Scott Greck V. Henderson Asia Pacific Equity Partners (fp} Lp+henderson Equity Partners (gp) Limited+henderson Equity Partners Limited+roger Greville
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2008] CSOH 2 |
| Date | 08 January 2008 |
| Docket Number | CA9/07 |
| Court | Court of Session |
| Published date | 08 January 2008 |
| OUTER HOUSE, COURT OF SESSION [2008] CSOH 2 | |
| CA9/07 | OPINION OF LORD GLENNIE in the cause SCOTT GRECK Pursuer; against HENDERSON ASIA PACIFIC EQUITY PARTNERS (FP) LP First Defender; HENDERSON EQUITY PARTNERS (GP) LIMITED Second Defender; HENDERSON EQUITY PARTNERS LIMITED Third Defender; ROGER GREVILLE Fourth Defender: ________________ |
Pursuer: MacKenzie, Solicitor Advocate, Pinsent Masons
Defenders: Johnston QC, Burness LLP
8 January 2008 Introduction[1] The pursuer seeks declarator that he is a "Good Leaver" in terms of a Limited Partnership Agreement ("The Limited Partnership Agreement") dated 21 November 2001 between himself, the second defender and others. The second defender ("the General Partner"), as the General Partner in the Limited Partnership established by The Limited Partnership Agreement ("the Limited Partnership"), has declared the pursuer to be a "Bad Leaver". The pursuer's status as a "Good" or "Bad" Leaver has consequences in terms of his entitlement to "carried interest" in the assets of the Limited Partnership.
[2] The pursuer has been involved in the private equity business for a number of years. In about August 2000 he entered into employment with AMP, an Australian private equity business, which had acquired Henderson Global Investors in 1998 and, in consequence, when the pursuer joined in 2000, operated in the private equity business worldwide. At the beginning of his employment with AMP, the pursuer was based in Sydney, Australia. AMP was about to launch the Henderson Asia Pacific Equity Partners I fund (HAPEP I), a pan-Asian private equity fund. The pursuer was one of the investment managers in the HAPEP I fund. In 2001 he became a partner in the Limited Partnership which, as I explain below, was designed to give investment managers in the HAPEP I fund a stake in the success of the fund. In 2002 the pursuer moved his base to Singapore on the instruction of Sanjiv Kapur, the managing partner in HAPEP I, who had decided that opportunities were being missed through the fund not having people "on the ground" where the investment opportunities were. Thereafter, until sometime in 2005, the HAPEP I fund had an Asian "team" under Sanjiv Kapur, consisting of Lucian Wu in Hong Kong, the pursuer in Singapore, and Vishal Marwaha and Wei Hsien Chan in India.
[3] At the end of December 2003, for reasons which I need not go into, AMP and Henderson "de-merged". The position after the de-merger was that AMP retained the business in Australia and New Zealand, whilst the UK, North American and Asian operations were retained by Henderson - that is no doubt an oversimplification, but it is sufficient for the purposes of this action. Since the pursuer was involved in the pan-Asian HAPEP I fund, he went with the Henderson side of the business; and his contract of employment was transferred to Henderson Global Investors (Singapore) Limited. He remained based in Singapore. Save where it is necessary to identify presently which "Henderson" company is involved at any particular stage, I shall refer to them indiscriminately as "Henderson" or collectively as "Henderson group".
[4] Early in 2005 Henderson began marketing to institutional investors a new fund called Henderson Asia Pacific Equity Partners II ("HAPEP II"). The intention was to market HAPEP II on the strength of the success of HAPEP I, using the same investment management team. However, difficulties were soon encountered due to the departure from Henderson of a number of people who had been part of that team. Sanjiv Kapur and Lucian Wu left in September and October 2005. Others left shortly afterwards. At the end of 2005 the pursuer was made a partner in the HAPEP II fund (no doubt, though it was not produced in evidence, under an agreement similar to the Limited Partnership Agreement). The other two partners involved in the HAPEP II fund at that time were Vishal Marwaha and the fourth defender, Roger Greville.
