A HIGH Court judge has permitted the Irish arm of European banking giant HBSC to refrain from specifying – at this stage – the capacity in which millions of investment monies were passed on by it to companies controlled by US fraudster Bernard Madoff.
Mr Justice Frank Clarke, who is managing 47 actions brought over the payment of huge sums to Madoff companies, accepted arguments by HSBC’s Irish arm it is not yet in a position to set out – in its defence to actions by two sub-funds – whether certain monies were passed by it to Madoff companies as sub-custodian, broker/dealer or other.
In those circumstances, the judge said he would allow HSBC Institutional Trust Services (Ireland) Ltd (HITSI), Grand Canal Square, Dublin, to amend its defence to the two actions so as to plead it cannot yet say the category via which Madoff companies received funds from HITSI.
The directions were made in proceedings by Thema and AA (Alternative Advantage) plc, both of Fitzwilton House, Wilton Place, Dublin, against HITSI arising from the Madoff bankruptcy.
The judge noted, in the early stages of the events surrounding the Madoff fraud, it was alleged HITSI had, under EU law and the Euclid Regulations, breached its duties as “custodian” of the funds’ monies in passing them on to Madoff companies.
When HITSI put in its defence, it pleaded it was not prepared to admit the funds were passed on to the Madoff entities in a capacity as “sub-custodian” of those monies. It was that plea that had given rise to issues between the sides.
The judge said he had already ruled it was appropriate for HITSI to amend its defence to clarify its case to argue, while accepting that Madoff entities were appointed as sub-custodian of some funds, those entities also had other roles.
HITSI was not admitting in what capacity funds were passed on to the entities.
The judge said he had outlined his concerns about such a defence incurring extra and possibly unnecessary costs and he had suggested HITSI specify its case in relation to what sums were allocated in various categories but HITSI had said it could not yet identify the capacity in which Madoff entities had received certain monies.
The issue now was whether that was an appropriate position in which to leave the pleadings in the case at this stage, he said. It seemed to him HITSI was effectively pleading an alternative defence, that monies had come into a category but it could not yet say what category. There was “nothing unacceptable” about that, subject to there being possible costs implications should it later emerge the HITSI position was unreasonable.
In light of that ruling, the judge directed HITSI to deliver, within one week, its amended defence after which the plaintiffs have three weeks to reply.
