[1] Kenneth Krys [2] John Greenwood (as Joint Liquidators of Value Discovery Partners, LP) Respondents / Claimants v [1] New World Value Fund Ltd Appellant / First Defendant [2] KBC Partners LP, by its General Partner, Salford Capital Partners Inc. [3] SCI Partners LP, by its General Partner, Salford Capital Partners Inc. [4] Salford Capital Partners Inc. Respondents / Second to Fourth Defendants [ECSC]
| Jurisdiction | British Virgin Islands |
| Judge | Pereira JA,Chief Justice,Justice of Appeal [Ag.],Janice M. Pereira,Gertel Thom,E. Ann Henry, QC |
| Judgment Date | 26 May 2014 |
| Neutral Citation | VG 2014 CA 8,[2014] ECSC J0526-2 |
| Court | Court of Appeal (British Virgin Islands) |
| Docket Number | BVIHCMAP2013/0017 |
| Date | 26 May 2014 |
EASTERN CARIBBEAN SUPREME COURT
IN THE COURT OF APPEAL
The Hon. Dame Janice M. Pereira Chief Justice
The Hon. Mde. Gertel Thom Justice of Appeal [Ag.]
The Hon. Mde. E. Ann Henry, QC Justice of Appeal [Ag.]
BVIHCMAP2013/0017
and
Mr. Christopher Pymont, QC, with him, Mr. Ciaran Keller and Mr. Brian Lacy for New World Value Fund Limited
Mr. Ian Mill, QC for KBC Partners LP, SCI Partners LP and Salford Capital Partners Inc.
Ms. Nadine Whyte for the Joint Liquidators of Value Discovery Partners, LP
Partnership in liquidation — Articles of Partnership — Construction — Allocation of assets — Entitlements of partners to assets of Partnership in liquidation — Construction of clauses in Articles of Partnership affecting partners' entitlements — Meaning to be given to word 'sale' in phrase 'following the sale of all Investments of the Partnership' — Whether 'sale' should be given plain ordinary meaning or alternatively extended meaning so that it is read instead as 'sale or distribution in specie' — Whether sale of all Investments of Partnership had to take place during term of Partnership — Whether learned judge erred in holding that word 'sale' ought to be given extended meaning
The joint liquidators of Value Discovery Partners LP ("the Partnership" / "VDP") brought a claim in the court below to ascertain the meaning of certain words used in VDP's Articles of Partnership. The construction of the Partnership's Articles essentially determined whether KBC Partners LP ("KBC") and SCI Partners LP ("SCI") would receive a certain percentage of the net gains and profits of the Partnership, known as Carried Interest. The construction which New World Value Fund ("NWVF") contended was correct, would result in KBC and SCI not receiving Carried Interest, and NWVF's share of the Partnership's assets would be greater. The construction which KBC, SCI and Salford Capital Partners Inc. ("Salford") contended was correct, would have the opposite result – KBC and SCI would be entitled to receive Carried Interest and accordingly, NWVF's share of the assets would be less.
The case turned on the meaning of the word 'sale' in the phrase 'following the sale of all Investments of the Partnership'. NWVF argued that the word ought to be given its plain, ordinary meaning so that it refers to a sale in the trader's sense, while KBC, SCI and Salford (together, "the Salford Respondents") argued that the word ought to be given an extended meaning, so that it includes the realisation of an asset in specie during liquidation, after the end of the term of the Partnership. The learned judge held that the word ought to be given the extended meaning and that this approach was the more sensible one, commercially. Accordingly, he found in favour of the Salford Respondents.
NWVF appealed, contending that the learned judge: erred in his construction of VDP's Articles of Partnership and in his analysis of the evidence which was before him; made incorrect factual findings and placed reliance on the wrong clauses in the Articles of Partnership in order to interpret the meaning of the wording in other clauses; and reached the wrong conclusion in the circumstances.
Held: allowing the appeal, and setting aside paragraphs 1, 3 and 5 of the learned trial judge's order dated 27 th June 2013, that:
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1. The word 'sale' in the phrase 'following the sale of all Investments of the Partnership' should be accorded its natural and ordinary meaning and this was one of the conditions precedent to KBC and SCI receiving Carried Interest. The learned trial judge accordingly erred in construing VDP's Articles of Partnership.
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2. The language of the clauses in issue in VDP's Articles of Partnership is unambiguous, and where the language is unambiguous in a contract, the Court must apply it. It is not for the Court to re-write the parties' bargain. It is where a term of a contract is open to more than one interpretation that it will be generally appropriate for the Court to adopt the interpretation which is most consistent with business common sense.
