Aymard v Sisu Capital Ltd [2009] EWHC 3214 (QB)

[2009] EWHC 3214 (QB)Case No 1HQ/09/0905
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 15/12/2009
Before
MR JUSTICE HAMBLEN
Between
CEDRIC AYMARDClaimantSISU CAPITAL LIMITEDDefendant
Mr Timothy J Walker (instructed by Howard Kennedy) for ClaimantMr Iain Quirk (instructed by Bingham McCutcheon LLP) for DefendantHearing Hearing dates: 27 November 2009
JudgmentMr Justice Hamblen :The Applications
[1]There are two applications before the Court:(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).

Background

[2]The Defendant is a limited liability company that carries on two types of business:(1) hedge fund, and(2) private equity business. It is the private equity business with which this claim is concerned.[3]The Defendant secures investment capital. It uses that capital to invest in distressed businesses in return for an equity stake. Its plan is to turn around the failing business and then to realise the equity stake at a profit. The investment funds have a lifespan of 8 years, which can be extended to 10 years.[4]The Defendant’s private equity business makes money by:(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.[5]In addition, the individuals who secure the investment and manage the funds can themselves share in the profit. This is done by the formation of a vehicle to receive a share in the profits from the investments. In this case that was SISU Carry Partners LP (“the Carry Partnership”).[6]The Claimant was employed by the Defendant from 6 August 2007 to 6 October 2008 as an Investment Director. This meant that he was responsible for certain companies in which the Defendant’s private equity funds had invested. Those companies are referred to as “Portfolio Companies” and the Claimant was given responsibility for three of them in particular:(i) Gantois, a metal manufacturer;(ii) Nigura Metzler, a designer and manufacturer of sunglasses and spectacles; and(iii) Matt-E Commerce Solutions, a provider of e-commerce finance solutions to businesses and consumers.[7]On 6 October 2008, the Claimant’s employment was terminated by reason of redundancy. He has brought separate proceedings in the employment tribunal for unfair dismissal, due to be heard in February next year.[8]The Claimant was provided with an offer of employment dated 4 July 2007, known as “the Offer Letter”, which provided inter alia that the Claimant was(i) to receive an annual salary of £80,000,(ii) eligible for a guaranteed bonus of £75,000 for the year ended 31 December 2007 and(iii) eligible for a discretionary performance related bonus declared annually in December commencing December 2007. There is no dispute in relation to the payment of those bonuses.[9]The dispute centers on a section of the Offer Letter headed “Carried Interest”. That section reads as follows:
“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.”
[10]The Claimant alleges that the Defendant acted in breach of contract in that it failed to provide the Claimant with a 2.5% share in the Carry Partnership. The Defendant denies that it acted in breach of contract in that, inter alia:(a) eligibility did not mean the Claimant was guaranteed the share – it was dependent on his demonstrating experience and value creation;(b) the Defendant had a discretion as to whether and when to grant the share to the Claimant and there was no breach in the fact that the Claimant had not been granted that share by the termination of his employment; and(c) the Carry Partnership has been dissolved rendering any benefit in the share of no value. However, for the purposes of the present applications the Defendant accepts that the Claimant has a sufficiently arguable case of breach of contract.