Madoff Investment Securities LLC, Re [2009] EWHC 442 (Ch)

Case No 1128 of 2009/ 11527 of 2008[2009] EWHC 442 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of JusticeDate Friday, 27 th February 2009
Strand
London WC2A 2LL
Before
MR JUSTICE LEWISON
Between
IN THE MATTER OFClaimantBERNARD L MADOFF INVESTMENT SECURITIES LLCClaimantMADOFF SECURITIES INTERNATIONAL LTDClaimantDigital transcript of Wordwave International, a Merrill Communications CompanyClaimant190 Fleet Street, London EC4A 2AGClaimantTel No: 020 7404 1400 Fax No: 020 7404 1424ClaimantEmail Address: mlstape@merrillcorp.comClaimantIN THE MATTER OFBERNARD L MADOFF INVESTMENT SECURITIES LLCIN THE MATTER OFMADOFF SECURITIES INTERNATIONAL LTD
Digital transcript of Wordwave International, a Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400  Fax No: 020 7404 1424Email Address: mlstape@merrillcorp.com
MR R DICKER QC appeared on behalf of Irving H Pickard, Trustee.MS L HILLIARD appeared for Joint Provisional Liquidators.
J U D G M E N T
[1]The arrest of Mr Bernard Madoff made headlines all over the world and in particular in this country, both in the newspapers and on the television and radio. The empire which he created was alleged to have been built on what is one of the largest frauds yet recorded; some $50 billion is said to have gone missing from investors all over the world, including large numbers of charities and public authorities and so on. Mr Picard has been appointed by the New York Courts as the office holder, the trustee in bankruptcy concerned with the liquidation of Bernard L Madoff Investment Securities LLC, a company operating in the United States. There is also an English company called Madoff Securities International Limited, over which Messrs Byer, Hosking and Akers have been appointed joint provisional liquidators.[2]The joint provisional liquidators of the English company apply under section 112 of the Insolvency Act 1986 for various directions relating to the transfer of data which is or might be regulated by the Data Protection Act 1998.[3]Section 4 of the 1998 Act refers to the data protection principles set out in Part 1 of Schedule 1 to the Act with which a data controller must comply. The eighth of those principles is that:
“Personal data shall not be transferred to a country or territory outside the European Economic Area unless that country or territory ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data.”
[4]It is, of course, common ground that the United States of America are outside the European Economic Area, and it is I think common ground that the United States or New York State does not ensure an adequate level of protection for the rights and freedoms of data subjects, as that principle should be interpreted.[5]Mr Dicker QC submitted that on the particular facts of this case, where data is to be transferred to Mr Picard, who is himself an officer of the New York Court, then that colours certain exemptions to the eighth principle, to which I will refer. However, he did not go so far as to say that it meant that the eighth principle did not apply.[6]Exceptions to the eighth principle are set out in Schedule 4 to the Act. Schedule 4 paragraph 4(1) disapplies the eighth principle where:
“The transfer is necessary for reasons of substantial public interest.”
[7]Both Mr Picard, as the trustee in bankruptcy of the American company, and Mr Akers, one of the joint provisional liquidators, have said that in their opinion the transfer of the information is necessary in order to unravel the alleged fraud and what has happened to the assets which have been invested in the Madoff empire.[8]I am satisfied that it is in the public interest for an alleged fraud on this scale and of this complexity to be investigated, and on the evidence before me I am therefore satisfied that transfers of the information scheduled to the draft order are necessary for reasons of substantial public interest.[9]The exceptions to the eighth principle also include that specified in paragraph 5 of Schedule 4, which is:
“The transfer- (a) is necessary for the purpose of, or in connection with, any legal proceedings (including prospective legal proceedings); (b) is necessary for the purpose of obtaining legal advice, or (c) is otherwise necessary for the purposes of establishing, exercising or defending legal rights.”
[10]The unravelling of the fraud will undoubtedly involve legal proceedings. Indeed, as Mr Dicker QC points out, there are two such proceedings already on foot, namely the liquidations both in New York and in this country, and the establishment of legal rights will no doubt be necessary in order to wind up the affairs of both companies in an orderly fashion. It is therefore the case, on the basis of the evidence before me, that paragraph 5(a) and paragraph 5(c) are also satisfied. It is likely that 5(b) would be satisfied as well, but I make no finding to that effect.[11]It follows, therefore, that I am prepared to make an order in the terms of paragraph 1 of the draft order included in the application bundle.[12]Paragraph 2 of the draft order invites me to make an order in the following terms:
“Subject to their being satisfied that the provision of the information is in the interests of the provisional liquidation of the Company, the JPLs shall be at liberty to disclose to the Trustee such further information which is in their possession or under their control (but which is not specifically identified in the Schedule hereto) as they may consider to be necessary for the purposes identified in paragraphs (a) to (d) above.”
The purposes identified in paragraphs (a) to (d) above include the purposes that I have just mentioned.[13]That form of order relates to information which is unspecified and which gives to the joint provisional liquidators the discretion or the ability to make a valued judgment as to what they consider to be necessary. I do not consider that the court should make a blanket order of that kind without knowing what it is that it is being asked to authorise. On the basis of the order which I am prepared to make in the terms of paragraph 1 of the draft, it is, I think, for the joint provisional liquidators to make their own minds up and, if they are in difficulties, to come back to the court.[14]The third provision of the order that I am asked to make is an order that the joint provisional liquidators are to be at liberty to invite the trustee and/or his advisers and representatives to participate in any interview to be conducted by them pursuant to section 235 of the Insolvency Act 1986. Section 235 of the Insolvency Act 1986 requires former officers of the company and others to cooperate with an office-holder, and that includes giving the office-holder “such information concerning the company and its promotion, formation, business, dealings, affairs or property as the office-holder may at any time after the effective date reasonably require”. It also includes a requirement to attend on the office-holder at such times as he may reasonably require.[15]There is, so far as I can see, nothing in the section which limits the ability of the office-holder to have whoever he pleases at interview which he requires to be conducted under section 235, but it is equally clear from section 235 that an interviewee can only be required to answer questions about the company of which the office-holder is himself in office. Thus, the trustee would not, in my judgment, be entitled to attend a meeting to ask questions about the American company. The office-holder would, of course, be entitled to ask questions about the English company which may shed light on the dealings and affairs of the American company, but section 235 is not, as I see it, a shortcut to an application by the American trustee in bankruptcy under Article 21 of the Cross-Border Insolvency Regulations.[16]Insofar as the order invites me to declare who the provisional liquidators are entitled to have at a meeting, I cannot see that it serves any useful purpose and does not go beyond the section. Again, it seems to me that it is for the joint provisional liquidators to make up their own minds about this. If there is any difficulty from a former office-holder or employee, then that will have to be faced when the time comes.[17]The result, therefore, is that I am prepared to make an order in the terms of paragraph 1 of the draft and the costs order in paragraph 4, but otherwise I decline to make the orders sought.