England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		23 October 2014

David Donaldson Q.C:

Introduction

1. This action concerns a limited liability partnership ("the LLP"), the First Defendant, incorporated in August 2007. The founder members were replaced as Members on 18 September 2007 by the Claimant ("Mr Archer") and the Second Defendant ("Mr Agyare") and a Corporate Member, joined by the Third Defendant ("Mr Enti") on 10 April 2008. All three non-corporate members were stipulated to be Designated Members.
2. The LLP was governed by a partnership agreement ("the LLP Agreement") dated 9 May 2008 (amended on 1 November 2008), under which, while the capital of £630k was to be provided solely by Mr Agyare, the Members' proportionate interests were fixed at 65% for Mr Agyare, 20% for Mr Archer and 15% for Mr Enti. Profits, after reserving for current or anticipated liabilities, were to be divided as to one-half in these proportions, and as to the remainder in such proportion as the Designated Members might determine based on the overall performance of each Member, each of whom (other than the Corporate Member) was required to employ himself in the business of the LLP and devote such time and attention thereto as that might require.
3. The sole function of the LLP was to act as the sub-manager of a hedge fund incorporated in the Cayman Islands as Nubuke Africa Multi Strategy Master Fund Limited ("the Fund") and run by Nubuke Africa Multi Strategy Fund Limited ("SFL"), a company also incorporated in the Cayman Islands. Investors would subscribe for shares in SFL, which would use those investments to acquire shares in the Fund^[1].
4. The manager of the Fund was Nubuke Investments (Cayman) Limited ("the Manager") under a Management Agreement dated 19 May 2008 with the Fund. That agreement entitled the Manager to fees (other than in respect of Class M shares) of (a) management fees equal to 2% of the assets under management ("AUM"), and (b) performance fees equal to 20% of investment gain above acquisition cost or subsequent high-water mark. Though the Management Agreement was terminable on 90 days' notice, the Manager held all the voting shares in SFL and thus an effective veto on any termination.
5. A Sub-Management Agreement dated 19 May 2008 ("the SMA") governed the relationship between the Manager and the LLP. The latter was to provide analytic evaluation and advice to the Manager and be responsible for marketing and selling to potential investors in the United Kingdom (and was accordingly subject to regulation by the FSA in the United Kingdom), other sales being left to the Manager. In return for these services Clause 5 of the SMA provided that

the Manager shall pay to the Sub-Manager (i) an arms-length remuneration for its services which is in line with the transfer pricing study conducted by the Sub-Manager and (ii) its reasonable out-of-pocket expenses incurred on behalf of the Manager (and/or the Master Fund) including but not limited to any costs incurred in the marketing of Shares within the United Kingdom in accordance with clause 2(f) and such other expenses as may from time to time be agreed between the Manager and the Sub-Manager".

In practice, as I understand it, all the investment analysis and execution was done by the LLP in London. Clause 7 provided that after the first year the SMA could be terminated by the Cayman Manager on three months' notice.

