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England and Wales High Court (Chancery Division) Decisions
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Cite as:  EWHC 337 (Ch)
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
BUSINESS LIST (ChD)
London EC4A 1NL
B e f o r e :
| Between in claim BL-2018-002369:
|MUSST HOLDINGS LIMITED
|(1) ASTRA ASSET MANAGEMENT UK LIMITED
(2) ASTRA ASSET MANAGEMENT LLP
Between in claim BL-2019-001483
|(1) ASTRA ASSET MANAGEMENT UK LIMITED
(2) ASTRA CAPITAL INTERNATIONAL LIMITED
|(1) MUSST INVESTMENTS LLP
(3) MR SALEEM ANWAR SIDDIQI
Jeffery Onions QC (instructed by Payne Hicks Beach) for the Astra parties
Hearing dates: 23 and 24 January 2020
Crown Copyright ©
Chief Master Marsh:
"40. it is important to bear in mind that the overriding objective applies and the question of whether permission to amend should be given must be considered in the light of the need to conduct litigation fairly and justly and at proportionate cost.
41. For the amendments to be allowed the Appellants need to show that they have a real as opposed to fanciful prospect of success which is one that is more than merely arguable and carries some degree of conviction: ED&F Man Liquid Products Ltd v Patel  EWCA Civ 472. A claim does not have such a prospect where (a) it is possible to say with confidence that the factual basis for the claim is fanciful because it is entirely without substance; (b) the claimant does not have material to support at least a prima facie case that the allegations are correct; and/or (c) the claim has pleaded insufficient facts in support of their case to entitle the Court to draw the necessary inferences: Three Rivers District Council v Bank of England (No 3)  2 AC 1.
42. The court is entitled to reject a version of the facts which is implausible, self-contradictory or not supported by the contemporaneous documents and it is appropriate for the court to consider whether the proposed pleading is coherent and contains the properly particularised elements of the cause of action relied upon. ".
(1) The issues that arise on the application to amend do not concern disputed issues of fact.
(2) The differences between the parties on the application in part relate to issues of construction of a written agreement, the Introduction Agreement. The application for permission to amend is not an occasion for the court to reach a concluded view about the issues of construction. Rather, the court must decide whether Musst's construction has a real prospect of success: that it is not fanciful. This sets the threshold for the grant of permission to amend about such issues at a relatively low level. Musst's case must be more than merely arguable. However, where the drafting of an agreement is less than crystal clear, the difference between a point that is merely arguable and a point that has a real prospect of success is likely to be narrow.
(3) Furthermore, the court dealing with a contested application to amend that relates to issues of construction must have firmly in mind that unlike the trial judge, it does not have the full context in which the document is to be construed.
(4) As to the passage in Asplin LJ's judgment that has been emphasised, it is not the role of the court when considering an application for permission to amend to determine whether the case could have been pleaded in a different way or, indeed, pleaded in a better way. The court is solely concerned with whether there is an adequate degree of coherence and that the cause of action is adequately particularised.
(1) The Introduction Agreement was novated to Astra LLP and then to Astra Ltd.
(2) Musst introduced (adopting the same shorthand as the parties have used) 2B and Crown as investors in Funds that fell within the scope of the Introduction Agreement.
(3) Payments made by Astra to Musst in respect of those introductions were not made, as alleged by Astra, pursuant to an oral arrangement that is described as the 21 November Arrangement.
(1) Clause 3.1: "The Introducer shall be entitled to share in all management and performance fees earned and received by Octave in respect of each Prospective Investor who makes (directly or indirectly) an investment in a Fund managed or advised by Octave (an Investor) for the Current Strategy on or before the Cut-off Date, each such investment being an Eligible Investment."
(2) Clause 3.2 provides that Musst's revenue share was to be 20% "in respect of any Eligible Investment".
(3) Clause 3.3 obliged Octave to notify Musst of "any discount, rebates or alternative fee structure in respect of any Eligible Investment."
(4) Clause 3.7 provides: "The parties hereby agree that a) any new investment made by an investor in a fund under the management of Octave or the Investment Manager following a strategy other than the Current Strategy (a "New Fund") and deriving from the redemption of investments originally made in a Fund following the Current Strategy will not be treated as Eligible Investments under this agreement and this includes a restructuring of ASSCF to turn into a liquid open ended fund following; and b) should amounts deriving from an Eligible Investment be reinvested in a New Fund by an investor, performance fees are currently expected to become crystallised no later than the date .
