Sat, May 26, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

In ruling of wide significance, Privy Council decides on Fairfield case

Thursday, April 17, 2014
Opalesque Industry Update - On 16 April 2014, the Privy Council ruled in the claims brought by the liquidators of Fairfield, one of the largest feeder funds to have invested into Bernard Madoff’s investment company. The company filed hundreds of claw back claims against investors who had redeemed shares before the Madoff fraud was uncovered, both in the British Virgin Islands (BVI) and New York. The total value of these claims is in the region of US$7.5 billion.

The BVI Commercial Court and the Eastern Caribbean Court of Appeal had dismissed the claims on the basis that the redeemers had given good consideration for the payments they received. Not only did the Privy Council unanimously agree with the courts below on good consideration, it also indicated the claims failed on additional grounds under Fairfield’s articles of association. Delivering the judgment Lord Sumption found that the subscription agreement bound the investor and was primarily concerned with representations and warranties on the investments but did not deal with redemptions which were dealt with in the articles of association.

“This Privy Council ruling cements the decisions taken by the BVI Commercial Court and the Eastern Caribbean Court of Appeal dismissing the Fairfield liquidators’ claims,” said Harneys’ Global Head of Litigation and Insolvency Phillip Kite. “This test case has implications for liquidators of funds in all common law jurisdictions.”

Harneys has acted for a lead group of defendants in the claw back claims brought by the liquidators of Fairfield throughout the years-long process in the BVI courts.

Lord Sumption also reviewed the articles and the redemption procedure together with the information provided by the professional administrator. These included information concerning the Net Asset Value (NAV) from the following:-

  • An investor website;
  • Investor e-mails each month;
  • Contract notes; and,
  • Summary account details.

The Privy Council stated that the good consideration and defence under the articles were closely related and in approving Barclays Bank Limited v. W.J. Simms Son & Cooke (Southern) Ltd (1980) QB 677, said that if a payment made under a mistake discharges a contractual debt of a payee, that sum cannot be recovered unless the mistake is such as to avoid the contract.

Lord Sumption reasoned that Fairfield’s claim to recover the redemption payment would depend on whether it was bound by the redemption terms to make payment which it did make. This in turn depends on whether the effect of those terms is that Fairfield was obliged upon redemption to pay either,

  • The true NAV per share, ascertained in the light of information which subsequently became available about Madoff’s funds, or
  • The NAV per share which was determined by the directors at the time of redemption.

Lord Sumption said that (ii) was the only reasonable conclusion and continued that a certificate had no standard meaning and what constitutes a certificate would depend on the commercial context in which it appeared. A certificate would mean a statement or writing, issued by an authoritative source, communicated to a recipient, in a form which showed it intended to be definitive and the Privy Council found that the monthly e-mails, contract notes and monthly statements would all be certificates within the meaning of the articles.

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Hedge funds hike Smurfit Kappa positions amid takeover deal hopes, Hedge fund IBV Capital digs deep to unlock long-term value in a competitive market, Eisman of 'The Big Short' fame recommends shorting Deutsche Bank[more]

    Hedge funds hike Smurfit Kappa positions amid takeover deal hopes From Irishtimes.com: Two US hedge funds, Davidson Kempner and York Capital, have accumulated a combined 4.74 per cent interest in cardboard box maker Smurfit Kappa using financial derivatives. It comes as many investors cl

  2. Foundations of hedge fund managers gave big to controversial donor-advised funds[more]

    In the world of philanthropy and tax-deductible charitable giving, the explosion of donor-advised funds has touched off intense debate. Now, there is evidence that the DAF boom is being further fuelled by hedge fund foundation money. Four of the top five foundations that gave the most to large do

  3. Third Point to raise $400 million for SPAC, Farley to run it[more]

    From Reuters.com: Daniel Loeb's hedge fund Third Point LLC plans to raise $400 million for a "blank check" company which will be run by outgoing stock market operator NYSE Group President Thomas Farley, according to a regulatory filing made on Tuesday. The new company, referred to on Wall Stre

  4. Study: For hedge funds, smaller is better[more]

    From Institutionalinvestor.com: The smaller the hedge fund is, the better its performance is likely to be, according to a new study. The study - "Size, Age, and the Performance Life Cycle of Hedge Funds," released April 26 - sought to determine whether a hedge fund's size and age had any effect on i

  5. Hedge fund returns rose in April for first gain since January[more]

    From Bloomberg.com: Bloomberg Hedge Fund Database shows returns flat this year - Currency strategies had the biggest monthly gain at 13% Hedge fund returns increased 0.78 percent in April, reversing two consecutive monthly declines. The swing of 134 basis points was driven by gains in all seven