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England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Aymard v Sisu Capital Ltd  EWHC 3214 (QB) (15 December 2009)
Cite as:  EWHC 3214 (QB)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| CEDRIC AYMARD
|- and -
|SISU CAPITAL LIMITED
Mr Iain Quirk (instructed by Bingham McCutcheon LLP) for the Defendant
Hearing dates: 27 November 2009
Crown Copyright ©
Mr Justice Hamblen :
(1) First, an application by the Claimant for leave to amend his Statement of Case; and
(2) Second, an application by the Defendant for summary judgment and/or strike out of the Claimant's claim (including the amended claim, if permission is given).
(1) hedge fund, and
(2) private equity business.
It is the private equity business with which this claim is concerned.
(1) Receipt of a management fee of 0.2% paid by the company in which the investment is made, and
(2) Receipt of a fee from the General Manager. The General Manager charges a management fee of 2% per annum of the funds invested and passes that (or part of it) to the Defendant as Investment Manager.
"You are eligible for a 2.5% share in the carry vehicle of the SISU Capital Private Equity group, SISU Carry Partners LP. Eligibility is subject to you having completed 3 months of service with SISU Capital Limited and management confirming that your job performance during the said period has been satisfactory with respect to the position you are holding and without any breach of corporate policy.
You agree to be bound by the existing terms of the SISU LP partnership agreement on becoming a partner of SISU Carry Partners LP."
"the Partnership shall be dissolved and its affairs shall be wound up upon the earliest of:…(b) the written election of the IM, in its sole discretion, to dissolve the Partnership…"
(1) Pursuant to clause 3.01(c), the General Partner chose the Defendant as Investment Manager;
(2) Pursuant to clause 3.01(e) the management control and operation of the Partnership was vested exclusively in the Investment Manager;
(3) Pursuant to clause 3.02(a) the Investment Manager had the sole power on behalf and in the name of the partnership to carry out any and all of the objects of the Partnership and to perform all acts which it may, in its sole discretion, deem necessary or desirable;
(4) Pursuant to clause 4.01, the Investment Manager could, in its sole discretion at any time, admit other Persons as additional Limited Partners of the Partnership;
(5) Pursuant to clause 4.01(c) each additional Limited Partner that is admitted to the Partnership was:(a) to make a Capital Contribution to the partnership in the amount, if any, determined by the Defendant, and(b) to be awarded a Profit Sharing Percentage as determined by the Defendant.
(1) Voluntary resignation (clause 4.03(b)), and
(2) Termination for Cause (clause 4.01(c)).
Neither applies in this case.
"(1) the Defendant would not act in relation to the carry vehicle in such a way as to deprive the Claimant of, or interfere with his receipt of, the rights and benefits to which he was entitled as a member of the carry vehicle;
(2) the Defendant would not, otherwise than for good cause and in good faith, or for a capricious reason, in particular in order to deprive the Claimant of the benefits to which he would be entitled as a member of the carry vehicle, cause or allow the carry vehicle to be dissolved and/or wound up;
(3) in the event that the Defendanti. acted in relation to the carry vehicle in such a way as to deprive the Claimant of, or interfere with his receipt of, the rights and benefits to which he was entitled as a member of the carry vehicle, and/orii. dissolved or wound up the carry vehicle and/oriii. substituted with another such vehicle the vehicle by which participation in carried interest was distributed to those entitled,the Defendant would ensure that the Claimant became entitled to participate in carried interest through any replacement vehicle or otherwise to the extent equivalent to his rights and 2.5% share in SISU Carry Partners LP." (words in bold added by later draft amendment)
I shall refer to these alleged implied terms as implied terms (1), (2) and (3) respectively.
The relevant principles
Application to amend the Particulars of Claim
"12…..It is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better.
13 In cases where the issue is one of construction the respondent often seeks to persuade the court that the case should go to trial by arguing that in due course evidence may be called that will shed a different light on the document in question. In my view, however, any such submission should be approached with a degree of caution. It is the responsibility of the respondent to an application of this kind to place before the court, in the form of a witness statement, whatever evidence he thinks necessary to support his case. Where it is said that the circumstances in which a document came to be written are relevant to its construction, particularly if they are said to point to a construction which is not that which the document would naturally bear, the respondent must provide sufficient evidence of those circumstances to enable the court to see that if the relevant facts are established at trial they may have a bearing on the outcome.
14 Sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial. In such a case it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction."
(1) The court may strike out a statement of case, or part of a statement of case, if it appears to the court that (a) it discloses no reasonable grounds for bringing or defending the claim or (b) it is an abuse of the court's process (CPR 3.4(2)(a) and (b)).
