Aymard v Sisu Capital Ltd

On an application to amend a statement of case, the claimant must show that the proposed claim has a real prospect of success. The same threshold applies to summary judgment, although the burden differs. The court should determine a short point of law or construction where the evidence and argument are sufficient.

A contractual term is implied only where necessary for business efficacy, or where it is so obvious that it goes without saying. Necessity, rather than fairness or reasonableness, remains the touchstone. An implied term must also be consistent with the express contract.

A contractual discretion may be required to be exercised in good faith. A claimant may pursue an arguable case that a contract-breaker cannot rely on a subsequent event caused by its own breach to extinguish or reduce damages. Pointless litigation involving only nominal damages may be struck out as an abuse of process.

The claimant, formerly employed by the defendant, alleged that an offer of employment entitled him to a 2.5% share in the defendant’s carried-interest partnership. The partnership was subsequently dissolved.

The claimant sought permission to amend his claim to plead implied terms restricting dissolution in bad faith and requiring equivalent participation in a replacement vehicle. He also maintained claims for specific performance and damages. The defendant accepted, for present purposes, that the original breach claim was sufficiently arguable, but sought summary judgment or strike out on the basis that dissolution made the share valueless and that the litigation would be pointless.

The court had to determine whether the proposed implied terms and damages case had a real prospect of success, and whether the original claims should be summarily dismissed or struck out.

1. The application to amend was allowed in part. The proposed implied term preventing dissolution otherwise than in good faith, or for a capricious purpose, was sufficiently arguable. A contractual discretion expressed in broad terms may be subject to an implied requirement of good faith. It was arguable that dissolution solely to deprive the claimant of his prospective share would undermine the contractual scheme and defeat its efficacy.

2. Implied terms (1) and (3) were refused. Term (1) improperly confused the defendant’s roles as employer and investment manager, cut across the partnership agreement, and was drawn so broadly that any dissolution could constitute a breach. Term (3) imposed an uncertain and unworkable obligation to secure equivalent rights in a replacement vehicle, despite the defendant lacking power to dictate the terms of a new partnership or prefer the claimant over other partners.

3. The principles governing implication of terms required necessity for business efficacy, or obviousness, and consistency with the express contract. Fairness or reasonableness alone was insufficient. The court considered the approach in Attorney General of Belize v Belize Telecom Limited [2009] UKPC 11, but also applied the emphasis on necessity stated in Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc [2009] EWCA Civ 531.

4. The proposed amended damages case also had a real prospect of success. It was well arguable that, when valuing the contractual right lost, the claimant could assume continuing compliance with the contract. If dissolution was itself a breach of the implied term, the defendant might be unable to rely on it to reduce or extinguish damages. The valuation of the chance of a distribution was an evidential matter potentially requiring expert evidence.

5. The claim for specific performance was summarily dismissed because dissolution made that remedy impossible. The application for summary judgment or strike out was otherwise refused. The court held that the original damages claim was not shown at this stage to be pointless or abusive.