[11]The original Particulars of Claim served in February 2009 claimed:(1) specific performance requiring the Defendant to grant him a 2.5% share in the Carry Partnership and(2) damages “being the value to him [the Claimant] of 2.5% share in the Partnership”. In its Defence served in April 2009 the Defendant stated that the Carry Partnership was being dissolved and that dissolution was apparently completed in September 2009. In such circumstances the Claimant accepts that it can no longer maintain its claim for specific performance. It maintains its claim for damages, but the Defendant contends that the dissolution of the Carry Partnership means that “the value to him [the Claimant] of 2.5% share in Partnership” is nil and so any claim for damages would be nominal.[12]The Carry Partnership was a vehicle established to receive certain distributions of profits from the Defendant’s private equity funds, known as “carried interest”. Carried interest would only be paid to the Carry Partnership after the investors had been repaid their capital plus a preferred return of 8% cumulative and compounded annually from the date the capital was drawn down (known as the hurdle) and the General Partner a 2% fee.[13]The Carry Partnership was a Scottish limited partnership and governed by a Partnership Agreement (“PA”). The PA was referred to in the Offer Letter in the section quoted above. The PA is subject to Scottish law (PA s.12.02).[14]If the Claimant had been provided with a 2.5% share in the Carry Partnership he would have been bound by the existing terms of the PA.[15]The PA provided in relation to dissolution as follows (PA, 8.02):
“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…”
[16]The terms of the PA further included the following:(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.[17]By clause 4.01 the entity with power to admit a new Limited Partner and to determine that Partner’s profit share was the Investment Manager. Thus, the organisation of the structure was such that the Defendant, as Investment Manager, had the power and authority to grant individuals the right to receive carried interest by admitting them to the Carry Partnership. The Claimant contends that this is what it agreed to do in his case.[18]Once granted, a Limited Partner’s profit share could only have been reduced in limited circumstances as set out in clause 4.03. Those included:(1) Voluntary resignation (clause 4.03(b)), and(2) Termination for Cause (clause 4.01(c)). Neither applies in this case.[19]The Claimant contends that membership of the carry vehicle was the means by which the Defendant was to provide the Claimant with a share of the profits made in the management by the Defendant of the investment funds. It was a benefit of value, albeit a future benefit and contingent on the performance of the various investments. On dismissal (save for cause), it is a benefit that the Claimant would have retained. It will not be known until the investments have run their course whether or not there will be a profit to share. Nonetheless, the entitlement to a profit share had a value and the Claimant claims damages to compensate him for that value.[20]In the light of the fact that the Carry Partnership has been dissolved the Claimant seeks permission to amend his claim to allege certain implied terms, namely: “(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 Defendant i. 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/or ii. dissolved or wound up the carry vehicle and/or iii. 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. i. 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/or ii. dissolved or wound up the carry vehicle and/or iii. 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)[21]On the basis of these implied terms a claim is made for an order for specific performance granting the Claimant “the right to participate in carried interest through any replacement vehicle to the extent equivalent to his rights and 2.5% share in SISU Carry Partners LP.” The relevant principles Application to amend the Particulars of Claim

