B.V.I. Court of Appeal upholds dismissal of claims against former shareholders in Madoff feeder fund

15/06/12

Fairfield Sentry Ltd (‘Sentry'), a company registered in the British Virgin Islands, was the largest of the feeder funds that invested monies with Bernard L Madoff Investment Securities LLC (‘BLMIS') in the years before the discovery in December 2008 that BLMIS had been run as a Ponzi scheme. In July 2009, Sentry went into liquidation in the B.V.I. Since then, Sentry has brought hundreds of claims, both in the B.V.I. and in other jurisdictions, against its former shareholders, seeking to recover sums paid to the shareholders on the redemption of their shares in the period from 1997 to 2008. Sentry has alleged that it made these redemption payments under a mistake as to the net asset value per share, and that as a result of the Madoff fraud the true net asset value per share was at all times nil or nominal.

Similar claims have been brought by two other Fairfield funds which are also in liquidation in the B.V.I. The total amount claimed by the funds is some US$6 billion.

Upholding decisions of Bannister J on a trial of preliminary issues and a subsequent application for summary judgment against Sentry in the B.V.I. actions, the Eastern Caribbean Court of Appeal has held that, irrespective of the true net asset value per share, the defendants gave good consideration for the redemption payments by surrendering their shares and that this provided a complete defence to Sentry's claims in restitution. The Court held that the alleged mistake did not nullify Sentry's contractual obligation to pay the redemption price that Sentry itself had determined. The judge had therefore been correct to dismiss Sentry's claims.

The judgment is here.