International Private Equity Ltd v ABN Amro Bank NV

This is an application by the claimant (“IPEL”) for summary judgment against the Defendant (“ABN”) on the whole of its claim pursuant to CPR 24.2. The case concerns the meaning of a contract and turns on a short, but not altogether straightforward, point of construction. Sue Prevezer QC and Matthew Bunting appear for IPEL. David Wolfson QC appears for ABN.

IPEL is a private equity placement agent; it works on fund raisings in the private equity market. On or about 4 September 2007, IPEL entered into a placement agent agreement (“the Agreement”) with AAC Capital Buyout Management BVand ABN to provide, on an exclusive basis, placement services in connection with a private equity fund known as AAC Capital NEBO Fund LP (“NEBO II”). At the time AAC was a wholly owned subsidiary of ABN and managed ABN’s private equity investment activity.

Since this is a summary judgment application, IPEL has to persuade me that ABN has no real prospect of succeeding in its defence or, as the test has sometimes been put, the defence is not fanciful. The court can decide on a summary judgment application a point of law (including a point of construction of a contract), even a difficult point; the fact that the point of law is well arguable does not mean that the court cannot proceed to decide the point and thus determine whether a defence based on it is, or is not fanciful. What the court should not do is decide disputed points of fact although it can reject as fanciful allegations of fact put forward by a defendant in an attempt to buy time.

In the present case there is a dispute of fact concerning the matrix in which the relevant contract was made, the dispute relating to the market practice in the private equity market. I suspect that, when the application was filed, IPEL did not appreciate that there would be this particular dispute or, if it did, that it would take on the significance which it has. Ms Prevezer says it does not matter anyway for the purposes of the application because she is willing to present her case on the basis that the market practice is to be taken as being what ABN says it is.

The competing views about market practice are these:

Although Ms Prevezer submitted that the evidence from ABN was not sufficient to identify the dispute in that way – she says it went only to the practice concerning mandates generally and not exclusive mandates specifically – it is quite clear from Mr Wolfson’s submissions that ABN wishes to assert a market practice as I have just identified it, and for the purposes of this application I propose to proceed on that basis.

The point of construction turns on the definition of “IPEL Investor” and the fee to which IPEL is entitled in respect of IPEL Investors. I need to refer to only a small number of provisions of the Agreement, although many others will need to be considered in detail when the point of construction is decided.

IPEL is retained by AAC “to seek commitments to invest in NEBO II (“Commitments”) from Investors (“Investors”)”. Clause 1(b) sets out the services which IPEL was to provide. These include identification of prospective Investors. Clause 3(a) sets out two definitions “for the purposes of this Agreement”:

“(i)

“Excluded Investors” means:”

(A)

the Sponsor [ABN] and its subsidiaries;

(B)

existing private banking and private wealth clients of the Sponsor or ABN AMRO Asset Management; and

(C)

existing institutional clients of the Sponsor or ABN AMRO Asset Management listed in Schedule 2 to this Agreement.

(ii)

“IPEL Investors” means Investors other than Excluded Investors.”

[Schedule 2 contains a list of corporate clients including some household names.]

The relevant part of IPEL’s “Compensation” is found in clause 3(b). I should set out the whole of the sub-clause, although paragraph (i) is the more significant.

“(i)

a fee of 2% of the total Commitments accepted by the Manager from IPEL Investors; and

(ii)

a fee of 2% on the amount of the total Commitments in excess of €75 million in aggregate which are accepted by the Manager from Investors as set out in paragraphs 3(a)(i)(B) and 3(a))(i)(C) above

(together the “Success Fee”)”.

The issue of construction is short. Ms Prevezer contends that “IPEL Investors” includes all Investors other than Excluded Investors thus including Investors which were not introduced by IPEL and Investors in cases where IPEL was not an effective cause of the investment. Mr Wolfson contends that words are to be read into the definition of “IPEL Investors” so as to exclude Investors which were not introduced by IPEL and Investors in cases where IPEL was not an effective cause of the investment. His argument depends on establishing that market practice is as ABN contends as set out above. He does not concede the point even if market practice is as IPEL contends, but realistically accepts that he would have an up-hill struggle. But on the footing that market practice is as ABN contends, he submits that it is clear that “IPEL Investors” should be restricted in the way which he suggests.