The relevant principles

[22]In order to succeed in his application to amend the Particulars of Claim, the Claimant must show that his amendments have a real prospect of success. The test to be applied is the same as that in Part 24 (summary judgment): see Oil & Minerals Development Corp v Sajjad [2002] EWHC 1258 and Flexitallic Group Inc v T & N Ltd December 19, 2001, unrep, QBD.

Summary judgment

[23]In order to succeed in its application for summary judgment the Defendant must show “that(a) the claimant has no real prospect of succeeding on the claim or issue;…and(b) there is no other compelling reason why the case or issue should be disposed of at trial.” (CPR 24.2).[24]In relation to both applications the essential question is therefore whether the claim has a real prospect of success. The main difference is who bears the onus of proof. In relation to the application to amend it is for the Claimant to show that the amended claim has a real prospect of success; whereas in relation to the application for summary judgment it is for the Defendant to show that the claim does not have a real prospect of success.[25]The Defendant submits that where a summary judgment application gives rise to a short point of law or construction, the court should decide it. The court should not allow a case to go forward to trial simply because there is a possibility of some further evidence arising. In this context I was referred to ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725, in which the Moore-Bick LJ said:
“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.”

Strike out

[26]The power to strike out may overlap with the summary judgment jurisdiction. The relevant principles in relation to the court’s power to strike out a statement of case (or part thereof) are as follows:(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 3.4.3.4 regarding “Pointless and Wasteful Litigation”). This point was specifically made by Lord Philips MR (as he then was) in Jameel v Dow Jones & Co [2005] QB 946, when he said (at [54]): “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 [2003] 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

The Claimant’s Application to Amend the Particulars of Claim

[27]The principles of particular relevance to the present case are:(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 [1977] 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 [1939] 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.[28]In the recent Privy Council case of Attorney General of Belize v Belize Telecom Limited[2009] UKPC 11 Lord Hoffman emphasized that the essential question is “what that instrument, read as a whole against the relevant background, would reasonably be understood to mean” (at para. 21) and said that the various different formulations which the courts have used all come back to this question and are different ways of saying “although the instrument does not expressly say so, this is what a reasonable person would understand it to mean..” (at para. 25).[29]The Belizecase was considered in the Court of Appeal decision Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc [2009] EWCA Civ 531. In that case it was emphasized that the touchstone remains necessity rather than reasonableness.

Whether the case based on the implied terms has a real prospect of success

[30]The Defendant contends that the implied terms alleged by the Claimant do not begin to satisfy the legal requirements for the implication of terms. They stress the following matters in particular:(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.[31]There is considerable force in these contentions in respect of implied terms (1) and (3).[32]In particular, implied term (1) confuses the Defendant’s role as employer and as Investment Manager. As the Investment Manager of the Carry Partnership the Defendant had an unfettered discretion to dissolve the Partnership. It also had a duty to consider and act in the interests of the Carry Partnership and all its partners, not just the Claimant. Further, the term alleged is very broadly drawn. It would mean that any dissolution of the Carry Partnership would involve a prima facie breach of the employment contract, however justified or necessary.[33]As to implied term (3), this is a convoluted provision that involves substantial and difficult drafting. Such a complex and uncertain provision is not the appropriate subject matter of an implied term. In particular, the Defendant could not “ensure” that the Claimant would be entitled to participate in any replacement vehicle. It might have been removed as Investment Manager, it could not prefer the interests of the Claimant over other partners, and it could not dictate the terms of any new partnership agreement. Further, it is difficult to see how it could do so “to the extent equivalent to his rights”. How are the Claimant’s rights to be evaluated and how is equivalence to be determined? It is imposing an unclear and unworkable obligation on the Defendant to make a further agreement for the Claimant’s benefit. Nor is the position improved by the addition of the words “or otherwise”; this simply adds to the uncertainty as to the content of this alleged positive implied obligation.[34]The Claimant’s essential point is that it would be unfair if he was deprived of his contractual entitlement to a 2.5% share in the Carry Partnership by the simple expedient of the Defendant dissolving the Partnership. However, the touchstone is necessity not fairness or reasonableness. I see no necessity for alleged implied terms (1) and (3). The employment contract can work without them and the existence of such terms would cut right across the contractual regime of the PA. Nor do I consider that they are terms which are so obvious that they go without saying or that they clearly represent what a reasonable person would understand the contract to mean.[35]As acknowledged by the Defendant in oral argument, there is more to be said for implied term (2). It is common for a contractual discretion to be subject to an implied requirement that it be exercised in good faith, even if the discretion is drawn in broad terms. Whilst it is correct that the Claimant’s right to his 2.5% share was to be subject to the terms of the PA, which included the right of the Investment Manager to dissolve the Carry Partnership, it is at least arguable that that right of dissolution had to be exercised in good faith. If so, it is a short step for protection to be provided for in the employment contract itself against the right being otherwise exercised. If not, it would be open to the Defendant to dissolve the Carry Partnership for the sole purpose of depriving the Claimant of his share, a result that might well surprise the officious bystander as well as undermine the efficacy of the contractual scheme for the grant of such a share. I am accordingly satisfied that this implied term is sufficiently arguable to satisfy the test of real prospect of success.[36]However, at the time of the hearing there was no pleading of breach of any such term and so it appeared academic. Nevertheless, as explained below, the Claimant has since amended to allege such a breach. Summary Judgment and/or Strike Out Application The Original (Un-amended) Claim