6. These arrangements came into being as the result of discussions between Mr Agyare and Mr Archer, and to a lesser extent Mr Enti, beginning in about August 2006. At that time Mr Agyare was, as he had been since 2001, head of the Europe, Middle East and Africa division for UBS Investment Bank, where he remained until late 2007. Mr Archer was an analyst in Matterhorn Investment Management LLP. He had moved to London in 2004 from New York, where he had graduated, trained, and latterly worked as an analyst for JP Morgan in its emerging market equity fund. Mr Archer left Matterhorn in October 2006 and embarked on the various tasks, legal and commercial, necessary to put the arrangements in place for the operation of the Fund. It was clear that the funding for the start-up of the venture would come, as in the event it did, from Mr Agyare alone.
7. Office premises of over 3,000 square feet were acquired in Mayfair, and a team of five analysts employed to supplement the three members of the LLP. The Fund was launched on 3 June 2008. World economic conditions made the timing highly unfortunate. The Business Plan, drafted by Mr Archer , had envisaged a launch with $250-$300 million AUM, which would have covered the first year's operating expenses, with a soft close of $500 million. Instead, however, the AUM at launch had only some $55 million AUM, which fell to $10.5 million by April 2009, as a result primarily of extensive redemptions. At the same time, the LLP had disproportionately high operating costs, which Mr Agyare set out to reduce drastically. In mid-2009 he succeeded in cancelling the lease of the office premises (though at a certain cost) in favour of much more modest accommodation. Seven employees were made redundant. Three of them became Members and continued to work without taking any drawings, as did the existing Members. Expensive contracts with e.g. Bloomberg and Beauchamp (a provider of portfolio management software) were terminated. Since there was no significant increase in AUM, even these steps were insufficient to eliminate on-going losses. In the 15 months ended 30 November 2008, the loss was £1,452,967 and in the year to 30 November 2009 there was a further loss of £1,082,366. They were covered by loans from Mr Agyare to the LLP. The LLP was also assisted by the agreement of its largest investor to pay management fees on his M shares.
8. Until then Mr Archer had been receiving monthly payments from the LLP at a rate of £100,000 per year and shown (rightly or wrongly) as an employee. It was agreed at a members' meeting on 2 April 2009 that this should be reversed, enabling the LLP to recover the PAYE from HMRC, and the balance of £61,899 would be treated as drawings but only repayable out of future profits^[2].
9. Following discussions in June 2009 there was correspondence with a view to a parting of the ways with Mr Archer. The documentation on its face suggests that by his countersignature of a letter of 3 July 2009 Mr Archer resigned as a Member of the LLP, and the LLP notified the FSA to that effect on 4 August 2009. There was however disagreement over the content of a settlement deed to implement the terms of that letter, and matters moved to a different route. On 12 February 2010, a resolution was passed removing Mr Archer as a designated member. On 24 February 2010 Mr Archer was given notice that, pursuant to a resolution of the designated members dated 16 February 2010, the designated members required him to resign as a member of the LLP by 5 March 2010. His failure to comply with this requirement empowered the Members to expel him under clause 23.1(h) of the LLP Agreement, and his expulsion with effect from 31 March 2010 was notified to him by letter dated 23 March 2010. The validity and effectiveness of this process was not contested before me.
10. Expulsion as a Member triggers the application of Clause 15 (headed "Transfer of Member's Interest – deemed transfer") under which any Designated Member can give a notice on behalf of the expellee (if the latter does not do so himself) which is treated as a Transfer Notice in respect of the expellee's interest and subject to Clause 13 and 14 of the Agreement. Such a notice was given on 14 April 2010.
11. Under Clause 13.3 no interest can be sold or transferred unless and until rights of pre-emption set out in Clause 14 have been exhausted. These require the interest to be offered first (by the Designated Members) to the other Members once "the prescribed price has been fixed in accordance with Clause 14.7". Clause 14.7 provides that:

"The prescribed price of any Member's Interest for the purposes of Clause 14 shall be either (a) such sum as shall match any bona fide offer for such Member's Interest from an unconnected party capable of completing the purchase or (b) (if there shall be no offer as aforesaid) such sum as may be agreed between the Vendor and the Designated Members or, in default of such agreement within 30 days of the date of the Transfer Notice as the auditors shall within 7 days of the expiry of such period of 30 days certify in writing to be, in their opinion, having taken all relevant circumstances into account the fair selling value thereof as between a willing vendor and a willing purchaser. In so certifying the said Auditors shall be considered to be acting as experts and not as arbitrators and their decision shall be final and binding on the relevant parties. For the purposes of any such certificate or valuation the Vendor and the Designated Members shall permit the Auditors to have access to such information as they may consider reasonably necessary in order to give their certificate."

There was some debate before me as to the temporal relationship between the two possibilities (a) and (b) in Clause 14.7, though – rightly - with no or no real suggestion that it might impact on the final result in the circumstances of the present case. In the circumstances it is sufficient simply to record my view that an offer under (a) would be relevant only if made before the Auditors issue a valuation under (b).

