Fairfield Sentry Ltd v Migani & Ors (2014)
Certain documents sent by the administrator of a mutual fund to members, including contract notes recording any redemption of shares made, constituted "certificates" which were binding on the fund under its articles of association.
The appellant financial institutions (X) appealed against a decision of the Eastern Caribbean Court of Appeal as to whether certain documents were binding on the respondent company (F).
F had been incorporated in the British Virgin Islands as a mutual fund (the fund). From 1997 to 2008, it was the largest of a number of feeder funds which placed money for investment with a company (B) which was later revealed to have operated a Ponzi scheme from the United States. Investors participated indirectly in those placements by subscribing for shares in the fund at a price dependent on the fund's net asset value per share (NAV); they were entitled to withdraw funds by redeeming their shares under the provisions of the fund's articles of association. In December 2008, shortly after the frauds came to light, the directors of the fund suspended the determination of its NAV per share, thus effectively terminating the redemption of shares. In 2009, F was ordered to be wound up. The instant action had been brought by the fund at the instance of its liquidators against a number of financial institutions who were members of the fund but redeemed some or all of their shares before December 2008. The aim was to recover from X the amounts paid out to them on redemption, on the basis that they were paid out in the mistaken belief that the assets were as stated by B, when there were in fact no such assets; any recoveries made on that basis could then be distributed rateably between all members. The High Court ordered to be determined as a preliminary issue the question of whether certain transaction documents issued to members of the fund recording the NAV per share or the redemption price upon redemption were binding on the fund under art.11 of the articles of association, which included the following clause: "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". The transaction documents included the following documents sent by the administrator of the fund (C): an email sent to all members setting out the final NAV per share for the last business day of each month; a contract note recording any redemption made; and a monthly statement of account recording, among other things, the opening and closing NAV per share for the previous calendar month. The High Court, whose decision was upheld by the Court of Appeal, held that those documents were not "certificates" for the purpose of art.11.
As a matter of language, a "certificate" ordinarily meant (a) a statement in writing, (b) issued by an authoritative source, which (c) was communicated by whatever method to a recipient or class of recipients intended to rely on it, and (d) conveyed information, (e) in a form or context which showed that it was intended to be definitive. The monthly email, the contract notes and the monthly statement of account were all "certificates". They communicated information in documentary form to members. It followed that the critical questions were whether the documents in the three categories were issued by an authoritative source and in a form or context which showed that they were intended to be definitive. The answer was yes. Documents in all three categories were issued by C under the authority of the directors, conferred by the relevant administration agreement. The calculation and publication of the monthly NAV per share were among C's functions under the agreement. The communication to members seeking to redeem their shares of the monthly NAV per share and the redemption price was necessarily implicit in the agreement, which delegated to C the duty of redeeming shares in accordance with the "provisions and procedures" set out in the fund documents. Those authorities were general, and not specific to any particular transaction or category of transactions. Further, the context in which the documents were issued plainly demonstrated that they were intended to be definitive. The nature of a redemption transaction and the procedures set out in art.10 of the articles made it essential that the redemption price should be definitively ascertained at the time of the transaction and as at the valuation day. In that context, any unqualified documentary statement of the redemption price or the NAV per share on which it was based had to be intended to be definitive. That conclusion was borne out by the language of the documents. The emails formally "advising" the monthly NAV per share to members described it in terms as the "final" figure. The contract notes formally "confirm[ed]" the redemption and recorded its terms. The monthly statement constituted a formal record of each transaction during the month and the NAV per share at which it went through. All of that information was plainly intended to be relied on by members as a definitive record of the transaction and the values on which it was based (see paras 27-31 of judgment).
View all cases
16 Apr 2014
Privy Council (BVI)
Lord Neuberger, Lord Mance, Lord Clarke, Lord Sumption, Lord Toulson
LTL 24/4/2014 : Times, May 1, 2014 :  UKPC 9