The vpn server is running a dnsmasq instance with the following
settings:

"""
addn-hosts=/etc/hosts.openvpn-server
addn-hosts=/etc/hosts.openvpn-clients
no-hosts
dns-forward-max=0
no-resolv
"""

In the vpn server configs, it is pushing it's own IP as a dns server:

"""
push "dhcp-option DNS 10.88.0.1"
push "dhcp-option DOMAIN vpn.ubuntone.info"
"""

On the client configs, it's using the stock update-resolv-conf openvpn
scripts to update resolvconf:

"""
up /etc/openvpn/update-resolv-conf
down /etc/openvpn/update-resolv-conf
"""

The end result is that the vpn client resolv.conf contains the
following:

"""
$ cat /etc/resolv.conf
nameserver 10.88.0.1
nameserver 127.0.1.1
search vpn.ubuntone.info
"""

Since the lxc dnsmasq doesn't specify what to use as resolver, and it
has --strict-order, it ends up querying 10.88.0.1 first and since that
name server is setup with no-resolv, then it gets refused and does not
move on to the next one (127.0.1.1).

-- 
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https://bugs.launchpad.net/bugs/1205086

Title:
  lxc-net dnsmasq --strict-order breaks dns for lxc non-recursive
  nameserver

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