Certain Ltd Partners in Henderson PFI Secondary Fund II LLP (A Firm) v Henderson PFI Secondary Fund II LP (A Firm)and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cooke |
| Judgment Date | 16 November 2012 |
| Neutral Citation | [2012] EWHC 3259 (Comm) |
| Docket Number | Case No: 2011 FOLIO 1485 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 November 2012 |
[2012] EWHC 3259 (Comm)
Mr Justice Cooke
Case No: 2011 FOLIO 1485
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Iain Milligan QC and Emily Wood (instructed by Ashurst LLP) for the Claimants
Robin Dicker QC and Jeremy Goldring (instructed by Clifford Chance LLP) for the Defendants
Hearing dates: 5, 6 and 7 November 2012
Introduction.
I have to determine 10 preliminary issues, the form of which has been agreed between the parties, following an order by Teare J in respect of the first three, which relate to the question whether the claimants can bring a derivative action against the defendants and, if so, the effect of it. The balance relate to issues of construction of two agreements, with reference to a third document, which are said to govern the relationship between the parties and the conduct of the Limited Partnership which is central to the dispute between them.
The firm named as the first defendant is a limited partnership regulated by a Partnership Agreement dated 12 September 2006, as amended and restated on 19 September 2006 and by the Limited Partnership Act 1907 (the " LPA"). It was established to invest in private finance initiative ("PFI") and public private partnership ("PPP") concession companies. (It is referred to in this judgment as "the Partnership" or as "Fund II".)
The claimants are 22 of the 29 Limited Partners in the Partnership, all of which administer or are trustees of substantial pension or investment funds. Fund II is a private equity fund, only available to sophisticated institutional investors. The claimants invested in the Partnership as Limited Partners, with partnership capital and loan capital under a Partnership Agreement, which, in its original form dated 12 September 2006 with the General Partner and two founding partners in the Henderson Group, was registered under sections 5 and 6 of the LPA the following day. The third defendant is the General Partner and the second defendant the Manager appointed by the General Partner, on behalf of the Partnership, under a Management Deed dated 14 September 2006. The Partnership was expected to last for at least 10 years, with the possibility of seven annual extensions thereafter (although there are provisions for earlier termination).
In December 2006, the Manager (who had identified the potential for such an investment in November 2005) caused Fund II to acquire equity interests in the subsidiaries of John Laing plc ("Laing plc"). Laing plc was a large public company whose shares were listed on the London Stock Exchange. It was the holding company for a group (the "Laing Group"), which specialised in projects arising out of the PFI, and as such owned a portfolio of shares in numerous operational and non-operational PFI concession companies. The Group also included other infrastructure assets such as Chiltern Railway Company, a rail franchise, and a minority stake in Octagon Group Limited ("Octagon"), a house builder. Fund II had been established to take advantage of the investment opportunity in the Laing Group, although, because of the requirements of the Takeover Code, the Manager was forbidden to identify the target to potential investors. The Fund acquired the whole of the issued, and to be issued, share capital of Laing plc for £1,004,000,000 by way of scheme of arrangement. The acquisition was actually made by Henderson Infrastructure Holdco Ltd ("HIH") which was funded by a loan from West LB of £220m, £288m approximately from another limited partnership (Fund I), £530m approximately from Fund II and some £2.75m from Co-Investment funds
In return for its contribution to the funding of the acquisition, Fund II was to receive part of the revenue derived from part of the businesses of Laing plc. In particular the PFI concession Agreements were expected, with their indexed linked payments, to produce a good return for onward transmission through the complex structure of the arrangements to the Partners.
Among the claims made by their Amended Particulars of Claim, the Claimants claim that neither the investment in Laing plc nor the way in which the benefits and burdens of the investment were allocated to Fund II (as compared with a parallel fund, Fund I) were authorised by the Restated Partnership Agreement or by the Management Deed. The construction issues relate to these two instruments.
