Liquidators of Madoff fund receive Privy Council blow in key ruling

The liquidators of Bernard L. Madoff feeder fund Fairfield Sentry, represented by British Virgin Islands (BVI) firm Forbes Hare and Macfarlanes, have lost two key points before the Privy Council in an important judgment.

In a judgment handed down yesterday (16 April), the Privy Council rejected two points of contention between Fairfield Sentry and several groups of investors in the fund. The litigation, originally started in the BVI by Fairfield Sentry against former investors, is an attempt to recoup funds paid out before redemptions were suspended when Madoff’s funds were revealed as a Ponzi scheme.

The case involved offshore firms Harneys, Maples and Calder, Ogier and O’Neal Webster as well as Forbes Hare, with Latham & Watkins, Herbert Smith Freehills, Blake Lapthorn and Gibson Dunn & Crutcher respectively acting as Privy Council agents.

At the Privy Council Fairfield was appealing against an Eastern Caribbean Court of Appeal judgment on one point, and faced a counter-appeal brought by the investors on a separate point. Both were decided in favour of the investors, with four claims conjoined into a single hearing.

Mr Justice Bannister in the BVI High Court, and the Eastern Caribbean Court of Appeal (CoA), previously ruled that documents issued by the fund’s administrator and investment manager were not binding certificates of the fund’s net asset value. The investors appealed this point before the Privy Council, and won.

Meanwhile Fairfield Sentry appealed the lower courts’ decision that the redeeming investors had given “good consideration” for the redemption payments made to them by surrendering their shares in the fund, and accordingly the fund could not seek restitution of those payments. The Privy Council ruled that the BVI High Court and the CoA had made the correct decision.

The judgment will now be followed by an agreed declaration on the contentious issues.

The legal line-up:

For the appellant/respondent, Fairfield Sentry (in liquidation):

4 Stone Buildings’ Jonathan Crow QC, leading Maitland Chambers’ Andrew Westwood and Brick Court Chambers’ Stephen Midwinter, instructed by Forbes Hare partners William Hare and Alistair Abbott and associate Sinead Harris; Macfarlanes partner Barry Donnelly and associate Will White

For the respondents/appellants Lombard, Odier & Cie and others:

3 Stone Buildings’ David Lord QC, instructed by Ogier senior associate Claire Goldstein and associate Robert Christie; Blake Lapthorn partner Sarah Rees and associate Alex Shirtcliff

For the respondents/appellants Credit Suisse London Nominees and another:

One Essex Court’s Laurence Rabinowitz QC and Maximilian Schlote, instructed by Maples and Calder BVI managing partner Arabella di Iorio and associate Ben Mays; Herbert Smith Freehills partner Christopher Foster

For the respondents/appellants Quilvest Finance Ltd and others:

Brick Court Chambers’ Mark Hapgood QC and Alan Roxburgh, instructed by Harneys head of litigation Phillip Kite and partner Kissock Laing; Latham & Watkins partners John Hull, Oliver Browne and Christopher Harris

For the respondents/appellants UBS AG New York and others:

Gibson Dunn & Crutcher partner Charles Falconer QC, instructed by O’Neal Webster partner Paul Webster QC