12. Mr Archer himself made significant efforts to find a purchaser for his minority interest through personal contacts, as evidenced in numerous emails in the documents before me. In addition, he signed up to secondmarket.com, a website run by Mr Warren Ton, to whom he provided a certain amount of information. These activities produced only two "results", neither of which was an unconditional offer. The first expression of interest, with an indication of $720,000, came on 14 May 2010 from Cayuga Advisors LLC ("Cayuga") through Sapien Capital ("Sapien"), both entities unknown to Mr Archer. The second, with an indication of £810,000, came from Camelot Group International LLC ("Camelot")^[3], whom Mr Archer had approached directly, though not having had any previous dealings with them. Both stipulated that they would require to do due diligence. Neither matured into any offer. Mr Archer's case is that this was the result of lack of co-operation by the LLP and Mr Agyare and Mr Enti in the provision of information to Cayuga and Camelot in breach of what he contends were their obligations under the Agreement.
13. At the same time, matters were advancing as regards a valuation for the purposes of Clause 14.7(b) by the auditors, Gerard Edelman. They were approached to this end by the LLP and the matter assigned to Mr Ajay Shah. Written instructions for the valuation were sent on 19 May 2010, following the elapse of 30 days from the date of the Transfer Notice. On 8 June 2010 Mr Shah issued a valuation of nil: in doing so he adopted a price/earnings approach but assessed the LLP's maintainable earnings as zero in the light of its historic losses and the loss budgeted for the current year. It is not suggested that this approach was not properly open to him, even though Mr Archer would have favoured a much more generous approach to future earnings focussed in particular on detailed analysis of the Fund's growth prospects.
14. On 10 June 2010 the interest was offered to the Members at the price of £nil determined by Gerald Edelman's valuation. On 11 June 2010 Mr Agyare confirmed his willingness to purchase the interest for £1, and the Designated Members thereupon allocated it to Mr Agyare. On failure of Mr Archer to transfer the interest the LLP on 5 July 2010 appointed (under Clause 14.3) Mr Enti to execute the transfer to Mr Agyare, and the transfer was effected.
15. Mr Archer's pleaded case raises certain matters said to invalidate the valuation. The significance of such a result, as it emerged after some clarifying debate, is severely limited. Counsel for Mr Archer identified it solely as postponing to the date of actual transfer around 5 July 2010 the time when the price could be fixed by an unconditional third party offer, an extension of about 4 weeks. Since I do not consider that this would have changed the likelihood of such an offer, or its amount, I will do no more than indicate the nature of these matters, and my conclusion on them, without descending into detail.
16. Firstly, the purported appointment of Gerald Edelman as auditors on 19 January 2010 by Mr Agyare and Mr Ndungu^[4] was ineffective, since Mr Archer was still at that time a Designated Member (and Mr Ndungu was not) and Mr Archer was given no notice of any meeting to appoint Gerald Edelman. None of that is in issue, but the Defendants (a) rely on subsequent ratification by the LLP since Mr Archer ceased to be Designated Member and (b) further argue that Mr Archer is estopped from disputing the power of Gerald Edelman to act in the valuation by himself participating in the process. I regard both these contentions as well-founded. In brief:

(a) The 2009 accounts were prepared by Gerald Edelman, approved by the members, and signed on their behalf (as required by statute) by a Designated Member. That was an implicit recognition of the role of Gerald Edelman as auditors. Adding precautionary belt to braces the LLP also formally ratified the appointment by resolution on 10 July 2014.

(b) In a letter from Mr Archer to Gerald Edelman 28 May 2010 he stated:

"Given my reservation about your impartiality, I would remind you and your colleagues that as the auditors appointed by Nubuke, you have a legally binding responsibility to produce a fair, unbiased valuation utilizing a suitable methodology."

This indicates an acceptance of their role as auditors and valuers, albeit with reservations as to their impartiality and proposed methodology.

17. Secondly, it is alleged that the "methodology" (or approach) adopted by Mr Shah was not that which he considered appropriate and was followed solely on the instructions of the Defendants. This suggestion is based on remarks made by Mr Shah in an email to Mr Ndungu on 4 May 2010 reacting to a letter of 23 April 2010 from Mr Archer. The latter had there urged Mr Shah to use what Mr Archer called "the industry's conventional methodology which incorporates expected future fund inflows (AUMs), investment returns and consolidated operating profitability" and value his equity "entirely on the expected earnings generated by the Nubuke Multi-Strategy fund". Mr Shah commented on this:

"Considering Ian's letter, in my opinion … what is now required is more than a desktop valuation and an independent expert with the specialist knowledge and valuation skills relevant to your industry should be used. The reason for this is that Ian is requesting an industry conventional methodology be used for the valuation. This will require access to the underlying investments' return, profitability and an actual understanding of the nature of the investments himself from which the LLP is receiving income. The basis of the valuation also needs to be agreed with Ian. I however do warn you that this is likely to be expensive. Should you wish to be in touch with a valuations expert please do not hesitate to contact either Stuart or myself."

The response of the LLP was that Mr Shah should proceed as he had intended, described earlier in his letter as taking for maintainable earnings the average of the previous periods' historical profit and loss and one year's forecast results; and if Mr Archer required anything more he should pay for it himself. Contrary to the submissions on Mr Archer's behalf, Mr Shah was in my view doing no more than opining and advising that if the parties were to agree to adopt Mr Archer's approach it would be expensive and require the appointment of a valuations expert with specialist knowledge and skills relevant to the industry. I do not read the letter as abandoning Mr Shah's existing view of the appropriate methodology, which, as he told me and I accept, he had formed independently of the LLP.