Commitments to Fund II were solicited by a draft Private Placement Memorandum dated 8 December 2005 ("the draft PPM") which was circulated by the Manager with a draft of the Partnership Agreement and a blank Deed of Adherence. Commitments were made by undated Deeds of Adherence executed between 7 December 2005 and August 2006 and addressed to the Manager and the General Partner. By virtue of clause 1 of the Deed of Adherence the Manager had the right to accept the commitment and to admit the applicant to the Partnership.
On 19 September 2006
i) the Amended and Restated Limited Partnership Agreement was executed, with minor revisions which are not material to the preliminary issues ("the RPA");
ii) Henderson informed investors that the Condition, to which clause 1 of the Deeds of Adherence referred, had been fulfilled and of the acceptance of their Deeds of Adherence, with the result that each investor became party to the RPA by virtue of clause 1 of the Deeds of Adherence and clause 2.1 of the RPA;
iii) the final version of the PPM was issued to the investors; the only difference between it and the draft was the omission of the paragraph stating that no investment decision should be made on the basis of the draft PPM;
iv) Henderson revealed for the first time that the investment it was about to make on behalf of the Partnership entailed the purchase of the entire issued and to be issued share capital of Laing plc; and
v) HIH announced that it would make a cash offer of £886,900,000 for the shares in Laing plc.
By reason of a rival bid, it was not until 22 December 2006 that the takeover was concluded at an increased price of £1.004m.
The Claims
The claimants' fundamental allegation is that the Manager and the General Partner did not cause Fund II to invest in a portfolio consisting exclusively or principally of PFI concession companies, as they say it was required to do, but instead used the capital advanced by investors to acquire a corporate group, which included substantial quantities of assets which fell outside that definition.
The claims based on the Claimants' fundamental allegation, fall into three main groups:
i) Claims for compensation against the Manager: all twenty-two of the Claimants allege that the Manager's involvement in the investment in Laing plc caused the Manager to breach its obligations under the Management Deed. It is said that these claims, which are to be advanced by the Claimants solely as "Derivative Claims" on "behalf of the Partnership", will be advanced only if the Claimants obtain declaratory relief excluding or limiting their liability in respect of the Partnership's debts and they are permitted by the Court to advance such claims.
ii) Claims for compensation against the General Partner: the claimants allege that the General Partner's involvement in the investment in Laing plc caused it to breach the obligations it owed under the RPA and other obligations said to arise in equity. These claims are to be advanced by 20 of the claimants individually (called "Personal Claimants") and will also be advanced by all 22 of the claimants as "Derivative Claims" on "behalf of the Partnership", but only if the Claimants obtain declaratory relief excluding or limiting their liability in respect of the partnership's debts; and they are permitted by the Court to advance such claims.
iii) Claims for compensation against the manager arising out of alleged misstatements in the draft PPM: all twenty of the Personal Claimants seek damages said to arise out of alleged misstatements in the draft PPM. Only the first eight claimants (called "Misrepresentation Claimants") assert however that they were in fact misled.
The present hearing is concerned with the first and second types of claims only. The claimants together make up about 83.52% of the total amounts that were committed to the Partnership but they are all Limited Partners, with the restrictions placed upon them by the LPA of 1907.
The LPA provides:
"3 Interpretation of terms.
In the construction of this Act the following words and expression shall have the meanings respectively assigned to them in this section, unless there be something in the subject or context repugnant to such construction:-"Firm," "firm name," and "business" have the same meanings as in the Partnership Act 1890:"General partner" shall mean any partner who is not a limited partner as defined by this Act.
4(2) A limited partnership…must consist of one or more persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons to be called limited partners, who shall at the time of entering into such partnership contribute thereto a sum or sums as capital or property valued at a stated amount, and who shall not be liable for the debts or obligations of the firm beyond the amount so contributed.
6(1) A limited partner shall not take part in the management of the partnership...
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