NAV and other financial determinations: Implications of Fairfield Sentry Limited (In Liquidation) v Migani and others | Fieldfisher
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NAV and other financial determinations: Implications of Fairfield Sentry Limited (In Liquidation) v Migani and others


United Kingdom

The court decided that investors were entitled to keep redemption amounts, even though they were calculated on the basis of determinations of NAV which used fictitious data.

In this alerter, we discuss the wider implications of the recent Privy Council decision in Fairfield Sentry Limited (In Liquidation) ("Fairfield") v Migani and others (the "Defendants")1.  The court decided that investors were entitled to keep redemption amounts, even though they were calculated on the basis of determinations of NAV which used data that was subsequently found to be fictitious.

Whilst the case is directly applicable to investments in funds, it has indirect application also to fund-linked derivatives and fund-linked notes linked to fund assets and has potential wider application in CDOs and other transaction structures with market value triggers. It may influence how provisions relating to determinations are drafted in transaction documentation in the future.   

The facts

Between 1997 and 2008, the BVI mutual fund Fairfield placed investor funds with Bernard L. Madoff Investment Securities LLC ("BLMIS").  Investors participated indirectly in these placements by subscribing for shares in Fairfield at a price dependent on Fairfield's net asset value per share ("NAV") and were entitled to withdraw funds by redeeming their shares under the provisions of Fairfield's Articles of Association (the "Articles"). 

In December 2008, after BLMIS was discovered to be a Ponzi scheme, the directors of Fairfield (the "Directors") suspended the determination of Fairfield's NAV per share, which effectively terminated the redemption of the shares.  Fairfield was subsequently wound up.  Investors who had redeemed their shares prior to December 2008 recovered the NAV which the Directors determined to be attributable to their shares based on fictitious BLMIS reports.

Fairfield's liquidators tried to claw back monies paid to investors (including the Defendants) who had redeemed their shares prior to December 2008 when the Madoff fraud was uncovered, intending that losses be distributed rateably between all Fairfield investors, irrespective of when and whether their shares had been redeemed.

The decision

The court allowed the appeal and found in favour of the Defendants. 

The court noted that the Articles stated that "Any certificate as to the Net Asset Value per Share as to the Subscription Price or Redemption Price therefor given in good faith by or on behalf of the Directors shall be binding on the parties". 

The court held:

  • As a matter of language, a "certificate" ordinarily meant no more than (a) a statement in writing, (b) issued by an authoritative source, which (c) was communicated by whatever method to a recipient intended to rely on it, and (d) conveyed information, (e) in a form or context that showed it was intended to be definitive. This could include data on an investor-only website.

  • The statements of NAV provided by Citco as administrator to investors under the authority of the Directors were "certificates" for the purposes of the Articles. 

  • The information provided was plainly intended to be relied on by Fairfield's members as a definitive record of the transaction and the values on which it was based. Even if it subsequently turned out to be inaccurate, the redeeming investors were entitled to rely upon it. Any other approach would make the operation of the fund impossible, since it might expose redeeming members to an indefinite and open-ended liability to repay the fund if it subsequently turned out the NAV calculation was wrong.


The case in itself is not an unsurprising outcome. There was no suggestion of any impropriety or even a mistake made at the Fairfield level. It was a determination made in good faith based upon information provided to the company. But it may have wider implications for financial transactions where redemptions or other payments are made in reliance on financial calculations and statements that are intended to be definitive and that subsequently prove to be mistaken or fictitious. The overriding principle is that, provided the calculation is performed in good faith, it cannot be reopened later on. It is tempting to imagine that other "final" payments, such as the amount necessary to redeem a loan, or an action dependent on the final and conclusive valuation of an asset, cannot now be re-opened on grounds that the calculations or valuations subsequently turn out to be incorrect.

The judgment is consistent in approach with another recent decision given in relation to a "conclusive evidence" clause.  The case of ABM Amro Commercial Finance plc v McGinn and others2 sought to limit the "wider approach" as set out in the earlier case of North Shore Ventures Ltd v Anstead Holdings Inc3 and asserted the principle that a manifest error is an error that is "obvious or easily demonstrable without extensive investigation4".

The Fairfield case may lead to provisions in documents relating to certificates or determinations being drafted so that they explicitly address in detail when financial determinations can be considered as definitive and conclusive evidence of the matters to which they relate. Parties who think they may need to revisit certificates they have issued or determinations they have made at a later date should seek to expressly reserve their right to do so in relevant documents.

Currently, relevant transaction parties are not typically required to diligence the data they receive for the purposes of making calculations or payment determinations.  However, in the light of this case, more rigorous verification practices may be required in the future to specifically address data integrity concerns.  

1 Fairfield Sentry Ltd (In Liquidation) v Migani and others Privy Council (British Virgin Islands) [2014] UKPC (19  April 2014).

2 ABM Amro Commercial Finance Plc v McGinn and others [2014] EWHC 1674 (Comm) (23 May 2014).

3 North Shore Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230.

IIG Capital LLC v Van Der Merwe [2008] EWCA Civ 542; [2008] 2 Lloyd's Rep 187.