Richard Pease v Henderson Administration Ltd

JurisdictionEngland & Wales
JudgeMr Justice Nugee,Lord Justice Henderson,Sir Geoffrey Vos
Judgment Date15 February 2019
Neutral Citation[2019] EWCA Civ 158
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2018/1172
Date15 February 2019

[2019] EWCA Civ 158





Mr Richard Spearman QC (sitting as a deputy judge of the High Court)


Rolls Building, Royal Courts of Justice

Fetter Lane, London EC4A 1NL



Lord Justice Henderson


Mr Justice Nugee

Case No: A3/2018/1172

Richard Pease
Henderson Administration Limited

Daniel Oudkerk QC and Adam Woolnough (instructed by Simmons & Simmons LLP) for the Appellant

Richard Leiper QC and Zac Sammour (instructed by Michelmores LLP) for the Respondent

Hearing date: 5 February 2019

Approved Judgment

Mr Justice Nugee



This is an appeal from a decision of Mr Richard Spearman QC, sitting as a deputy judge of the High Court, given after the trial of an action in relation to an employment dispute. It raises one question of construction of the contract of employment under which the Respondent, Mr Richard Pease, was employed by the Appellant, Henderson Administration Ltd ( “Henderson”), as an investment fund manager with the title of Director of European Equities from May 2009 to June 2015 ( “the Contract”).


The Contract envisaged that Mr Pease might set up a fund referred to as a “European Special Situations OEIC” ( “ESS OEIC”) while employed with Henderson, and provided that if he did so (i) he would if he resigned be permitted after leaving to replace the relevant Henderson Group company as manager of the fund (cl 3.6.1) and (ii) if he did so replace the manager he would procure payment to Henderson of 50% of the management fees generated by the fund in the next 12 months (cl 3.6.2).


“OEIC” refers to an Open-Ended Investment Company. In the event a fund called the European Special Situations Fund ( “the ESSF”) was set up by Henderson and Mr Pease. It was not however itself established as an OEIC, but as a sub-fund under an umbrella OEIC which had other sub-funds.


In 2014 Mr Pease indicated he wished to leave Henderson and take the ESSF with him. Negotiations followed, the upshot of which was that the parties agreed that there would be a scheme of arrangement under which the investors in the ESSF would be asked to approve a transfer of its assets to a new OEIC with a new manager. This duly took place and Mr Pease's employment with Henderson terminated in June 2015. Mr Pease has however declined to procure the payment over of 50% of the management fees earned in the 12 months thereafter. His case is that he was contractually entitled to replace the manager of the ESSF; that the arrangement in fact adopted (the scheme of arrangement) was not the replacement of the manager of the ESSF but a transfer of assets to a different fund; and hence (i) Henderson was in breach of cl 3.6.1 of the Contract by not permitting him to replace the manager of the ESSF and (ii) nothing was payable to Henderson under cl 3.6.2 of the Contract. Henderson's case is that the scheme of arrangement was a means of replacing the manager of the ESSF that was compliant with cl 3.6.1 of the Contract and hence (i) that it was not in breach of cl 3.6.1 and (ii) that Mr Pease is himself in breach of cl 3.6.2 for failing to procure payment to it of 50% of the management fees generated by the fund in the next 12 months.


In the action Mr Pease initially sued Henderson for certain remuneration which had been withheld and which he claimed to be due to him; Henderson counterclaimed for payment of the 50% of the management fees said to be due to it under cl 3.6.2; and Mr Pease then claimed (very substantial) damages for Henderson's failure to allow him to replace the manager of the ESSF in breach of cl 3.6.1.


In his judgment (the neutral citation for which is [2018] EWHC 661 (Ch)) the Judge (i) upheld Mr Pease's claim for withheld remuneration; (ii) held that Henderson was in breach of contract in failing to permit him to replace the manager of the ESSF but that Mr Pease had not established any recoverable loss for the breach; and (iii) dismissed Henderson's counterclaim (on the basis that the scheme of arrangement was not compliant with Henderson's contractual obligations under cl 3.6.1).


Henderson appeals the finding that it was in breach of cl 3.6.1 and the dismissal of its counterclaim under cl 3.6.2, with permission granted by Asplin LJ. This permission is limited to two grounds, namely Ground 1 which is to the effect that on the true construction of cl 3.6.1 Henderson was not in breach, and Ground 3 which is to the effect that for the same reason its counterclaim should not have been rejected. The only question before the Court of Appeal therefore is the question of construction of cl 3.6.1 of the Contract.