(5) Clause 11.1 requires Octave to keep records of its activities in relation to the agreement " including but not limited to recording any Eligible Investments (and the ongoing value of the same) and the payments due to the Introducer."
(6) Clause 12 makes provision for termination of the agreement. It continues in force for an initial period of 6 months after which it continues until terminated on not less than 30 days' notice.
(7) Clause 13 deals with the consequences of termination. Clause 13.1 specifies that, other than as set out in clause 13, neither party has any further obligation to the other under the agreement after its termination. Clause 13.2 then provides that: "The Introducer shall continue to be entitled to the revenue share in respect of all Eligible Investments (as defined in Clause 3) for so long as such Eligible Investments in the Current Strategy are maintained by the Investor provided that, notwithstanding the foregoing, should this Agreement be terminated following a repeated material breach of the Introducer's obligations hereunder the right of the Introducer to receive revenue share will terminate as of the Termination Date."
(1) "Current Strategy" is to invest  primarily in synthetic asset backed securities and  on a buy and hold basis with limited or on direct leverage, and  such that the investments are intended to operate as if they were closed-ended investment pools with capital committed on a locked up basis for several years to be returned to the investors in such funds following realisation of the investments therein." [numbering added for clarity]
(2) "Funds" "The Astra Special Situations Credit Fund Limited ("ASSCFL"), and other funds and managed accounts designed to substantially replicate the investment securities and risk profile of ASSCF [sic], and following substantially the same strategy as set out under the Current Strategy below, howsoever structured on or before the Termination Date of this agreement, to which Octave or Manager acts as Investment Manager. It is understood for the purposes of interpretation of the definition of a Fund that the strategy remains substantially similar to the Current Strategy."
(1) Musst's right to a share of the fees was dependent upon the investments made by 2B and Crown being "Eligible Investments".
(2) To be an Eligible Investment, the investment had to be made into a managed account designed to follow the Current Strategy.
(3) An Eligible Investment is not the assets that are held within the managed account. An investment in a managed account is the total contributed by the investor to the managed account not any individual security that might be bought on the investor's behalf and held within the managed account.
(4) For there to be an entitlement to a share of the fees, the managed account into which the investment was made had to continue to follow the Current Strategy. It would not otherwise remain an Eligible Investment.
(5) The 2B and Crown investments were Eligible Investments at the outset but by 31 December 2014, or 31 December 2015 at the latest, ceased to be Eligible Investments because the managed accounts into which the investments had been made ceased to follow the Current Strategy.
(1) The focus of clause 3.1 appears to be primarily on the trigger requirements that give Musst an entitlement to share management fees. It is not obvious, however, from the drafting that such an entitlement would cease upon any particular event. The point is not directly addressed in clause 3.1.
(2) The language used in clause 3.1 does not suggest any limitation on the entitlement to share management fees, particularly as the Current Strategy envisages that the capital will be provided on a "locked-up basis for several years". As Mr Knox QC points out, Musst had no control over the strategy after the introduction of an investor and it would be open to Astra, on its construction, to deprive Musst of introduction fees by a change of investment strategy.
(3) The Current Strategy envisages that the investment (meaning the initial cash provided) will be invested "primarily in asset backed securities". The cash investment is translated into assets that are held in the managed account. The capital is to be returned to investors on realisation of the investments in the managed account.
(4) "Each such investment being an Eligible Investment", as it is used in clause 3.1, read literally, refers back to a "Prospective Investor who makes an investment in a Fund" and therefore refers back to the provision of cash as the initial step. However, since it is inevitable that the money invested will become assets held in the Fund, an Eligible Investment may have been intended to mean the product of the investment not just the provision of money. This is because the money invested is provided for the Current Strategy, namely the holding of classes of assets.
(5) It is notable that clause 11.1 requires Astra to keep records of the value of Eligible Investments, not the amount invested. This suggests there is an obligation to keep a record of the investments that are held in the managed account, and their value, not the amount of the initial cash investment.
(6) Clause 13.2 deals with the continuing right to receive a share of fees. Musst is to be so entitled "for as long as such Eligible Investments in the Current Strategy are maintained". Clause 13.2 expressly refers to the definition of Eligible Investment in clause 3. However, an investment, as defined in clause 3.1, can only be an Eligible Investment if it is for the Current Strategy. The reference to an investment in the Current Strategy could point to a continuing requirement and support Astra's case; or it could point back to clause 3.1, with the place of emphasis in clause 13.2 being on the investor maintaining the investment.
