16 April 2014
[2014] UKPC 9
Privy Council (Lords Neuberger, Mance, Clark, Sumption, Touslon)

Documents in which the NAV of a fund had been stated to investors wishing to redeem their investment were ‘certificates’ and therefore binding on the fund.

The liquidators of F, an investment fund, had brought claims against a number of its former members.  F had invested its assets almost entirely in Bernard L. Madoff Investment Securities LLC (‘BLMIS’) with the result that the value of investments in F depend on the value of BLMIS.  The former members had redeemed their investments in F before Mr Madoff’s frauds were exposed at their then believed value.   F’s liquidators argued that the former members had been paid on the mistaken belief that BLMIS had assets and value, whereas in fact it had neither.

The court considered as preliminary issues (1) whether certain documents issued to members of F were ‘certificates’ and therefore binding under the articles of F and (2) whether F’s members had, by surrendering their shares, given good consideration for the money they had received on redemption.  At first instance in the British Virgin Islands, and on appeal, the court held that the documents were not ‘certificates’ but that the members had given good consideration for what they received.

The Privy Council held that the documents in question were ‘certificates’ and binding on F and its members.  Lord Sumption said that the ordinary meaning of certificate was (i) a statement in writing, (ii) issued by an authoritative source, which (iii) is communicated by whatever method to a recipient or class of recipients intended to rely on it, and (iv) conveys information, (v) in a form or context which shows that it is intended to be definitive. 

The statements of F’s NAV issued by its managing agent in monthly statement, emails, and contract notes, were from an authoritative source and were intended to be definitive.  The scheme of F’s articles depended on the definitive and final determination of F’s NAV since the NAV was used to calculate the purchase and sale price of shares in F.   F had been bound to pay the former members the sums they had received.

This case provides a guide to the proper approach to references in contractual provisions to certificates that are stated to be binding where there is no further definition of ‘certificate.’