Ruling casts doubt on $141m case against HSBC’s Irish arm

Claim relates to Ponzi scheme run by US fraudster Bernie Madoff

Bernie Madoff was involved in a €65 billion Ponzi scheme in the US. Photograph: Getty

Bernie Madoff was involved in a €65 billion Ponzi scheme in the US. Photograph: Getty


A High Court ruling has cast doubt on whether a claim for $141 million (€124 million) against the Irish arm of HSBC bank related to the Ponzi scheme run by jailed US fraudster Bernie Madoff can proceed.

Defender Ltd, a British Virgin Islands (BVI)-registered investment fund, has sued HSBC Institutional Trust Services Ireland Ltd, with registered officers at Grand Canal Square, Dublin.

The case was due to run for at least five months but Mr Justice Michael Twomey’s ruling this week on a preliminary issue means it may not go ahead.

A constitutional challenge arising from his ruling may now be considered which, if granted, would mean the case will proceed.

In his ruling, the judge noted it was difficult to escape the impression that five months of court time was being sought, not because the dispute could not be solved in a much shorter time, but because of the sums at stake and because the parties can afford to pay their own lawyers and therefore use up valuable court resources to resolve essentially a “private dispute”.

It was difficult to avoid concluding, while ‘ordinary litigants’ have to wait years to have their cases or appeals heard, wealthy litigants can monopolise court time “simply because they can afford to do so”.

There may be good policy reasons for imposing a limit on court time to make litigation more affordable, he remarked.

In its action, Defender has alleged negligence and breach of contract regarding HSBC’s alleged role as a custodian of funds lost as a result of fraud by its alleged sub-custodian Bernie L Madoff Securities LLC (Madoff).

That company was operated by Madoff, who was involved in a €65 billion Ponzi scheme in the US.

HSBC joined Reliance Management BVI Ltd and Reliance International Reseach LLC as third parties in the case.

HSBC alleges those two companies are a single group entity and, as Defender’s investment manager, had full knowledge of all the risks associated with funds being entrusted to the Madoff company.

Reliance on defence

The preliminary legal issue arose from HSBC’s reliance in its defence on Section 17.2 of the Civil Liability Act 1961 (CLA) concerning claims involving “concurrent wrongdoers”.

Mr Justice Twomey said that issue arose because Defender settled its claim for the return of US$540 million with Madoff’s company for at least 75 per cent of that sum and is suing HSBC as an alleged concurrent wrongdoer with Madoff for the balance of its loss.

HSBC claimed Defender will recover a lot more than 75 per cent for reasons including the trustee in the Madoff liquidation has publicly said recovery could be 100 per cent of allowed claims.

The judge said, in this case, fraud by Madoff and alleged negligence by HSBC are alleged by Defender to have lead to the same damage.

For the purposes of the preliminary ruling only, he found Madoff and HSBC to be “concurrent wrongdoers” under the CLA in relation to the loss caused to Defender.

He also upheld arguments by HSBC that, because Defender has settled its claim against Madoff for the loss of that investment, and that settlement was with one wrongdoer [Madoff], then, as a result of Section 17.2 of the CLA, Defender cannot pursue the other wrongdoer [HSBC].

That meant Defender’s claim against HSBC for $141 million is reduced by 100 per cent as a result of Defender’s prior settlement with Madoff, he held.