BVI Commercial Court rules against Bernard Madoff “feeder fund”

19 October 2011


Fairfield Sentry Ltd (in liquidation) v Bank Julius Baer & 33 Others
BVIHC (COM) 30/2010
[2011: 28,29 July 16 September]

The BVI Commercial Court handed down judgment ruling on two preliminary issues that had been ordered to be tried. These issues were common to a significant number of claims brought by Fairfield Sentry Limited, now in liquidation, against defendants who had redeemed their shares in Fairfield.

Hundreds of millions of US$ are involved; the specimen claims covered by the preliminary issues amounting to some US$135m.

This case is being closely watched by those involved in a number of other funds where claims against those who made redemptions are either being brought or contemplated.


Fairfield carried on business as an open-ended investment fund. Investors subscribed for redeemable shares. The number of shares they obtained on subscription and the price paid on redemption were calculated in accordance with Fairfield’s net asset value (“NAV”).

Approximately 95% of Fairfield’s funds were placed for investment with Bernard L Madoff Investment Securities Limited. When the Madoff fraud was discovered in December 2008, Fairfield suspended redemptions and was ordered to be wound up on 21 July 2009.

Fairfield subsequently brought a number of claims in the BVI against redeemers claiming restitution of the redemption payments on the basis that by reason of the Madoff fraud they had been mistakenly calculated and paid on the basis of a false NAV and that at all material times the true NAV had been nil or a nominal value.

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 therefor given in good faith by or on behalf of the Directors shall be binding on all parties.”

Preliminary issues

The preliminary issues were:

(1) Whether any of the documents given to the defendants, in particular, redemption statements, constituted a “certificate” within the meaning of Article 11 so that Fairfield was contractually estopped from claiming restitution.

(2) Whether by giving up their shares on redemption, the defendants had given good consideration for the redemption payments, thus precluding a claim for restitution.


Justice Edward Bannister QC held in favour of Fairfield on the Article 11 issue. None of the documents provided to the defendants was expressed to be a “certificate” and the Judge held that they were not certificates as they were unsigned.

However, the Judge found in favour of the defendants on the good consideration issue. He held that by surrendering their shares and the rights attaching thereto, redeemers had provided good consideration for the redemption payments and that later discovery of the Madoff fraud could not upset the transaction.

It is likely that this judgment will be appealed.

Michael Gadd of XXIV Old Buildings has represented Fairfield and its liquidators in respect of a significant number of issues arising in the liquidation although he did not appear on the preliminary issues hearing.