(2) Proceedings will be an abuse of process where it can be shown that the benefit attainable by the claimant in the action is of such limited value that "the game is not worth the candle" and the costs of the litigation will be out of all proportion to the benefit to be achieved (see WB notes 188.8.131.52 regarding "Pointless and Wasteful Litigation"). This point was specifically made by Lord Philips MR (as he then was) in Jameel v Dow Jones & Co  QB 946, when he said (at ):"An abuse of process is of concern not merely to the parties but to the court. It is no longer the role of the court simply to provide a level playing field and to referee whatever game the parties choose to play upon it. The court is concerned to ensure that judicial and court resources are appropriately and proportionately used in accordance with the requirements of justice."
(3) Litigation will be pointless and wasteful, and therefore an abuse of process, where it is plain that any damages the Claimant could recover would be nominal, whilst the costs of the proceedings will be considerable. For example, in Wallis v Valentine  EMLR 8, CA, a libel claim which arose out of a lengthy neighbour dispute was struck out as an abuse of process. The court held that any damages recoverable if the claim succeeded would be nominal only and would be wholly disproportionate to the costs of the proceedings.
The Claimant's Application to Amend the Particulars of Claim
Implied Terms – the Law
(1) The court will only imply a term on the basis that it is necessary for business efficacy of the contract where without that term the contract will not work: Liverpool City Council v Irwin  AC 239, at 254 and 262.
(2) Another ground for implication of a term (although not specifically relied on by the Claimant) is "something so obvious it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, 'oh, of course'" : Shirlaw v Southern Foundries (1926) Ltd  2 KB 206, 227. A term will not be implied on that basis unless the court is satisfied that both parties would, as reasonable men, have agreed to it had it been suggested to them.
(3) A term will not be implied because it would be reasonable to do so, or because it would improve the contract or make its carrying out more convenient. As was stressed in Irwin (at 266): "The touchstone is always necessity and not merely reasonableness."
(4) A term will not be implied if it would be inconsistent with the express wording of the contract: BP Refinery (Westenport) Pty Ltd v Shire of Hastings (1977) 52 AJLR 20, at 26.
Whether the case based on the implied terms has a real prospect of success
(1) The Defendant would not and could not have agreed to those implied terms because it was the Investment Manager of the Carry Partnership and in that role was bound to act in the interests of the Carry Partnership, not the Claimant. As such, it could not agree to the matters set out in the implied terms, namely to (a) be bound to act in particular way as regards the Carry Partnership; (b) not cause or allow the Carry Partnership to be wound up; or (c) ensure that the Claimant could participate in a replacement vehicle.
(2) The implied terms are inconsistent with the express terms of the Offer Letter. The Offer Letter makes clear and explicit reference to the Claimant being eligible for a share in a particular, named LP, namely the Carry Partnership. An implied term entitling the Claimant to a share in another vehicle would be inconsistent with the express term which provides that he is eligible for a share in the Carry Partnership.
(3) The implied terms are inconsistent with the express terms of the PA. One of the provisions of the PA was that the Carry Partnership could be dissolved on the election of the Investment Manager in its sole discretion, or where the General Partner ceased to be General Partner. The implied terms seek to restrict the circumstances in which the Carry Partnership could be dissolved and are inconsistent with (a) the Investment Manager's unfettered discretion in the PA to dissolve the Carry Partnership; (b) the dissolution of the Carry Partnership which follows where the General Partner ceased to be the General Partner; (c) the ability of the General Partner to exercise its right to terminate the Defendant's appointment as Investment Manager.
(4) The implied terms seek to give the Claimant a right to partnership in any replacement vehicle for the Carry Partnership. There is no such right for the Limited Partners in the PA (or in any other agreement), nor were there any protections in relation to a loss of entitlement to Carried Interest. The implied terms would have the effect of ranking the Claimant above those other Limited Partners.
(5) The implied terms are not commercially viable and are likely to be impossible to comply with. The implied terms provide an entitlement to a share in a "replacement vehicle" "equivalent" to the Claimant's "rights" and a 2.5% share in the Carry Partnership. This provides for an equivalence between two unknowns and is not commercially viable and may well be impossible to calculate.
(6) The Claimant cannot satisfy the test that without the implied terms the contract does not work (the business necessity test). This was an agreement for eligibility for a share in a named LP. The entitlement is to the share in that named LP. Just as if the entitlement was to shares in a company, the value and existence of the share is dependent on the continued value and existence of the company. There was no guarantee that the share in the LP would always exist. In reality, the Claimant is asking the court not to imply terms in order to make the contract work, but in order to grant him a benefit which he did not have, namely a guarantee of a monetary benefit. This was not a guaranteed bonus, it was a share in a LP which was subject to the operation of the LP in accordance with the PA.
Summary Judgment and/or Strike Out Application
The Original (Un-amended) Claim
(1) The Claimant seeks damages for the value of his share in the Carry Partnership.
(2) When the Carry Partnership was dissolved it did not have any value beyond the amounts contributed by the Limited Partners by way of capital. No distributions had been made to the Limited Partners, nor could they have been.