18. Thirdly, it is contended that the absence of the word "certify" from the valuation document invalidates it for the purposes of Clause 14.7. Its omission by Gerard Edelman was deliberate and reflected their view, shared by many accountants, that its inclusion is inappropriate in the case of an opinion involving the exercise of judgment. I do not consider that Clause 14.7 requires the use of that specific word. In the context of a valuation in which the element of opinion is significant, I regard the clause – and in particular the word "certify" - as concerned only with the provision of a formal written statement of that opinion, which Mr Shah's document undoubtedly was.

Some further detail

Cayuga

19. On 14 May 2010 Fladgate, Mr Archer's solicitors, emailed the LLP's solicitors, Denton Wilde Sapte, with the bald information that their client had "received an offer for his interest", asserting that accordingly the alternative process under Clause 14.7(b) would not be applicable. While that email was therefore positing a full unconditional offer, it was followed by another some minutes later stating that Cayuga had "offered" $720,000 "subject to contract and due diligence".
20. In reply on 17 May 2010 Dentons pointed out that any offer had to be "a bona fide offer … from an unconnected party capable of completing the purchase" and asked for (a) a copy of the offer letter (b) information as to the identity of the offeror, Cayuga, including the identify of its shareholders/investors and directors (c) evidence that Cayuga was capable of completing the transaction at $720,000. They went on to say that since they had presently no evidence of a compliant offer, they were instructing the auditors to prepare the valuation. In response, Fladgate provided no such material and indeed asserted that the LLP was not entitled to demand proof of these matters. In addition, they intimated that Cayuga would like to progress its due diligence by "speaking to your clients" within the next 7 days.
21. In response by letter dated 19 May 2010, Dentons said that, though they had received no evidence that a compliant offer had been made, the LLP was prepared to allow Mr Archer an extension to 27 May 2010 to obtain such an offer. It was also ready to enter into discussions during the extension once the requested information had been provided by Cayuga and to disclose financial information, provided that Cayuga had entered into a confidentiality agreement with the LLP.
22. On 25 May 2010 Dentons received an email from Sapien, claiming to have been retained by a potential offeror (not identified but in fact Cayuga) to perform due diligence and attaching a substantial due diligence questionnaire. It covered uniquely the affairs of the Fund. They replied reiterating the preconditions for discussion and provision of financial information. Nothing further was heard on this front.

Camelot

23. On 26 May 2010 Fladgate notified Dentons by email that there was now "an offer from Camelot LLC for £810,000". A letter dated 27 May 2010 from Camelot to the LLP rightly omitted any reference to an "offer". Self-described as a letter of intent which would not create a binding contract, it set out "a statement of interest and the basic terms on which we would be prepared to purchase the Interest", adding that they were not comprehensive and would no doubt be supplemented in a formal agreement to be negotiated. The proposed bid was also made expressly "subject to customary due diligence". It was further made expressly conditional on (a) full access by Camelot to all documents pertaining to the operations of the LLP and the purchase of Mr Archer's interest (b) review and approval of all materials in the possession and control of the "shareholders" (c) a reasonable opportunity for Camelot and its solicitors to perform reasonable or customary due diligence (d) a reasonable opportunity for Camelot and its accountants to review the LLP's audited financial statements including its tax returns.
24. On 1 June 2010 Dentons replied to Camelot that the period in which a compliant offer had to be received had expired on 17 May 2010. Given the extension which Dentons had intimated to Fladgate on 19 May 2010, this may have been an error for 27 May 2010, but in either case the deadline had passed. The matter went no further.

Information provided by the LLP to Mr Archer

25. In a letter dated 23 April 2010 Mr Archer concluded by requiring the provision of eight categories of information. Much of this was provided by attachment to a letter in response dated 6 May 2010 sent by Denton to Fladgate. A complaint of inadequacy was made by Fladgate on 10 May 2010 with a request for more information, provoking a response coupled with the provision of further information and material on 12 May 2010. In Paragraph 15 of the Particulars of Claim it was alleged that two categories of information and documentation were omitted from this response, of which it is now accepted that the allegation in respect of the first category was incorrect. That leaves only the second category, consisting of "any performance attribution data, which would have been available to the LLP on request without charge from its prime broker or fund administrator".
26. The data in question, as it was explained to me, would show the contribution on a moving basis of various shares or assets to the overall performance of the Fund. While raw data of relevant prices from time to time were available (and perhaps even in the public domain), they could, as I was told by Mr Udungu and accept, only be converted into performance attribution data by the use of a software programme or module which, since the termination of its agreement with Beauchamp, the LLP was no longer able to deploy.

The claim

27. Having recited the matters which I have sought to summarise, the Particulars of Claim sets out in Paragraphs 24 to 28 the breaches of contract which they are alleged to constitute.

