On 16 September 2011 judgment was handed down by the BVI Commercial Court in a number of cases that have been brought by the liquidators of Fairfield Sentry Limited (“Fairfield”), a "feeder fund" into Bernard L Madoff Investment Securities Limited (“BLMIS”), against a number of investors that historically redeemed out of the fund (the "Fairfield judgment"). Subject to any appeal, the Fairfield judgment should put an end to the liquidators’ claims in the BVI. The answer to that question will, however, ultimately depend on how the Commercial Court rules in the defendants' reverse summary judgment application, which has been listed for hearing in the week commencing 26 September 2011. Ogier represents a significant number of defendants being sued in these proceedings.


Fairfield was a "feeder fund" that placed 95% of its investments into BLMIS. After the BLMIS fraud was discovered in December 2008 Fairfield suspended redemptions and the calculation of its net asset value ("NAV") and was placed into liquidation by order of the Commercial Court on 21 July 2009.

In late 2009 the liquidators of Fairfield began to issue claims in the BVI and New York against a large number of banks and other entities that had invested money in Fairfield and which had been paid redemption proceeds before Fairfield suspended redemptions. The liquidators claimed those redemption payments should be returned to the fund as they were paid to the defendants under a mistake as to the correct NAV of Fairfield which they alleged was "nil or little better than nil" because of the Madoff fraud.  

Justice Bannister noted in his judgment that the claims faced a number of problems, not least that if Fairfield's NAV was nil then how could it have continued to pay out the redemption proceeds to investors before it went into liquidation. He also expressed his concern as to how, if the case were ever to get that far, the liquidators would be able to show the amount by which the fund should be reimbursed as this may involve subtracting the true value of the shares from the amounts paid out to investors and the true value would be very difficult to calculate.

Moreover, he considered that "if the NAV's should at all times have been nil or little more, what right has Sentry to the money which it seeks to recover from redeemers and, correspondingly, who can show an entitlement to such money as may be recovered?" As a result of the preliminary issues judgment these issues seem unlikely to come up for consideration but they are certainly points worth considering as far as future mistake claims in a similar context are concerned.

The defendants asserted a number of defences to the claims but applied for two of the defences to be decided as preliminary issues in an attempt to dispose of the proceedings quickly and avoid the cost of a full trial. The liquidators did not want the preliminary issues tried, and made two unsuccessful attempts to obtain leave to appeal the Commercial Court's decision to have a preliminary issues hearing. The preliminary issues hearing occurred on 28/29 July and the keenly anticipated judgment has now been handed down. In summary, the two preliminary issues that Justice Bannister QC was asked to consider were:

  • whether any of a number of documents given on behalf of Fairfield constituted “certificates” so as to make them binding on Fairfield in accordance with article 11 of its articles of association;
  • whether or not the defendants, in giving up their shares (and therefore the rights attaching to their shares) in Fairfield in return for the redemption payments, provided good consideration for the redemption payments that they received, so as to preclude recoupment of those payments by the claimants.  

Justice Bannister QC found in favour of the defendants on the second question but not on the first.  


Article 11 of Fairfield’s articles of association provide that:

“Any certificate as to the Net Asset Value per Share or as to the Subscription Price or Redemption Price therefore given in good faith by or on behalf of the Directors shall be binding on all parties.”

The defendants relied upon the following documents that they alleged were sent out on behalf of Fairfield and which they said confirmed the redemption price and the relevant NAV for a particular redemption date:

  • • the contract note that was sent to redeeming investors whereby Fairfield's Administrator, Citco Fund Services (Europe) B.V. ("Citco") confirmed having redeemed the shares;
  • monthly statements from Citco summarising the investor's account activity during the course of the preceding month;
  • emails from Citco confirming the NAV for the end of the previous month; and
  • emails from Fairfield Greenwich Group confirming the NAV for the end of the previous month.

The defendants argued that the above documents constituted "certificates" confirming the NAV and, in accordance with article 11, the NAV was therefore binding on Fairfield and its investors and the redemption proceeds that were the subject of the liquidators' various claims could not be recovered by the liquidators.  

It was conceded by the defendants that none of the documents had the word “certificate” on its face but it was argued, on the basis of established case law, that this was not conclusive of the issue. Justice Bannister QC, however, found that the documents were not "certificates" for the purposes of article 11 as they were not "given by or on behalf" of the directors in circumstances where they were not signed by or on behalf of the directors.  

It seems clear in this case that the documents that the defendants relied on as being "certificates" within the meaning of article 11 of the articles of association were certainly given on behalf of the directors. As a matter of general practice in the funds industry, directors rarely calculate the NAV or send out the necessary documentation to investors in relation to subscriptions and redemptions themselves. This is because numerous subscriptions and redemptions occur over the life of a fund and this would simply not be practical. Accordingly the task of dealing with subscriptions and redemptions is usually delegated to the fund's Administrator. In this case the Administration Agreement permitted the delegation to Citco of the tasks of "calculating and publishing the NAV's and processing and dealing with all correspondence relating to redemptions." Following from this, any document given by Citco in relation to subscriptions and redemptions was surely being given, on behalf of the directors

Justice Bannister QC, however, considered a crucial element of a certificate to be a signature. This is because he construed the word "given" as "given under my hand" because "an unsigned certificate is…a contradiction in terms." The focus on the need for a signature, however, seems rather too formalistic in the modern context. A certificate surely needs to be something that carries with it the necessary authority and legitimacy so that a person receiving the information would be able to rely upon it. A signature is obviously one way of conveying the legitimacy of the information but it is not the only way. As long as it is clear that the person or body conveying the information has authority to do so and the information is conveyed in a formal manner then a signature should not be necessary. This is especially the case in the modern funds context where the use of electronic communications, which will almost always be unsigned, is actually very normal (and indeed the most practical way of conveying information to investors that are very often located in many different jurisdictions). Finally, the investors had presumably waived the requirement for a signature. The investors received the various documents confirming the NAV and did, in fact, rely upon them regardless of the fact that they were unsigned.

The judgment is therefore unsatisfactory insofar as it requires directors, or persons acting on their behalf, to sign as opposed to simply give confirmation of the NAV if investors are to be able to rely upon clauses like article 11. Based on this judgment, it must be likely that any fund documentation that contains such a provision, will be amended going forward to make it clear that any document certifying the NAV, whether called a certificate or something else, does not need to be signed by or on behalf of the directors.  

Good consideration

It was the good consideration argument that found favour with Justice Bannister QC. The Judge found that in surrendering their shares (and therefore the rights that attached to the shares) the defendants provided good consideration for the redemption payments that they received. Justice Bannister QC could not see how the later discovery of the Ponzi scheme could vitiate the bargain. He also noted that he could not understand how Fairfield could recover the redemption price when the parties would not be able to be restored to the positions that they were in before they entered into the contract.


In light of his determination on the preliminary issues, Justice Bannister QC ordered that the defendants involved should bring an application for summary judgment for final disposal of the BVI actions. Provided this is successful, that should be the end of the BVI proceedings and will perhaps be the beginning of the end for the claims that have been brought against many of the same defendants in New York.