The Contract


It is convenient at this stage to set out the relevant provisions of the Contract. The Contract was provided to Mr Pease by Henderson (referred to in the Contract as “the Company”) in the form of a letter to him dated 5 June 2009 and was signed by him on that date, but records (in cl 1.1) that his employment commenced on 1 May 2009. By cl 9 Mr Pease was able to terminate his employment by 1 month's notice expiring on or after 31 December 2009.


The relevant clause is cl 3.6, which consists of cl 3.6.1 and cl 3.6.2 as follows:

“3.6 European Special Situations Fund and New Star Hedge Funds

3.6.1 In circumstances where you have in 2009 while employed by the Company set up a European Special Situations Fund OEIC, and you subsequently resign from employment with the Company, you (or any entity which you set up or join) will, following the later of the date of termination of your employment and 1 February 2010, be permitted to replace the relevant Henderson Group company as manager of (a) the European Special Situations Fund OEIC and also (irrespective of whether you have in 2009 while employed by the Company set up a European Special Situations Fund) (b) the New Star European Hedge Fund and (c) the New Star European Leveraged Hedge Fund (all three together, the Funds). For the avoidance of doubt, in circumstances where (i) you have while employed by the Company set up a ‘mirror fund’ to the European Special Situations Fund as a result of the fund raising exceeding the limits set or arising from a new source, or (ii) any of the Funds changes its name but in all other respects remains the same Fund, the provisions of this clause 3.6 shall continue to apply.

3.6.2 Where you (or any entity which you set up or join) replace any Henderson Group company as manager of the Funds in the circumstances set out in clause 3.6.1 above, you will procure payment to the Company (or other Henderson Group company nominated by the Company) of 50% of the Management Fees After Deductions generated by any such Fund in the 12 months following such replacement of the relevant Henderson Group company as manager (the First Replacement Year). Management Fees After Deductions means the total fees received in relation to the management of the Funds after deduction of any management fee rebates and/or commissions and also less an amount in respect of the costs associated with running the Funds, subject to a cap equal to the amount that would have been deducted by the Company in respect of costs under clause 3.7.1 below had a Henderson Group company remained as Manager of the Funds for the First Replacement Year. You will promptly on request disclose to Henderson details of the managements [sic] fee rebates and/or commissions deducted from such total fees.”



The facts can largely be taken from the judgment of the Judge, supplemented by the witness statement of Mr Bowers (one of Henderson's witnesses, whom the Judge described as manifestly knowledgeable, helpful and reliable and whose evidence he said he accepted without any significant reservation), and certain explanations given to us in the course of the hearing.


Before coming to the detail it is helpful to say a bit more about OEICs and the sub-funds housed within them. An OEIC, as already referred to, is an Open-Ended Investment Company. This is a recognised type of vehicle designed for the purposes of pooled investment, mainly for retail investors. An OEIC is a body corporate in the form of a company limited by shares and Mr Bowers explained in his witness statement that an OEIC can issue new shares (that is, to investors wishing to invest) and repurchase its existing shares (that is, from investors wishing to withdraw); that its shares vary in value in direct proportion to the variation of the fund's net asset value; and that the formation of OEICs is governed by the Financial Conduct Authority ( “FCA”) under the Open-Ended Investment Companies Regulations 2001. An OEIC must have at least one director and the usual practice in the UK is to have a single corporate director, commonly referred to as the authorised corporate director ( “ACD”).


An OEIC may contain several sub-funds with distinct investment strategies and management. Such a sub-fund is not a separate legal entity from the OEIC, but the OEIC that houses the sub-funds (referred to as an umbrella OEIC) will issue separate classes of shares in respect of each of its sub-funds. In this way an investor who chooses to invest in a particular sub-fund will have shares in the OEIC that reflect the value of that particular sub-fund. Typically sub-funds will be managed by different fund management desks within one asset management firm, and the investment strategies and share classes for each sub-fund will be described in the OEIC's prospectus from time to time.


The ACD of an OEIC assumes full responsibility for the operation of the OEIC, but may delegate the management of the investments to an investment manager pursuant to an investment management agreement. The investment manager...

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