(a) Breach of implied terms

28. The first basis for the claim is premised on two suggested implied terms set out in paragraph 7 of the Particulars of Claim, namely that the Designated Members and the LLP, would

(a) permit the unconnected party access to such information as was reasonably necessary in order to allow it to conduct due diligence ("the Due Diligence Implied Term"); and

(b) do nothing to obstruct or prevent such access to such information ("the No Obstruction Implied Term").

For ease of exposition, and since the second is plainly dependent on the existence of the first, I will refer to both conjointly as "the implied term".

29. Paragraphs 24 and 26 of the Particulars of Claim plead in effect no more than that the LLP and the Second and Third Defendants breached the implied term. While the pleading can perhaps be taken as not restricted to the matters in Paragraph 15 (to which I referred earlier), it gives no indication as to what material or information of significance was thereby denied to Cayuga or Camelot. In the event, in the light of what follows, it is not necessary to explore the implications of that omission.
30. On behalf of Mr Archer it is submitted that implication of the term is necessary to give business efficacy to the LLP Agreement. Modern jurisprudence has robbed this and other venerable tests (such as reaction to the officious bystander) of their former iconic status, and I direct myself instead by reference to the observations in AG of Belize v Belize Telecom [2009] 1 WLR 1988:

"[I]n every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer—the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on—but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"

31. Counsel for Mr Archer submits that the whole of Clause 14.7 is aimed at reaching a market price for the share in the LLP. That is the overt basis for a valuation by the auditors (under (b)), and must – it is submitted – also be what is aimed at by the alternative of a third party offer (under (a)). For this purpose, it is necessary – so the submission continues – for the third party to be given access to all material which may be relevant to his decision. I consider this argument neither compelling nor convincing. If no third party is prepared to proceed without due diligence and on the basis of public-domain and/or non-confidential material alone, the departing member is guaranteed that price will be fixed by a market valuation by the auditors.
32. The content of the proposed implied term is highly problematic. It is not restricted to the provision of identified categories of information which might be thought objectively relevant to a purchase decision. It is rather to permit due diligence. That is an expression which is used in the negotiation of mergers and acquisitions to describe access to and examination of documents and accounts often accompanied by interrogation of management and personnel in the target entity or business. By its nature, there is neither need nor basis for any closer definition. In particular, it does not involve any rights or obligations, let alone tied to particular categories of information or documentation. The potential acquirer asks, demands, and requires according to its own wishes; the target can equally co-operate or refuse on any point according to its interests and inclinations, albeit at the risk that the potential buyer may pull out of the negotiations or seriously reduce any offer which it might otherwise have made. The concept is thus effectively empty of any meaning suitable for adoption as the content of an implied term^[5].
33. In the present unusual context, not only there would be no right of refusal to comply with any due diligence request. The corresponding obligation to co-operate and reveal its documents and information would also under the implied term be imposed upon the LLP, which is not even the potential vendor and has no financial interest in the outcome.
34. The suggested term would further commit the LLP to permit due diligence to be conducted by, and provide undelimited material and information to, all who intimate a desire to carry out due diligence with a view to possibly making an unconditional offer. Some or all such persons might be unknown to the LLP and/or actual or potential competitors of the Fund.
35. Counsel for Mr Archer sought to palliate the unconfined and uncertain nature of his implied term by suggesting that the LLP could refuse any request which was unreasonable. This would raise further problems, such as: reasonable from whose point of view? by reference to what considerations? Resolution of the disputes which such an exception might readily engender would be potentially incompatible with the rapid time-table to fix a pre-emption price set out in the LLP Agreement. The suggested exception would therefore add further imponderables to the already unsatisfactory implied term, and thereby, if anything, increase the implausibility that the parties to the LLP Agreement could have intended to include such a provision.
36. Counsel also suggested that, in the light of his suggested reasonableness exception, it would not be a breach of his proposed implied term if access were denied to a suitor who failed to sign a confidentiality agreement. Not only does this raise, without answering, the obvious question as to what the LLP could insist on including in such an agreement. More fundamentally, the present case differs from a typical M & A purchase where the vendor can decide whether he wishes to disclose confidential material to any particular suitor, even under a confidentiality agreement. There may be many cases where the signature of a confidentiality agreement could quite properly be regarded as not overcoming legitimate doubts or concerns on the part of the target, or in this case the LLP, as to the potential use or abuse of any material or information passed to the suitor.
37. In short, the attempt to transplant due diligence from M & A operations to the present quite different situation is ill-conceived.
38. Having regard to all these matters, I am wholly unpersuaded that it is appropriate to imply either of the terms pleaded by Mr Archer, and indeed satisfied to the contrary.
39. Even if I had taken a different view:

(a) I would not have implied a term which did not incorporate an exception permitting a reasonable refusal. That would in my view have extended in the circumstances of this case at least to the insistence on a confidentiality agreement. In principle, also, that exception should operate where due diligence was refused until the provision of information reasonably required for the LLP to satisfy itself that the "offeror" was bona fide, unconnected and capable of completing any contract^[6]. The present case, as regards both Cayuga and Camelot, would appear to fall within these exceptions.

