Irish High Court Rules that Hedge Fund Investor Is Entitled to Seek a Report of Fund’s Operations Directly from Fund’s Depository Bank When the Fund Fails to Make That Report Available Per Applicable EC Disclosure Rules

Plaintiffs in this action, Aforge Finance SAS and Aforge Gestion SAS (together, Aforge) were investors in non-party hedge fund Thema International Fund PLC (Thema or Fund).  Defendant HSBC Institutional Trust Services (Ireland) Limited (HSBC or Depository) served as the Fund’s depository.  The Fund apparently had a significant portion of its assets invested with Bernard Madoff.  After Madoff’s fraud was revealed, the Fund collapsed, losing substantially all of its assets.  HSBC, as one of the Fund’s depositories, was responsible for holding the Fund’s investments.  This action arose out of Aforge’s efforts to seek information about the Fund and its assets from HSBC.  Aforge claimed that it was entitled to obtain Fund information directly from HSBC.  A substantial part of Aforge’s argument rested on the theory that HSBC owed a fiduciary duty, and a corresponding duty to account, directly to the Fund’s investors.  Because it was organized in Ireland, the Fund was subject to the European Union’s Undertakings for Collective Investment in Transferable Securities Directive and the corresponding Irish implementing regulations (together, UCITS), which govern, among other things, disclosure by investment funds organized in the European Union.  UCITS requires a depository to make an annual report to the fund for which it holds assets.  In turn, the fund is required to make periodic financial disclosure to its investors, including the information contained in the depository’s report.  The Irish High Court, relying on the disclosure scheme mandated by UCITS, did not rule on whether a fiduciary relationship existed between HSBC and Aforge.  Instead, it determined that, because Thema failed to make the disclosures mandated by UCITS and, specifically, failed to provide HSBC’s requisite annual report, Aforge was entitled to seek that report directly from HSBC.  The Irish High Court refused to grant Aforge the right to seek any information beyond the information that HSBC was required to provide pursuant to UCITS.  We summarize the Court’s decision and its reasoning.

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