Tue, Mar 28, 2017
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. Hedge fund liquidations in 2016 surpass 2009 levels, new launches decline[more]

    Benedicte Gravrand, Opalesque Geneva: Even as the hedge fund industry's total assets exceeded the $3tln milestone last year, hedge fund liquidations increased. So much so that 2016 had the highest number of liquidations since 2008, claims the latest HFR Market Microstructure Report, re

  2. Hedge funds find no joy in macro as returns lag Trump rally[more]

    From Gulfnews.com: In 2017, macro hedge funds were expected to shine. So far? Not so much. It's been a far from impressive first two months for funds that trade around macroeconomic events. Discretionary funds rose just 0.3 per cent through February, according to Hedge Fund Research Inc., while the

  3. Strategies - Billionaire investor Marc Lasry shares how he's playing markets right now, Classic models are failing FX hedge funds desperate for return[more]

    Billionaire investor Marc Lasry shares how he's playing markets right now From CNBC.com: Buy on the prospect of deregulation. Sell on the enactment of deregulation. That's the strategy that billionaire investor Marc Lasry is implementing, according to an interview with CNBC in Las Vegas

  4. Opalesque Exclusive: Aberdeen makes the case for the lower mid-market[more]

    Bailey McCann, Opalesque New York: Aberdeen Asset Management has released a new paper focused on lower mid-market private equity. According to the paper, this segment of the private equity market is gaining popularity with private equity investors that are looking for multiple expansion and less

  5. Hedge funds await outcome of French elections, feel pinch on lower oil prices & weak dollar[more]

    Komfie Manalo, Opalesque Asia: Hedge funds felt the pinch of lower oil prices and weak U.S. dollar as the Lyxor Hedge Fund Index was marginally down as of the week ending 14 March, Lyxor Asset Management said in its Weekly Briefing. The Lyxor He