Fund Managers’ Falling Out Triggered $3 Million Contract Dispute

In an extreme case of workplace malaise, a spectacular falling out between two fund managers who were jointly responsible for the investment strategy of a publicly listed private equity fund was the trigger for a $3 million High Court contract dispute.

The fund managers (A and B) were together tasked with investing tens of millions of pounds on behalf of the fund. However, their relationship had descended into one of entrenched acrimony and all trust between them had been destroyed. Each had avowed that they could not, and would not, work with the other in the medium or long term and had communicated with each other through lawyers.

Faced with that impasse, the fund terminated its contract with the company in which A was the leading light (company A) and appointed B’s company (company B) as its sole investment management adviser. Company A claimed more than $3.3 million in damages from the fund, alleging breach of contract.

In dismissing company A’s claim, the Court found that the fund had been justifiably concerned that A and B were incapable of working together constructively and that the intractable dispute between them was affecting their ability to make investment decisions. In those circumstances, the Court found, ‘without any real hesitation’, that there had been a material breach of the contract whereby companies A and B had agreed to provide their services jointly. The notice of termination was therefore valid.