F & C Alternative Investments (Holdings) Ltd v Barthelemy and another (No 3)

JurisdictionEngland & Wales
JudgeLord Justice Davis,Lord Justice Tomlinson,Lady Justice Arden
Judgment Date22 June 2012
Neutral Citation[2012] EWCA Civ 843
Docket NumberCase No: A2/2011/3333
CourtCourt of Appeal (Civil Division)
Date22 June 2012
F & C Alternative Investments (Holdings) Limited & Ors
Barthelemy & Anor

[2012] EWCA Civ 843

[2011] EWHC 1731 (Ch)


Lady Justice Arden

Lord Justice Tomlinson


Lord Justice Davis

Case No: A2/2011/3333


ON APPEAL FROM The High Court of Justice (Chancery Division)

The Honourable Mr Justice Sales

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Simon Browne QC and Mr Andrew Ayres (instructed by Norton Rose) for the Appellants

Mr Andrew Thompson (instructed by Jeffery Green Russell) for the Respondents

Hearing dates : 22 nd and 23 rd May 2012

Lord Justice Davis



This appeal is the culmination of very heavy and very bitterly fought litigation. It related to the complete breakdown in the working relationship between the members of a limited liability partnership which was involved in the management of a fund of hedge funds operating on an absolute return basis. The trial was, we were told, originally estimated to last 6–7 weeks. In the event it took some 95 days, spread out over an extensive period. The judgment of the trial judge (Sales J), delivered on 14 th July 2011, ran to 303 pages.


Although the appellants (a word I use loosely to cover where appropriate the relevant F&C entity concerned) succeeded on some of the issues raised at trial, the overall victors were the respondents. There were further hearings on consequential matters. The appellants, in the result, were ordered on 4 th October 2011 to pay each of the respondents nearly £4 million. The judge also proceeded to make an order as to costs and interest. He gave a detailed and careful judgment on the issues of costs and interest on 28 th October 2011.


The actual terms of that Order (dated 28 th October 2011) in so far as relevant for the purposes of this appeal are as follows:

"1. F&C Holdings and F&C Plc are jointly and severally liable to pay each of the Defendants interest on the sum of £3,914,359.20 ordered to be paid to each of the Defendants under paragraphs 1 and 2 of the Order of this Court made on 4 October 2011 for the period from 26 February 2009 until 15 January 2010 (inclusive) at the rate of 3% per annum above base rate and then from 15 January 2010 until 7 October 2011 at the rate of 10% per annum above base rate, being £831,023.82 in total payable to Mr Culligan and £831,023.82 in total payable to Mr Barthelemy.

2. F&C Holdings and F&C Plc (their liability to be joint and several) shall pay Mr Culligan £831,023.82 and Mr Barthelemy £831,023.82 in respect of the liabilities under paragraph 1 above.

3. F&C Holdings is liable to pay the Defendants 70% of their costs of all 3 sets of proceedings to be subject to detailed assessment (if not agreed) on the standard basis in respect of the period up to 15 January 2010 (inclusive) and on the indemnity basis in respect of the period from 16 January 2010 (inclusive).

4. F&C Holdings is liable to pay the Defendants interest on the costs payable by it to the Defendants pursuant to paragraph 3 above from the date of payment of such costs by the Defendants to their solicitors until the date hereof, at the following rates:—

a. in respect of costs paid by the Defendants prior to 25 June 2010:—

i. for the period up to and including 15 January 2010 at the rate of 3% per annum above base rate;

ii. for the period from and including 16 January 2010 at the rate of 10% per annum above base rate;

b. in respect of costs paid by the Defendants on or after 25 June 2010:—

i. for the period up to and including 21 December 2010 at the rate of 40% per annum; and

ii. for the period after 21 December 2010 at the rate of 22% per annum.



The appellants do not appeal against the substantive conclusions of the judge whereby he gave judgment in favour of the respondents. The appeal is confined to a challenge to the judge's decision to award indemnity costs as from 16 th January 2010; and as to the rates of interest which the judge assessed as payable by the appellants, both on the judgment amount and on costs, as from the 16 th January 2010. Permission to appeal on those issues was granted by Jackson LJ on 21 st February 2012.


The respondents have since put in a respondents' notice seeking to support the judge's conclusions on those issues and further advancing various grounds of cross-appeal, aimed at increasing the award of costs from the figure of 70% selected by the judge and at increasing the interest rate of 3% over base rate prior to the 16 th January 2010 as selected by the judge. This court at the hearing of the appeal granted permission to cross-appeal on the grounds advanced and also the necessary extension of time for that purpose. In reality, the various grounds of appeal and cross-appeal are closely connected.