(b) I would not have regarded any obligation of the LLP (or the Members) as extending to any confidential material or information which belonged to the Fund. It would be wrong to imply a term which involved a breach of fiduciary or contractual duty to the Fund on the part of either the LLP or the Manager. It would therefore have been necessary to consider whether the absence of such material and information would without more have prevented the making or reduced the level of a potential offer by Cayuga and Camelot, even if everything else had been provided to them.

(b) The express term of utmost good faith

40. Clause 19.1(d) of the LLP Agreement requires the Members at all times to

"show the utmost good faith to the LLP and the other Members in all transactions relating to the Business and affairs of the LLP and give the LLP a true account of all such dealings."

41. This obligation is alleged (in Paragraph 26 of the Particulars of Claim) to have been breached by the Second and Third Defendants by denying Cayuga and Camelot access (or procuring the LLP to deny access) to due diligence material and information.
42. I do not, however, regard that as covered by the words "transactions" or "dealings" "relating to the Business and affairs of the LLP". The clause is in my view addressed rather to the fiduciary obligations which partners owe to each other, and, in the case (as here) of an LLP, to their corporate embodiment, in the conduct of the partnership's business. A potential offer to purchase the interest of a Member is not related to such business or affairs.
43. Even if that were wrong, I do not consider that good faith would require Members to procure the LLP to provide material and information sought as part of due diligence by a third party potential offeror, or (as suggested on behalf of Mr Archer) to provide such material and information themselves when it belongs to them personally rather than to the LLP.
44. If that in turn were also incorrect, it could not be right that every refusal to provide access, documents or information would automatically be a breach of good faith, as the concession of a "reasonableness" exception defence to the proposed implied term only confirms. There is no reason why that should not similarly apply also in this context, and I repeat the comments in Paragraphs 39(a). The observations in Paragraph 39(b) as regards material and information belonging to the Fund would also be applicable.
45. The suggestion of breach of the good faith term is not improved by its reformulation in Paragraph 28 of the Particulars of Claim as refusing to give Camelot a reasonable time in which to carry out due diligence. The same considerations apply, and with the same results.

Rejection as out of time

46. It is alleged that the LLP was in breach of Clause 14.7 in failing to consider Camelot's offer on the basis that it was out of time. The short answer is that it was never faced by an offer as opposed to a mere statement of interest subject to contract and due diligence.