(7) For the purposes of this application, and without expressing a concluded view, it must be more than merely arguable that the term Eligible Investment is used in more than one sense in the Introduction Agreement. It may mean for the purposes of a qualifying introduction of cash, triggering a future right to share fees, merely the initial money investment; and it is later used in the sense of the managed account and the investments (or assets) held within it.
(1) Musst has failed to provide its case on the proper construction of the Introduction Agreement with any degree of clarity and it has no real prospect of success.
(2) Musst mis-states Astra's case when purporting to respond to it.
(3) The amendments lack coherence.
(4) Musst's case on the parties' common intention and assumption, that provides a basis for rectification or estoppel by convention is put in ways that are inconsistent.
(5) The claim in rectification is not adequately pleaded and the claim has no real prospect of success.
(6) The necessary elements of a claim seeking an estoppel by convention have not been pleaded or alternatively the claim has no real prospect of success when the evidential basis for this claim that is relied upon is considered.
"In any event, even if the funds ["Managed Accounts" in the amended reply] in question had ceased to follow the Current Strategy, it is denied that on a proper construction the investment in the fund ceased to be an "Eligible Investment", or that the Claimant's entitlement thereupon and without more came to an end. The Claimant reserves the right to plead further to this allegation upon disclosure and upon receipt of further information."
Amended particulars of claim
Paragraphs 113A to 113G
(1) It is said that paragraph 113A does not accurately reflect Astra's case as to the effect of the Introduction Agreement. Mr Onions QC draws attention to the last part of the first sentence: "even if their managed accounts continued to hold Eligible Investments". He submits that Astra's case is clear that it is the total amount that is contributed to the managed accounts that comprises Eligible Investments and, in any event, Musst's case does not carry with it the requisite degree of conviction. I do not consider there is a basis upon which Astra can object to this aspect of the amendment. On one view, the managed accounts continued to hold Eligible Investments even though the assets no longer met the Current Strategy because they had been Eligible Investments at the outset. Even if it could be said that Astra's case could be summarised in a different way, I do not consider there is a proper basis for refusing permission on the basis of a lack of coherence.
(2) Astra objects to the last sentence in paragraph 113A where Musst states it "pleads below to both on the basis of its own construction and on the alternative basis that [Astra's] construction is correct". Astra says that Musst has not made its construction of the contract sufficiently clear. I do not agree. Musst's case about the proper meaning of the contract emerges with sufficient clarity from the amended particulars of claim and the answers to the requests for information. The fact that Astra will seek to persuade the trial judge that Musst's construction, in light of all the admissible evidence about its context, is wrong is not to the point.
" right to management and performance fees would continue in relation to each Eligible Investment until and to the extent that it (or the asset acquired by it) was sold or converted into a non-Eligible Investment (or an asset acquired by such) (at which point its right to performance fees would accrue as set out in the Contract as it stands)."
"Further, this common intention and assumption is evidenced by the conduct of Octave in continuing to pay management fees to the Claimant up to February 2015, and by Mr Mathur's and Mr Holdom's conduct in procuring Astra LLP and then Astra UK Limited to continue to do so up to May 2016. The reason they did this, it should be inferred, was because they realised that the Claimant's right to fees continued to subsist even if the accounts had ceased to follow the Current Strategy. (For the avoidance of doubt, the Claimant does not accept that the 2B and Crown managed accounts had ceased to follow the Current Strategy by either date.) It is further evidenced by the conversations in April 2015 and June and July 2016 referred to in paragraph 5 of Appendix 1, because the premise of all those conversations was that the Claimant was entitled to management fees and performance fees even though (according to the Defendants' Defence) the managed accounts had ceased by then [to] follow the Current Strategy. It is also evidenced by Mr Holdom's emails to Mr Mathur of 14 June 2016 and 28 June 2016 disclosed by the Defendants and attached hereto, which proceed upon the same premise."
"Accordingly, [Musst] was entitled as against Octave, if necessary, to rectification of the Contract (and of clause 3.1) so as to provide that it was entitled to management and performance fees in relation to each Eligible Investment (or each asset acquired by such) once it had been acquired for a managed account (including those in Crown an 2B's managed accounts) for so long as such investment remained or remains unsold, even if, after acquisition, the managed account ceased to follow or to be for the Current Strategy (whether by reason of a change in strategy, other investments being held in it or otherwise)."