There is no doubt that both appeal and cross-appeal by any measure satisfy a test of proportionality. We were told that the respondents' solicitors have lodged a Bill of Costs for the purposes of detailed assessment in a sum exceeding £5 million. As the Order itself connotes, interest on the judgment debt and costs will also potentially be huge. The outcome of this appeal and cross-appeal stands to have a very significant financial impact for the parties.


The appellants were represented by Mr Simon Browne QC (who did not appear below) leading Mr Ayres (who did). The respondents were represented by Mr Andrew Thompson (who also appeared below).

The background facts


In view of the nature of the appeal and cross-appeal it is, mercifully, necessary to give only a very brief resumé of the underlying facts. They are, of course set out and reviewed at great length in the judgment below: [2011] EWHC 1731 (Ch).


Shortly put, then, the position was this. F&C Partners LLP (the LLP) was established as a limited liability partnership as a manager of funds of hedge funds. Its members were F&C Alternative Investments (Holdings) Limited – part of the F&C Group – and Francois Barthelemy and Anthony Culligan. The partnership was regulated by the terms of a detailed written Agreement dated 3 rd December 2004. The company had a 60% interest in the LLP and the respondents had 20% each.


The Agreement included provisions whereby the respondents could, in certain circumstances where the appellants were in breach of contract, require the appellants to purchase their interests at a stated multiple of the profits of the LLP in a certain period, by way of exercising put options. The Agreement also conferred certain entitlements on the respondents as to drawings (with a minimum of £150,000 per annum, irrespective of any losses).


The nature of the business – managing a fund of hedge funds – was necessarily one which carried significant risk. In late 2008 the whole market was in turmoil after the collapse of Lehman Brothers. The LLP suffered. It had not been performing very well from around mid 2007 and it had suffered large losses in 2008. There was discord between the members as to how to redress the position. The broad strategy proposed by the appellants – found by the judge to be a reasonable one, proposed in good faith – was, in effect, to hunker down and then rebuild the investment track record. They proposed significant cost cutting to this end, including staff reductions. The respondents' reaction – also found to be reasonable and proposed in good faith – was strongly to dispute that. They wished to retain the staff, develop new products and expand the business.


As the debate wore on, each side, as the judge found, became increasingly frustrated with the other and distrustful of the motives and good faith of that other. The respondents, indeed, came to think that the appellants wanted to drive the LLP out of business, in considerable part so as to avoid buying out their interests pursuant to the provisions of the Agreement. They also thought that the appellants were trying to protect their Dutch investment team through fear that active marketing of the LLP's products might expose them to complaints about prior mis-selling (which at trial was styled the "mis-selling case"). The judge was to find that those suspicions on the part of the respondents were misplaced. The judge further found that the respondents' belief that the appellants had decided on a strategy to destroy or undermine the LLP's business, and to close it down, (which at trial was styled "the liquidation case") was also misplaced.


At all events, the dispute at the time became such as to "poison relations", as the judge put it. The upshot was that the appellants resolved at a members' meeting to stop the February drawings of the respondents (something the judge was to find was a breach of the Agreement). In consequence, the respondents served put option notices – validly as the judge was to find – on 25 th February 2009. Further complaints were made by the respondents and further put option notices were served on 22 nd May 2009 – validly as the judge found – and again on 24 th December 2009 (invalidly as the judge found, but in any event they were not relevant on his other findings).


The respondents also complained that the appellants were conducting the affairs of the LLP in a manner unfairly prejudicial to them. The judge was to find that this complaint was made out: but he doubted whether success on that would result in higher compensation than would be achievable under the put options: and in the result the claim for further compensation was not pursued. For their part, the appellants were in turn to complain that the respondents had conducted the affairs of the LLP in a manner unfairly...

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1 firm's commentaries
  • Exaggerated Claims, Part 36 Offers And The Court's Discretion As To Costs
    • United Kingdom
    • Mondaq United Kingdom
    • October 8, 2012
    ...position than going on. The court also referred to the recent decision in F&C Alternative Investments (Holdings) Ltd v Barthelemy [2012] EWCA Civ 843 in which the Court of Appeal emphasised the importance of Part 36 offers and said that offers not made under Part 36 should not have the ......
1 books & journal articles
  • Litigation
    • United Kingdom
    • Construction Law. Volume III - Third Edition
    • April 13, 2020
    ...Power Distribution (South West) plc [2005] 1 WLR 3595 at [37], per Dyson LJ; F & C Alternative Investments (Holdings) Ltd v Barthelemy [2012] EWCA Civ 843; Arroyo v Equion Energia Ltd [2016] EWHC 3348 (TCC) at [65], per Stuart-Smith J; Treloar Constructions Pty Ltd v McMillan (No.2) [2017] ......

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