Madoff Feeder Fund In Major Court Reversal

In a series of decisions before the BVI Commercial Court and Eastern Caribbean Court of Appeal, the liquidators of Fairfield have suffered significant reversals in their claims against investors. The decisions are important for a number of reasons. First of all, the value of the claims are staggering; the BVI claims and related actions in the US Courts claim in the region of US$ 7.5 billion. Secondly the defendants are a who's who of the World's financial institutions, and thirdly the legal issues raise very important issues for offshore feeder funds and liquidators.


Fairfield was one of the main feeder funds which invested in Bernard L. Madoff Investment Securities Limited ("BLMIS") and therefore one of the largest victims of that colossal fraud. Fairfield filed hundreds of claw back claims against investors who redeemed shares before the Madoff fraud was uncovered, both in the BVI and New York.

Fairfield alleges that before Madoff's arrest, investors redeemed based on a Net Asset Value (NAV) which itself was calculated on a now-mistaken value of BLMIS, meaning that all redemption payments should be returned.

The BVI Commercial Court Judgments

The defendants took the slightly unusual step of applying to the BVI Court for a trial of 2 preliminary issues. The BVI Court agreed to proceed in this way. The liquidators challenged this decision and applied for leave to appeal but the full panel of the Court of Appeal refused to give leave to appeal and the trial on preliminary issues proceeded. In that trial, the Court decided that it was not open to Fairfield to now seek to recover the price it had paid for the purchase of the shares of redeeming shareholders simply because Fairfield's calculation of the NAV was based on information which subsequently proved to be unreliable for reasons unconnected with any of the redeemers. The decision was grounded on the finding that the redeemers had given Fairfield good consideration in redeeming the shares and this was an absolute bar on the claim. (Referring to Aiken v Short [1856] 1H&N 210 and Barclays Bank v WJ Simms Son [1980] QB 677.)

The Court found in favour of Fairfield on the second preliminary issue on an interpretation of what documents constituted certificates as to the NAV in the articles of association. However the defendants only needed to be successful on one of the two preliminary issues to strike out most parts of the Statement of Claim. The defendants then issued a further...

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