" before a written contract may be rectified on the basis of a common mistake, it is necessary to show either (1) that the document fails to give effect to a prior concluded contract or (2) that, when they executed the document, the parties had a common intention in respect of a particular matter which, by mistake, the document did not accurately record. In the latter case it is necessary to show not only that each party to the contract had the same actual intention with regard to the relevant matter, but also that there was an "outward expression of accord" meaning that, as a result of communications between them, the parties understood each other to share that intention."
" it is fundamental that contractual rights and obligations should be based on mutual assent which the parties have manifested to each other and not on uncommunicated intentions which happen, without the parties knowing it, to coincide."
16-001 "What is rectified is not a mistake in the transaction itself, but a mistake in the way in which that transaction has been expressed in writing."
16-016(c) "Failure to Represent Agreement. There must be clear and unambiguous evidence that the instrument does not accurately represent the true agreement of the parties at the time when it was executed, or at least that it is doubtful whether it does. It is not sufficient to show that the parties did not intend what was recorded; they have to show what they did intend, with some degree of precision."
Estoppel by convention
"Further, for the reasons set out in paragraph 113G of the Amended Particulars of Claim, the Claimant and Octave, Astra LLP and then Astra UK Limited (in each case through Mr Mathur and Mr Holdom) are estopped from denying that once an investment was an "Eligible Investment" (alternatively an asset acquired by such) then it would remain such for the purposes of the Claimant's right to commission under the Octave Contract as long as the investment was maintained by the investor."
" in reliance upon this common intention and assumption [that pleaded at paragraph 113C] shared by each of Octave, Astra LLP and Astra UK Limited, the Claimant (a) arranged its affairs and did not seek earlier clarification of the contract before it was executed, and (b) consented without complaint to Astra LLP and then Astra UK Limited taking on the management of the 2B and Crown accounts, and making payments in place of Octave. Accordingly, it would be unconscionable for either Astra LLP or Astra UK Limited to deny that this common intention and assumption was the effect of the Contract, and accordingly they are each estopped by a conventional estoppel from going back on the same."
"Estoppel by convention may arise where both parties to a transaction "act on assumed state of facts or law", the assumption being either shared by both or made by one and acquiesced in by the other. The parties are then precluded from denying the truth of that assumption if it would be unjust or unconscionable to allow them (or one of them) to go back on it."
" "Communication" passing "across the line". To give rise to an estoppel by convention, the mistaken assumption of the party claiming the benefit of the estoppel must, however, have been shared or acquiesced in by the party alleged to be estopped; and both parties must have conducted themselves on the basis of such a shared assumption: the estoppel "requires communications to pass across the line between the parties. It is not enough that each of the two parties acts on an assumption not communicated to the other". Such communication may be effected by the conduct of one party, known to the other. But no estoppel by convention arose where each party spontaneously made a different mistake and there was no subsequent conduct by the party alleged to be estopped from which any acquiescence could be inferred. An estoppel by convention likewise cannot arise where neither party was aware of the fact on which the alleged common assumption is said to have been based, or where the conduct alleged to have given rise to the estoppel can with equal or greater plausibility be explained on grounds other than that the party alleged to be estopped shared an assumption made by the other party or as amounting to a communication by the former to the latter party."
Declaration concerning performance fees
Declaration about Astra UK's liability to indemnify Astra LLP
(1) The relief sought deals with an issue that is hypothetical. Musst has not alleged that Astra will behave unlawfully and will decline to provide an indemnity. However, it seems clear enough that Astra in saying there is no obligation to indemnify and is saying inferentially that it will not indemnify.
(2) If Musst were to obtain a judgment against Astra LLP, and it is not met, it will be open to Astra LLP to consider whether to pursue a claim against Astra UK for an indemnity.
(1) The relevant parties are before the court; and the court at the trial will have all the evidence of relevant context it needs to resolve the issue of construction.
(2) The point is short one and will not overburden the trial.
(3) Given that Astra LLP is without assets, there is a reasonable likelihood of the question about the indemnity needing to be resolved.
(4) If the issue is not resolved in this claim, it could significantly delay enforcement of a judgment. In practice, the point would probably have to be pursued in Astra LLP's insolvency. That would take some time to resolve and would delay enforcement.