[5] On 27 March 2006 the pursuer sent a letter of resignation from Henderson Global Investors (Singapore) Limited. He was asked to extend his notice period until fundraising for HAPEP II had been completed but he declined. He explained in evidence that he wanted to return to Australia both for family reasons and because there were uncertainties over the HAPEP II fund. He finally left on 10 June 2006, having assisted in recruiting a replacement, Sigit Prasetya. About three weeks later, on about 3 July 2006, he joined Archer Capital Pty Limited ("Archer"), a private equity manager based in Sydney, Australia. At a board meeting of the General Partner on 29 January 2007, it was noted that the pursuer had previously been treated as an Intermediate Leaver. The minutes of the meeting go on to say this:
"However the Company [the General Partner] had become aware that [the pursuer] had joined a competitor within 6 months of becoming a Leaver and as such, pursuant to the terms of part 1 of Schedule 2 to the LPA [The Limited Partnership Agreement], became a Bad Leaver on 10 June 2006."
It is this decision as to his status which has provoked the present litigation. The pursuer's principal contention is that Archer is not a competitor of Henderson or any associated company.
The Limited Partnership Agreement[6] All the witnesses were agreed that investors in private equity funds wanted the investment fund managers to be "aligned with them" by sharing in the successes of the fund. They wanted the investment team to be "incentivised". Accordingly, in addition to remuneration by way of salary and bonuses, fund managers receive a share of the gains made by the fund. Such an arrangement is not uncommon in the private equity business, although the precise terms of, and amounts involved in, any such scheme may differ from one company to another. The pursuer told me that typically some 20% of any profit over 8% per annum might be shared between the individual fund managers and the company (through the General Partner); and the portion going to the individual fund managers would be shared between them in differing percentages reflecting the seniority and experience of the particular individual and the length of time he had been with the company and/or the particular fund. The intent is not only to reward fund managers for the success of the fund to which they have contributed but also to encourage them to stay with the fund, the stability and continuity in the investment team being of importance to the success of the fund. To this end the scheme will often provide for the entitlement of an individual investment manager to be reduced if he leaves early in the life of the fund; and for his entitlement to be removed altogether if, within a certain period after leaving, he takes up employment with a competitor. Within Henderson, the share of the profits of the fund which goes to the fund managers as an incentive is known as "carried interest" (or "carry"). For tax reasons, as to which I heard very little, the incentive scheme is channelled through a limited partnership. Each limited partnership relates to only one fund. It appears that a separate limited partnership is established in respect of each private equity fund in order to give effect to a similar incentive scheme in relation to that fund.
[7] This action is concerned with the limited partnership established to give effect to such an incentive scheme for the HAPEP I fund. The partners in the Limited Partnership are the General Partner (effectively representing the employer) and the Limited Partners or Carried Interest Partners (i.e. the investment managers in the fund). In the Introduction to the Limited Partnership Agreement, it is explained that the purpose of the Limited Partnership is to act as a founder partner in an English limited partnership to be known as Henderson Asia Pacific Equity Partners I, LP ("the Fund Partnership") with a view to providing profits for distribution in accordance with the terms of the Limited Partnership Agreement. Put simply, the Limited Partnership, as founder partner, receives a part of the gains made by the HAPEP I fund. The sums thus accruing to the Limited Partnership are allocated between the General Partner and the various Carried Interest Partners in the manner set out in the Limited Partnership Agreement. I was not shown the partnership agreement for the Fund Partnership; and do not know the precise arrangements in terms of which the Limited Partnership receives income from the gains accruing to the HAPEP I fund.
[8] The Limited Partnership is the first defender in this action. In terms of the Limited Partnership Agreement, the General Partner has responsibility for the management and operation of the Limited Partnership. The General Partner named in the Limited Partnership Agreement is the second defender. The General Partner is entitled to appoint a Manager to manage or operate the Limited Partnership. The third defender ("the Manager") is the Manager of the Limited Partnership, named as such in the Limited Partnership Agreement. The fourth defender, ("Mr Greville"), in addition to being an investment manager in the HAPEP II fund, is the managing director of the Manager. One of the Manager's functions is to make distributions to the partners in accordance with the Limited Partnership Agreement. The other Carried Interest Partners have not been convened as defenders. Nor has the pursuer's former employer, Henderson Global Investors (Singapore) Limited. No point is taken in the pleadings to the effect that they should have been. The point is of some relevance, however, when considering an argument which the pursuer raised in final submissions without it having been foreshadowed in the Summons.
[9] The Limited Partnership Agreement provides for the allocation of sums to the partners in accordance with their "Relevant Proportion", i.e. the percentage set against their names in Schedule 1 as adjusted or amended from time to time. Schedule...
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