BRITISH VIRGIN ISLANDS
COURT OF APPEAL
SHARE REDEMPTION – BVI APPEAL – MISTAKE OF FACT – CERTIFICATE OF VALUE – RESTITUTION
Between 1997 and 2008, Fairfield Sentry Limited had invested a large portion of its funds into Bernard L. Madoff Investment Securities LLC (“BLMIS”) on behalf of its Shareholders. The collapse of BLMIS resulted in the liquidation of Fairfield Sentry Limited (“Fairfield”). Fairfield’s Liquidators brought proceedings in the British Virgin Islands (and elsewhere) against former Shareholders who had redeemed their shares in Fairfield prior to its collapse (the “Shareholders”). The articles of association of Fairfield provided that the price at which shares were to be redeemed was to be calculated by reference to Fairfield’s net asset value (“NAV”) and that value would need to be certified. Fairfield’s articles also provided that a certificate of NAV “given in good faith by or on behalf of the Directors” was to be binding on all parties.
The Liquidators argued that the NAV calculated for the purpose of the redemptions in question had been calculated under a mistake of fact since BLMIS was in fact operating a Ponzi scheme and Fairfield’s investments were lost, and therefore valueless, from the point at which they were invested. It followed that the relevant NAV was nil or nominal and the redemption price ought similarly to have been nil or nominal. The Liquidators contended that the Shareholders had been unjustly enriched by the redemption at Fairfield’s expense and were liable to make restitution of the sums paid to them on redemption.