Causation and quantum

47. My conclusion that no case of breach of the LLP Agreement has been made out makes it unnecessary to consider questions relating to causation and quantum of any loss, and I will therefore express my views and conclusions in more abbreviated form than might otherwise have been the case. I have however had regard to all the arguments advanced before me, even where they are not explicitly addressed.
48. The claim is advanced on the basis that as a result of the alleged breaches Mr Archer was denied the chance to sell his interest for a price which an unconnected third party would have been prepared to pay for it in June 2010. Given that the pleaded breaches relate only to Cayuga and Camelot, I do not have to consider any other possible third party; nor on the evidence before me would there be any basis for doing so.
49. Where the alleged loss depends on the hypothetical action of a third party, the court is required (see Allied Maples v Simmons & Simmons [1995] 1 WLR 1602), to determine whether in the hypothetical or – in modern jargon – counterfactual world conditioned on non-breach there was a real or substantial, as opposed to a speculative, chance that the third party would have acted as contended by the claimant. If that causative threshold is crossed, the court will proceed to value that chance by reference to the benefit which the claimant would have derived from the third party's action discounted to reflect the degree of likelihood that the third party would have so acted.
50. In the present case, the counterfactual scenario is uncertain not only as to whether Cayuga or Camelot would, having been afforded and carried out their due diligence, have produced a compliant bid before the auditors issued their valuation on 8 June 2010. The uncertainty extends also to the level of any such bid. That leads to a further problem. Each possible level of bid would carry with it its own percentage chance of eventuating. Logic should dictate that these should be all summed together to produce a single figure, but where the different possibilities are numerous this would be an unrealistic (and perhaps often impossible) course to impose on the court. Faced with a similar problem in a claim for solicitor's negligence, Jack J held in Browning v Brachers [2004] EWHC 16 (QB) at [20] and [21] that the court should determine the figure which "it is most probable that the claimant would have recovered", by which he meant "the figure more probable than any other figure", and then discount it to reflect the degree of likelihood that there would have been any recovery. The Court of Appeal in the same case, [2005] EWCA Civ 753 at [204] to [212], regarded this approach as legitimate (if not uniquely so), provided that due regard is paid to the principle in Armory v. Delamirie (1722) 1 Stra 505^[7]. I observe only that while this mode of proceeding may provide a tolerable approximation to accuracy where the line of probability plotted against level of bid is a narrow bell-curve, the justice may become disturbingly (and perhaps in some cases unacceptably) rough as that line flattens out and call for some adjustment or supplement to the approach.
51. Before me, the argument initially proceeded sub silentio as if the court was charged with determining the market value of Mr Archer's 20% share, and indeed expert evidence was adduced on both sides addressed to that question. My task however, as I understood both parties eventually to have agreed, is not to determine what a willing vendor and purchaser would have agreed, but to consider and evaluate the chance that Cayuga or Camelot would have made a compliant offer before 8 June 2010 and, if so, at what level. The concept of a willing vendor does not feature in this determination, since there was none. The only constraints against a low offer by the third party might have been the awareness that such an offer might increase the possibility of a pre-emption, if it was aware of that, or if it was concerned about what another third party might offer, and in the absence of any evidence from (or even about) Cayuga or Camelot I cannot form any sensible view whether any such constraint would have been experienced by either in the present case.
52. The expert evidence was therefore of severely limited assistance. At best it helped to draw my attention to certain facts which, as common sense would in any event have suggested, would be likely to have been of interest or concern to a bidder motivated by rational financial and commercial considerations – which appears to me the appropriate profile to ascribe to Cayuga and Camelot in the absence of any evidence to the contrary, and I understood to have been espoused by both sides before me. I do not therefore need, nor intend, to review or analyse the views expressed by the experts. I record merely that, had it been relevant, I would have found it impossible to accept most of the reasoning and opinions advanced and expressed by the expert called by Mr Archer.
53. For the purposes of my evaluation I assume, on the counterfactual basis of no breach, that Cayuga and Camelot would have received all relevant documentation and information which a rational offeror conducting due diligence would have sought.
54. In doing so they would have been confronted by a great deal of negative information, of which I will list only those elements and features which appear to me most significant.

(a) The 20% interest carried an automatic right only to 10% of net profits. Any increase would dependent upon a majority vote targeted on performance. A sleeping partner, as corporate entities such as Cayuga or Camelot would presumably be, could not count on more than the 10%.

(b) The net profits for distribution were to be after reserving for current and future liabilities. There were large outstanding liabilities to Mr Agyare in respect of the monies injected by loan.

(c) The business had made large losses in the two completed years. The budget for the current year (after appropriate corrections) also anticipated a loss.

(d) In consequence, the LLP would require further financial support, but the source of that support, Mr Agyare, had no obligation to continue.

(e) Though in the last year the value of shares in the Fund had risen handsomely, in large part that did no more than recover the dramatic fall in the previous year. Such a "bounce-back" could not reliably be projected forward. Nor would it in itself reveal a track-record testifying to excellent skills in asset selection, contrary to the view which Mr Archer advanced with some vigour in correspondence and evidence, claiming further that as portfolio manager he was personally responsible. Even if a suitor were minded to take a different view as to track-record, its significance would be necessarily affected by the fact that the Portfolio Manager was the very man who was quitting the LLP.

(f) The sole source of the LLP's income could be removed by three months' notice terminating the SMA and diverted to another entity in which the offeror had no interest. In addition to that fundamental vulnerability, the LLP's entitlement – beyond reimbursement of its costs - was restricted by the reference to the uncertain concept of transfer pricing.

(g) The AUM had nose-dived early in the first year, and shown only limited and highly inadequate recovery.

(h) There was no pipe-line of impending investors.

(i) The view of the LLP's management, to whom a rational bidder would wish to talk as part of due diligence, was that a minimum of $50 million fee-paying AUM was necessary to break even (on the basis of members recommencing drawings) and any further expansion would require increased expenditure (e.g. on premises and employees).

(j) The purchaser of Mr Archer's interest could be outvoted on all questions, including being expelled without cause, as had happened to Mr Archer himself.

(k) Under clause 19.3(a) of the LLP Agreement a Member might not

"engage or be concerned directly or indirectly in any business other than the Business [of the LLP]".

It is hard, in the absence of clear evidence to the contrary, to envisage that Cayuga or Camelot could have contemplated acceptance of such a restriction.