Summary Judgment and/or Strike Out Application

[37]The Claimant’s claim as originally pleaded sought(a) specific performance by means of granting to him a 2.5% share in the Carry Partnership; or(b) damages.[38]Since the Carry Partnership has been dissolved, specific performance is impossible and it is accepted that such a claim has no prospects of success.[39]As to the damages sought in the un-amended claim, the Defendant contends that:(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.[40]For those reasons, the Defendant submits that the damages claim would be an abuse of process since it would be pointless and wasted litigation, involving huge expense and returning no benefit, and the court should accordingly strike that claim out.[41]During the course of the oral argument it became apparent that the Claimant’s case on damages was that although it was acknowledged that as a matter of fact the dissolution of the Carry Partnership would render any share the Claimant had been granted valueless, the Defendant could not rely upon its dissolution of the Carry Partnership to extinguish the Claimant’s claim because that dissolution was wrongful. Since this was not pleaded I required the Claimant to particularize its damages claim and any further actual or putative breach of contract relied upon.[42]The Claimant then put forward the following proposed amendment: (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.”[43]The Defendant responded with detailed submissions criticizing this further draft amended pleading. Whatever criticisms may be made of parts of the detail of the draft pleading, its essential premise is that where a contract breaker seeks to rely on subsequent events to extinguish or reduce the damages claimed he cannot do so if that event is the consequence of his own breach of contract (or what would have been a breach of contract had the contract been continuing). I consider that is an argument which has real prospects of success. In considering what the position would have been if the contract had been performed it is well arguable that the innocent party is entitled to assume continuing compliance with the contract for the purpose of the valuation of the right which he has lost and the assessment of his damages.[44]Even if that were so, the Defendant strongly disputed that a sufficiently cogent case of bad faith had been made out on the pleading/evidence. The evidence of the Defendant’s solicitor, Ms Harrison, was that the reasons for the dissolution did not relate to the Claimant, but were:(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.[45]The Claimant questioned whether the second and third reasons made dissolution of the Carry Partnership necessary, and suggested they could be dealt with by amending the terms of the PA. It was not in a position positively to challenge the first reason, but there has been no disclosure relating to it, or in relation to the dissolution generally.[46]The thrust of the Defendant’s pleaded case on bad faith is tied up with its case on breach. Having made what are said to be unjustified excuses for failing to admit the Claimant to the partnership it resolved to ensure that any claim for damages was shut out. This is said to be supported by the timing of the steps taken to dissolve the partnership, which shortly followed the Claimant’s statement that it would be taking proceedings.[47]In my judgment, despite the seriousness of any allegation of bad faith and the need for cogent evidence, the Claimant has made out a sufficient case to satisfy the test of real prospects of success. The issue of breach is an evidential matter and the most relevant evidence lies with the Defendant. I do not consider that the Claimant should at this stage be shut out from pursuing his case on the basis of the limited evidence so far made available. It has raised an arguable case on the pleadings and should be allowed to pursue that case further.[48]I therefore conclude that the Claimant has made out a sufficiently arguable case that the dissolution of the Carry Partnership involved or would have involved a breach of implied term (2). In those circumstances it is well arguable that the Defendant cannot rely on the dissolution to reduce or extinguish the damages otherwise payable. Those damages remain the value of a 2.5% share in the Carry Partnership at one of the dates relied upon by the Claimant as the relevant date of assessment.[49]Although the Defendant submits that there is no real prospect of that share ultimately having any financial value that is essentially an evidential matter which is likely to require expert evidence and the claim now includes a claim for loss of a chance.

Conclusion

[50]As to the application for permission to amend, in the light of the revised amended pleading I accept that a sufficiently arguable case has been made out in support of implied term (2) and the amended damages claim. I do not accept that a sufficiently arguable case has been made out in support of implied terms (1) and (3) and the application for permission to amend in relation to those terms is refused – that is paragraphs 4(2), 4(4) and 13(2) of the draft amended pleading. Subject to any points of detail which the Defendant may wish to address, permission in respect of the other amendments is granted.[51]As to the application for summary judgment/strike out the application, this is granted in respect of the claims made for specific performance, but not otherwise.[52]Although the Defendant’s application has not been completely successful, it has served to narrow the issues and to identify clearly what needs to be proved if the Claimant is to make good his claim.