(3) Even if (which is denied) the Claimant was entitled to a share in the Carry Partnership, that share would have been dissolved along with the rest of the Carry Partnership. When dissolved, the Claimant would not have received any value for his share since it was worth nothing.
(4) On his original pleading, the Claimant's claim to damages stops at the Carry Partnership. On the basis of that case, there is no entitlement to claim a similar share in a later vehicle. If the share in the Carry Partnership has no value at the time of dissolution, then it has no value full stop and there can be no damages claim. Furthermore, it was not pleaded in the original claim that the dissolution of the Carry Partnership was unlawful or wrongful nor that any additional claim follows as a consequence.
(5) Even if it was alleged in the original claim that the Claimant was entitled to a share in the new partnership, that share is presently of no value and there would need to be growth in excess of 350% from its present position before any value could be extracted. Furthermore, the Claimant does not plead and claim damages for loss of a chance.
(6) Accordingly, even if the Claimant manages to establish that he was entitled to have a share in the Carry Partnership, he will not recover any damages in relation to it.
(1) The Claimant contends that the value to him of the 2.5% share in the partnership should be assessed taking into account(a) that the intention of the parties, viewed objectively, when entering into the agreement was that the Defendant intended to incentivise the Claimant with a grant to him of a share in the profits to be made by the Defendant's investment and management of the investment funds as defined in the carry partnership agreement;(b) that the grant of a profit share was to be effected by granting the Claimant a 2.5% partnership share in the carry vehicle which had been set up for the purpose of taking a share in the profits, namely SISU Carry Partners LP;(c) that it was intended, as evidenced by clauses 4.03(a), (b) and (c) of the SISU Carry Partners LP partnership agreement, that the Claimant should retain his entitlement to a profit share even if he left the Defendant's employment unless he resigned voluntarily or was dismissed for cause (as therein defined); and(d) the implied terms set out in paragraph 4 above;
(2) The date for the assessment of the Claimant's loss is the date of breach namely
(1) the date when the Claimant ought to have been, but was not, admitted to the partnership, namely early 2008, alternatively,
(2) the date on which the Claimant was dismissed, namely 6.10.09, alternatively
(3) the date when the Defendant put it out of its power specifically to perform the contract by its dissolution of the carry partnership;
(3) The value of the Claimant's loss is the value of the chance that the carry partnership would have made a distribution to him;
(4) The Claimant notes that the Defendant states that the carry vehicle has been wound up with no distribution made to the partners and contends that such dissolution ought to be taken into account in assessing the Claimant's loss;
(5) It is the Claimant's case that the dissolution of the carry vehicle by the Defendant ought not to be taken into account in assessing the Claimant's loss on the grounds that, had the Defendant admitted the Claimant to the partnership as it was contractually obliged to do, such dissolution would have been in breach of the implied terms set out at paragraphs 4(2) to (3) above in that
(1) The dissolution was effected in bad faith, for a capricious reason or otherwise than for good cause in that it was motivated either wholly or in part by the Defendant's desire to deny the Claimant a right to share in the anticipated profit to be paid to the carry vehicle. In support of that contention, the Claimant relies on(i) the Defendant's failure to admit the Claimant to the partnership on his fulfilling the relevant threshold criteria;(ii) the Defendant's conduct in excusing its failure to admit the Claimant to the carry partnership by indicating that the paperwork had not been finalised set out at paragraph 6 above;(iii) the Defendant's stated reliance on matters other than the agreed threshold criteria in support of its failure to admit the Claimant to the partnership set out at paragraph 10 above;(iv) the timing of the dissolution, which post-dated the Claimant's indication by letter dated 29.10.08 that he was to take proceedings against the Defendant for breach of contract;(v) the fact that the Defendant has incorporated an alternative vehicle to enable the participants in that vehicle to share in the anticipated profit to be paid to the carry vehicle to the exclusion of the Claimant;
(2) the effect of the dissolution was to frustrate the purpose of the term of the contract to provide the Claimant with a share of the carried interest and thereby deprive him of a benefit to which he was contractually entitled. In the premises,(i) the dissolution would have amounted to a breach of the implied terms at 4(2) and (3) above, and(ii) on dissolution, the Defendant would have been in breach of contract had it not replaced the Claimant's entitlement to a 2.5% share in the profit of the carry vehicle with a benefit of equivalent value, and was therefore in breach of the implied term pleaded at paragraph 4(4) above."
(1) the failure of the Limited Partners to submit a s.431 Income Tax (Earnings and Pensions) Act 2003 tax election within the requisite time period after initially becoming partners which would mean adverse tax consequences on any distribution of profits;
(2) the fact that the PA was outdated because it did not refer to two new funds which had since been created;
(3) the unsuitability of the PA to accommodate new partners.