55. In addition, one would expect a rational offeror to seek legal advice as to the obligations imposed by English law on members of an LLP, and to be informed that, unlike a minority shareholder in a company, they were subject to many of the same statutory obligations and responsibilities as were imposed on a director of a company, including vulnerability to disqualification in the United Kingdom.
56. Faced by this information, or even a significant portion of it, a rational commercial investor would not in my estimation have made any offer for Mr Archer's minority interest, and in the absence of any evidence that Cayuga or Camelot would have been motivated by other considerations^[8] I have concluded that there was no real or substantial possibility that either of them would have done so. For this purpose, I do not consider that the position would be any different if the terminal date for making such an offer were, as Mr Archer contended, 5 July 2010, rather than 8 June 2010 as I have determined. The claim, even assuming that breach had been established, would therefore have failed for want of causation.
57. Had, contrary to my assessment, the threshold test of causation been satisfied, it would have been in my judgment only by a small margin. The most probable level of offer, would in my view have been significantly less than £100,000, with anything in excess of that figure being highly improbable. Taking these factors together, and bearing in mind that the uncertainties necessarily inherent in establishing a counterfactual scenario should within the constraints of realism and common sense be approached by the court with a generous attitude in favour of a claimant, I would not have valued the lost chance at more than about £20,000.

The counterclaim

58. As I described earlier in paragraph 8, it was agreed at a members' meeting on 2 April 2009 that monthly payments received by Mr Archer from the LLP at a rate of £100,000, equating to £61,899 net of PAYE, per year on the basis of being an employee should be reversed. The minutes of that meeting, signed by Mr Agyare and Mr Archer, read:

"5 Conversion of Ian's drawings to loan

• Ian Archer was paid drawings of £61,899 for the period. This being a loss-making year, Ian is required to repay the amount including interest in line with Clause 11.2 of the LLP agreement.

• The members ratified this as a loan to Ian with effect from 1^st December 2008

• The loan is repayable out of the future profits of the LLP."

It was thus agreed that in derogation from Clause 11.2, which required immediate repayment of any drawings in excess of the profit share for an accounting year, they would be repayable only out of future profits. No such profits had arisen by the time of Mr Archer's expulsion and the forced transfer of his share.

59. On behalf of the LLP it is argued that nonetheless the loan was repayable upon Mr Archer's departure. That is in my view an impossible construction of the Agreement. Nor can I see any reason or need to address this contingency by such a manipulation (or, though the case was not so advanced, by an implied term): on the contrary. The effect of the agreement was to reduce any future entitlement to payment of a profit share by the amount of the loan. Since the transferee – in the event Mr Agyare - takes over, or succeeds to, the rights of the departing member, his entitlement to a share in any future profits is reduced accordingly^[9]. There is thus no lacuna which it is necessary or appropriate to fill by creative interpretation of the agreement of 2 April 2009 (or implication of a term), let alone with the content suggested by the LLP.

Conclusion

60. Accordingly, I dismiss both the claims against all the Defendants and the counterclaim.

Note 1    Initially a second fund - the Nubuke Africa Focus Fund – was operated in parallel. It was shut down on 28 February 2009 and merged with the Strategy Fund. That has no implications for the issues before the court, and for ease of exposition I treat the two as a single unit throughout this judgment.     [Back]

Note 2    I return to this later in the discrete context of a counterclaim by the LLP for payment of this sum.    [Back]

Note 3   I do not understand this entity to have any connection with the similarly named UK lottery operator.    [Back]

Note 4   The previous auditors, PWC, had resigned in response to a request by the LLP, which wished to replace them with a less expensive firm as part of its cost-cutting.    [Back]

Note 5    Durham Tees Valley Airport v bmibaby [2011] 1 Lloyd's Rep 68, on which counsel for Mr Archer placed strong weight, does not require or mandate a contrary conclusion. That case was concerned with a quite different situation and question, whether words which had been expressly included in the contract were void for uncertainty, a result which judges strenuously – and almost always successfully - try to avoid.     [Back]

Note 6    That may extend to the ability to satisfy any UK regulatory requirements.    [Back]

Note 7   This requires the defendant to bear the uncertainties caused by the need (resulting from the breach of contract) to operate in the counterfactual world.    [Back]

Note 8   The parties were also agreed that, in consequence of the offeror’s assumed rational commercial profile, I should ignore any possibility of a derisorily low offer by way speculative “punt”.    [Back]

Note 9   If a potential offeror were aware of this, for example from due diligence examination of the minutes of Members’ meetings, it would be a further reason (which I have not taken into account in what I say in paragraphs 56 and 57) for it to refrain from making an offer or to reduce its level by a corresponding amount.    [Back]