In the course of the hearing, I have had cited to me a number of authorities concerning the general approach to construction of documents and authorities focusing on the construction of, and implication of terms into, agency agreements. They include Investors’ Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, Chartbrook v Persimmon [2009] 3 WLR 267, A-G of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 2 All ER 1127, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, Watersheds v Simms [2009] EWHC 713, County Home Search Co (Thames and Chilterns) Limited v. Cowham [2008] 1 WLR 909, Melanesian Mission Trust Board v Australian Provident Society [1997] 74 P&CR 297,[1997] 2 EGLR 128 and |City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER (Comm) 233.

There was also a detailed examination of the terms of the Agreement in a search for pointers to the resolution of the opposing contentions assuming that Mr Wolfson was correct about market practice.

In preparing this judgment I have considered carefully the authorities and the provisions of the Agreement. I have formed the view that, even if Mr Wolfson is right about market practice, ABN has a weak case on construction. I do not propose to set out at length my reasons for forming that view as I will explain later. If it were common ground that market practice was as ABN contends, and if that market practice were described in much more detail than appears from the short passage in the witness statement of Mr Workman on behalf of ABN, I might well have been prepared on this summary judgment application to grasp the nettle and decide the point. I have had to go a long way along that course, in any case, in reach my actual decision.

However, market practice is not common ground and I do not have the detail of what is alleged to understand fully how the market practice interacts with the provisions of the Agreement. The strength of Mr Wolfson’s arguments may be crucially dependant on that detail. To give one example, there are circumstances under which, on any view of the Agreement, a fee becomes payable to IPEL even where it did not introduce the Investor as under clause 3(b)(ii). If market practice is that such a situation would be very unusual, that would undermine Mr Wolfson’s argument. In contrast, if market practice admits of such exceptions (another example being the IPEL Tail Fee, the detail of which I do not address here) he has a better argument.

I am reluctant to decide a point of construction on the basis of assumed facts unless the facts assumed are clear and unless the result on those assumed facts is clear. It is one thing to decide a difficult point of law (including a point of construction) against the background of clear set of actual facts. It is quite another to do so where the facts are both disputed and where the assumption which I am asked to make are not entirely clear.

Moreover, I have serious concerns about the allocation of judicial resources which could be involved if I were to grant summary judgment. ABN may seek permission to appeal. Permission might be granted - by the Court of Appeal if not by me. The Court of Appeal might allow the appeal and the case would then return to this court for hearing on the evidence. The evidence may establish that IPEL is correct about market practice or that there are significant exceptions from the proposition that no commission at all is ordinarily payable where the agent is not the cause of the investment; in that context, I have already given the examples of clause 3(b)(ii) and the IPEL Tail Fee. This court would then decide the case, possibly in favour of IPEL and very likely so if IPEL is correct about market practice. The whole earlier exercise based on hypothetical facts would be seen to be a complete waste of time.

Under such a scenario, not only would the exercise be a complete waste of time, it would also cause delay in the resolution of the dispute. Ms Prevezer says that her clients are prepared to take the commercial risk of that, confident no doubt she would uphold in the Court of Appeal a decision by me to grant summary judgment. ABN, in contrast, may wish to see a speedier resolution of the dispute even if it is on the basis that it fails to establish its contentions concerning market practice.

In all the circumstances, I am not prepared to decide the point of construction on this application and, accordingly, I refuse to grant summary judgment at this stage. Although, as I have said, I view ABN’s case as weak, my reluctance to decide the case on a hypothetical basis (and one, at that, which is not wholly clear) and the potential waste of court time leads me to the conclusion that there should be a trial where market practice can be clearly established and which will lead to a decision based on the actual facts. If the market practice is as IPEL contends, its prospects of success must be very high and the prospects of permission to appeal being obtained by ABN remote; the case ought never to trouble the Court of Appeal at all. In contrast, if I were to form a concluded view in favour of IPEL and grant summary judgment, it is more likely that permission to appeal would be obtained from the Court of Appeal with the case proceeding to that court when otherwise it might not.

Refusing, as I do, to grant summary judgment on the one hand, I do not consider, on the other hand, that this is a case where I should make a conditional order pursuant to paragraph 5 of the PD to CPR 24. Whilst there may be no doubt about ABN’s ability to pay if, at the end of the day, IPEL is successful, I think that this is a case where it is appropriate for this court to require a significant payment into court in order to underline my assessment of the strength of IPEL’s case. I will hear submissions from counsel about the amount of such payment and whether there should be any discount at all from the full amount claimed

As mentioned earlier, I am not giving my detailed reasons for forming the view about the strength of ABN’s case which I have. I do not wish to be seen to be pre-judging the issue of construction when I do not have full evidence of market practice. Nor do I wish to be seen as having reached a final view, when I have not, given that sensible allocation of judicial resources would suggest that I should be the judge who eventually hears the case.