UCP Plc v Nectrus Ltd

A contractual investment manager may owe enforceable obligations to a parent company which is a party to the management agreement, even where the services are expressed to be provided to its subsidiary. The agreement must be construed as a whole, in its contemporaneous factual matrix. An investment manager’s obligations may extend beyond selecting and supervising a property portfolio to related financial advice, monitoring borrowings, reporting, and compliance with treasury policies. Where surplus funds are placed in entities plainly unsuitable for short-term deposits and contrary to an applicable treasury policy, breach may be established without independent expert evidence. The court distinguished between such placements and earlier investments made before the relevant treasury policy was adopted.

UCP Plc claimed against Nectrus Ltd under an Investment Management Agreement relating to investment in Indian real estate. UCP alleged that Nectrus owed duties directly enforceable by UCP and had breached them by failing to advise and report on surplus borrowings and by permitting funds to be placed with unsuitable entities. The principal issues were whether UCP could enforce Nectrus’s contractual obligations, the scope of those obligations, and whether the placements breached them. The issue of reflective loss, mitigation, and quantum was allowed to be dealt with separately if liability were established.

1. Contractual standing and construction. The IMA was construed as entitling UCP, which was a party to it, to enforce Nectrus’s obligations to provide the stipulated services to Candor. The reference to Candor as the service recipient did not exclude UCP’s enforcement rights. The agreement, read with the contemporaneous FRP and AIM Admission Document, showed that Nectrus’s role was performed for the wider UCP group and involved reporting to and advising the UCP Board (paras 19–22).
2. Scope of the obligations. Nectrus’s obligations extended to surplus funds borrowed for future investment. They included identifying appropriate financing and refinancing options, monitoring compliance with the Investment Policies and Procedures, complying with reasonable directions, and reporting and advising on the temporary placement of surplus funds. The services were performed by relevant Unitech employees acting on Nectrus’s behalf. The alleged PMA Team did not displace Nectrus’s IMA obligations (paras 25–29).
3. Treasury Policy and breach. The Treasury Policy formed part of the applicable Investment Policies and Procedures, or alternatively constituted a reasonable and proper direction under the IMA. It required reputable institutions, limits on short-term deposits, approved categories of permitted investments, preservation of assets, and quarterly treasury reporting. The placements with the Sham Entities breached those requirements and amounted to obviously inappropriate financing or refinancing options. Independent expert evidence was unnecessary because the unsuitability of the investments was plain (paras 30–37).
4. SREI investment. The original SREI investment and its relevant extensions were not proved to constitute breaches. They preceded adoption of the Treasury Policy, and the evidence did not justify inferring that Nectrus knew, at the relevant time, of a material set-off risk arising from Unitech’s borrowing from SREI. Poor reporting and a misdescription of SREI did not establish contractual breach (paras 38–42).
5. The parties were directed to agree the next step in accordance with the split-trial direction (para 43).