Sun, Nov 23, 2014
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. Greenlight Re CEO says hedge fund reinsurance strategy buzz is validating[more]

    From Artemis.bm: The attention being paid to the hedge fund reinsurance business model and the fact that others are now looking to leverage bits of it within their own strategies, is validating for reinsurer Greenlight Capital Re, according to CEO Bart Hedges. There has been an increasing buzz

  2. Legal - Hedge fund manager fights £8m tax tribunal ruling[more]

    From FT.com: A hedge fund manager who may have to repay £8m in tax is trying to overturn a tribunal ruling that found he had attempted to shelter millions in an avoidance scheme. Patrick Degorce, chief investment officer at Theleme Partners, lost a tax tribunal case last year. HM Revenue & Customs c

  3. Europe - Hedge funds face exit tax as Iceland central bank discusses plan[more]

    From Bloomberg.com: Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy. The government targets having a plan it can present by year-end that would map out how Iceland will sca

  4. Investing - George Soros puts $500m of his money on Bill Gross, Soros, Paulson backed Hispania Activos mulls Realia takeover, Ex-Credit Suisse trader’s hedge fund sees yen shorts as crowded, Hedge hunters double default-swaps as views split, Large hedge fund positions come under pressure, Vikram Pandit's fund picks 50% stake in JM Financial's realty lending arm for $87m[more]

    George Soros puts $500m of his money on Bill Gross From WSJ.com: Before Bill Gross was fully settled in at his new firm, Janus Capital Group Inc., he received an unlikely visit from the chief investment officer of famed investor George Soros ’s firm, according to a person familiar with t

  5. Hedge fund Oceanwood raises $2bn, to close to new investors[more]

    From Reuters.com: Europe-focused hedge fund Oceanwood Capital Management is closing its fund to new investors after its assets under management hit $2 billion (1 billion pounds) recently, a source with direct knowledge of the matter said. Oceanwood, a multi-strategy hedge fund spinout from Tudor Gro