Fairfield Sentry Limited v Migani and others

A mistaken payment cannot be recovered as unjust enrichment where it discharged a valid contractual debt, unless the mistake avoided the contract. Only an amount exceeding the debt properly due is recoverable.

Where mutual fund articles require subscriptions and redemptions to occur at prices based on a contemporaneously determined net asset value, that determination must be definitive at the transaction date. A certificate making the determination binding need not satisfy special formalities. It ordinarily requires a written statement from an authoritative source, communicated to intended recipients, conveying information in a context showing that it is definitive. Routine e-mails, contract notes and account statements can satisfy those requirements.

Fairfield Sentry Ltd was a British Virgin Islands mutual fund which placed most of its assets with Bernard L Madoff Investment Securities LLC. Before the fraud was discovered, members redeemed shares at prices calculated from fictitious asset values. Acting through its liquidators, the Fund sought restitution of those payments on the ground of mistake.

Bannister J in the Commercial Division of the High Court of the British Virgin Islands held that the transaction documents were not binding certificates under article 11(1)[c] of the Fund’s articles. He nevertheless held that surrender of the shares provided good consideration and summarily dismissed the claims. The Eastern Caribbean Court of Appeal affirmed both conclusions.

The competing appeals concerned whether monthly e-mails, contract notes, account statements and website postings were binding certificates of net asset value or redemption price, and whether the Fund could recover payments made upon surrender of the redeemed shares.

1. Disposition. Per Lord Sumption, giving the judgment of the Board, the appeals concerning Preliminary Issues 1–3 were allowed, except in relation to information posted on Citco’s website. The appeal concerning Preliminary Issue 4 was dismissed. The parties were invited to agree an appropriate declaration on all four issues.
2. Restitution and contractual entitlement. A payee is not unjustly enriched by receiving money which was contractually due. A mistaken payment discharging a valid contractual debt is therefore irrecoverable unless the mistake avoids the contract; only an excess over the debt is recoverable. The Board applied Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 and Barclays Bank Ltd v W.J. Simms Son & Cooke (Southern) Ltd [1980] QB 677.
3. Construction of the articles. Articles 9–11 required subscriptions and redemptions to take effect at prices based on net asset value determined for the relevant dealing day. The scheme depended on the price being definitively ascertained at that time. A construction permitting indefinite retrospective revision whenever new information emerged would make the articles unworkable. The relevant net asset value was therefore the directors’ contemporaneous determination, whether or not it had been calculated correctly under articles 11(2) and 11(3).
4. Meaning of “certificate”. A certificate ordinarily comprises a written statement issued by an authoritative source, communicated to intended recipients, conveying information in a form or context showing that it is definitive. Further formal requirements arise only where the document’s purpose or legal context requires them. Certification under article 11(1)[c] was part of the ordinary subscription and redemption machinery, rather than an exceptional or discretionary procedure.
5. Transaction documents. The monthly e-mails, contract notes and monthly account statements were certificates. Citco issued them under authority delegated by the directors. Their language and transactional context showed that they were intended as definitive records of the relevant net asset value, redemption price or completed transaction. They consequently bound the Fund.
6. Website postings. The Board expressed no conclusion about information posted on Citco’s website. Whether a website statement has the characteristics of a certificate may depend on matters including its permanence and the information given to members about the website. The evidence did not permit those matters to be resolved.
7. Good consideration. Because the certified redemption prices were binding, the members surrendered their shares for the amounts properly due under the articles. Those payments discharged contractual obligations and could not be recovered in restitution.

1. Privy Council: In [2014] UKPC 9, allowed the appeals concerning Preliminary Issues 1–3 except as to information posted on Citco’s website, and dismissed the appeal concerning Preliminary Issue 4.
2. Eastern Caribbean Court of Appeal: Affirmed Bannister J on both the article 11 certification issues and the good-consideration issue.
3. High Court of the British Virgin Islands, Commercial Division: Bannister J held that the transaction documents were not certificates under article 11, but that surrender of the shares constituted good consideration. He summarily dismissed the action.