Fairfield Liquidators Obtain Another Important Victory in Recovery Efforts

Clawback claims in excess of $6 billion of overpaid redemptions have been brought by the Fairfield Sentry liquidators in about 300 United States Bankruptcy Court claims pending before Judge Bernstein in the Southern District of New York.  A small minority of the defendants to those actions brought applications in the BVI Commercial Court seeking directions (under section 273 of the BVI Insolvency Act) that the BVI liquidators desist from the US litigation and/or an antisuit injunction.  It was argued that (i) the US common law redeemer claims were precluded by the Privy Council’s decision in Fairfield Sentry v. Migani [2014] UKPC 9, (ii) the statutory avoidance claims were precluded by the wording of the BVI Insolvency Act, and that (iii) an anti-suit injunction should be issued against the liquidators preventing them from continuing their recovery actions in the US. 

By its judgment of 20 November 2017, the Eastern Caribbean Court of Appeal (ECCA) has rejected all three arguments.

The ECCA held that the defendants were not “persons aggrieved” within the meaning of the BVI Insolvency Act, as they are neither creditors (in the case of an involuntary liquidation), or members (in the case of a voluntary liquidation) as their interest has been redeemed.  The therefore lacked standing to pursue the s.273 applications, as they had no legitimate interest in the relief sought.

Further, although there was a separate and free-standing basis on which antisuit relief might be available, it was clearly not appropriate to grant such relief in this case (where the effect of the relief would be the same), given the facts of the case.   In that regard, the ECCA, for a number of reasons, rejected the Appellants contentions that the US claims were “hopeless” or “doomed to fail”. 

The ECCA took a modern internationalist view of the insolvency proceedings: in circumstances where the US redeemer claims have been ongoing for a considerable time, not only as against the appellants here but against hundreds of other defendants; where there no complaint (nor can there be) that New York is not an appropriate forum in which to try the claims in respect of all the parties (and that at as matters now stand it may be the only forum in which to try them since limitation periods in BVI may operate as a bar); where the Court is not satisfied that the US claims are hopeless or are doomed to fail; and where the appellants are fully engaged in the US Proceedings and have moved, with other US defendants, to dismiss the US Proceedings on essentially the same grounds as deployed before the BVI Court, the ECCA considered that "comity and common sense suggest that the foreign judge is usually the best person to decide whether in his own court he should accept or decline jurisdiction".
 
In a similarly internationalist vein, the ECCA expressly rejected the defendants’ arguments (also deployed in New York) that the use of the word “Court” in section 249 of the Insolvency Act connoted exclusivity of the BVI High Court in relation to the statutory avoidance claims.  The ECCA’s view was that the BVI statute was not an intended to give exclusive jurisdiction to the BVI Court to grant statutory avoidance relief, but rather it is a procedural provision which merely directs where such claims may be made.
The ECCA held that the liquidators should be free to pursue the claims in the US, deeming the United States an appropriate forum, in circumstances where the ECCA considers the claims to be properly arguable and where the defendants had ample and unfettered opportunity to defend against those claims in the US proceedings.  In reaching this conclusion, the ECCA rejected any suggestion that the liquidators’ conduct was either vexatious or oppressive, and that the appropriate forum to assess the merits of the US redeemer actions is the US Court.
 
Kenneth Krys, BTG Global Advisory member and Joint Liquidator of the Fairfield Funds said: "We  are extremely pleased that the Court of Appeal upheld the Commercial Court’s decision. Our consistent strategy since our appointment in 2009 has been to maximize the return to creditors and members of the Funds. The defendants' efforts here to frustrate the Liquidators claims in the United States were unsuccessful and we look forward to progressing this litigation in the United States where we remain confident in the Court’s ability to filter the defendants’ many unwarranted objections and return monies back into the hands of the victims of the Madoff fraud.