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 applied; Al Sanea v Saad Investments Co Ltd [2012] EWCA Civ 313 applied.
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3. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is only concerned to discover what the instrument means.
Attorney General of Belize and Others v Belize Telecom Ltd and Another [2009] 1 WLR 1988 applied.
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4. A court is only justified in departing from the plain meaning of words if it leads to an absurdity, that is, where the court is satisfied that a mistake has been made and is satisfied as to what has to be done to correct it. While KBC and SCI not receiving Carried Interest may seem unfair to the Salford Respondents in hindsight, it does not make the arrangement or scheme devoid of any commercial purpose or lead to a ridiculous or absurd result.
Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 applied.
Value Discovery Partners LP ("the Partnership" / "VDP") was established in 2004 as a limited partnership under the laws of the Virgin Islands. The Partnership terminated on 1 st July 2012 and is now in liquidation. This appeal arises from proceedings brought in the court below by the joint liquidators of the Partnership, Mr. Kenneth Krys and Mr. John Greenwood. The liquidators' claim essentially concerned ascertaining the meaning of words used in VDP's Articles of Partnership, which meaning would impact upon the entitlements of the members of the Partnership to the assets of the Partnership in the liquidation.
At the time of the liquidation, the Partnership comprised the following 4 members: (i) the appellant, New World Value Fund Limited ("NWVF"), (ii) the respondent KBC Partners LC ("KBC"), (iii) the respondent SCI Partners LP ("SCI"), and (iv) the respondent Salford Capital Partners Inc. ("Salford"). 1 The Articles of Partnership of VDP defined NWVF as the Principal Limited Partner, KBC as Special Limited Partner I, SCI as Special Limited Partner II, and Salford as the General Partner.
Salford's principal role as the General Partner was to manage the assets of VDP; it had exclusive conduct and control of the Partnership's business, operations and affairs. NWVF, which had been incorporated in 2002 as an 'investment vehicle', had provided practically all of VDP's assets. Prior to the transfer of these assets to VDP however, certain individuals working for Salford had provided management services to NWVF (in respect of the assets). KBC and SCI represent the interests of these individuals in the present proceedings. KBC, SCI and Salford all brought the same case both in the court below and on appeal, and I shall refer to them collectively as "the Salford Respondents".
As mentioned above, NWVF initially held the vast majority of the assets which were later transferred to VDP. Between 17 th March 2005 and 21 st July 2006, a total of US$320 million in assets was transferred to VDP from NWVF. These assets consisted of mineral water businesses in the Ukraine, Georgia and the Russian Federation, and dairy, confectionary and bottled water businesses in the Balkans. SCI and KBC made nominal Capital Contributions to VDP of US$100.00 each.
VDP's investments were classed into "Strategies", which were groups of investments with common characteristics. Schedule 2 of VDP's Articles of Partnership listed the 3 Strategies of the Partnership as "Water"; "Balkan Food & Beverage"; and "Other". VDP's assets were 'actively managed' by Salford during the lifetime of the Partnership; the General Partner's focus was not on getting the assets sold, but rather, on establishing management teams for the assets,
integrating them and restructuring them, such that they increased in value. 2 It was not in dispute that as at the date of termination of the Partnership (1 st July 2012), not a single one of VDP's investments had been sold.Initially, the Partnership was to operate up until 1 st July 2008 ("the Termination Date"). However, Clause 11.2 of VDP's Articles of Partnership made it possible to extend the term of the Partnership past this date, provided that certain conditions were met. Clause 11.2.1 allowed for the extension of the Termination Date by 1 year (to 1 st July 2009) 'in order to permit an orderly liquidation of the Partnership Assets'. 3 Clause 11.2.3 stipulated that if the Termination Date had already been extended pursuant to 11.2.1 by 1 year, the term of the Partnership could be further extended by the General Partner after discussions with the Limited Partners, provided that the General Partner was of the view that orderly liquidation of the Partnership's Assets was not possible (during the initial 1 year extension period) due to market conditions for the sale of certain investments. Clause 11.2.3 further stipulated that the Termination Date could be extended in no event, by more than 4 years. In the circumstances, the parties extended the Termination Date to 1 st July 2012, pursuant to Clause 11.2.3.
Salford, as the General Partner, was to be remunerated for managing VDP's assets during the term of the Partnership. Pursuant to Clause 7.12 of the Articles of Partnership, Salford was to receive a 'Management Fee' for each...
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