test cases, which the plaintiffs argued did not encompass the same remedies that are available in a class action suit;
  3. That “the cost and time of obtaining expert testimony and proving foreign law” supported a forum non conveniens argument;
  4. The availability of witnesses.  It was commented that Ireland was home to more parties to the proceedings and was also an easier forum for willing witnesses from abroad to access.  In that latter respect the Court reviewed the witness list and noted that the largest number of witnesses that “may have to be compelled” to give evidence also resided in Europe, with a majority living in Ireland, and noted that an Irish Court can compel live testimony from a party residing in Ireland, whereas if the dispute progressed in the U.S. serious difficulties would be encountered in obtaining evidence from reluctant witnesses who were not resident in the U.S.  The plaintiffs’ unsuccessfully argued that most of the relevant witnesses were still employed by the various defendants and so would presumably appear anyway; and
  5. The transactional test adopted in Morrison v National Australia Bank ltd., which involved securities fraud claims, and addressed to what extent a party had to be carrying out U.S. conduct to bring it within a U.S. court’s jurisdiction.  In that U.S. Supreme court ruling it was stated that the relevant section of the U.S. Securities and Exchange Act 1934;

“… reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States. This case involves no securities listed on a domestic exchange, and all aspects of the purchases complained of by those petitioners who still have live claims occurred outside the United States.”

Judge Huck was of the view that, if the Court accepted the plaintiffs’ assertion that their ultimate investment intent was to own U.S. securities, despite the fact that they had “purposefully” gone off-shore to invest, that acceptance would result in an “unpredictable and subjective criterion” with the effect of eliminating the doctrinal clarity provided in the Morrison ruling.

The decision was appealed to the U.S. Court of Appeals for the Eleventh Circuit which affirmed the ruling of Judge Huck on 30 August 2011.

It remains to be seen whether or not the proceedings will be progressed in Ireland, where the Irish Commercial Court, a division of the High Court, is currently case managing four Madoff related proceedings and has ordered a stay on in excess of 50 further Madoff related proceedings, pending a resolution of the four proceedings.