Termination of a fund management agreement upheld

22/05/14

QOGT Inc v. International Oil and Gas Technology Limited [2014] EWHC 1628 (Comm)

QOGT and QEP were appointed joint managers of an investment fund. The IMAA entitled the Fund to terminate the agreement on three years’ notice or for material breach if it was not remedied within 30 days of notice of breach.  The individuals behind the managers, Mrs Wanda Dorosz and David Sefton fell out badly, and the dispute became acrimonious and entrenched.  The independent directors of the Fund concluded that the relations between them had deteriorated to the point that management of the Fund could only continue with one or other of the managers, or a new one.  The Fund gave notice of material breach to the managers requiring them to re-establish a proper working relationship so as to be able to work together constructively and amicably in the best interests of the Fund.  After the expiry of 30 days, the Fund served notice of termination and appointed QEP sole manager.

QOGT claimed damages for wrongful termination of the IMAA.  At the trial before Popplewell J. it argued that there was no need for the managers to cooperate to reach agreement providing that they acted as they reasonably judged appropriate in relation to the management of the Fund, and that QOGT was not in breach.  Furthermore it contended that the notice of breach was defective.  The Fund counterclaimed damages for investments made allegedly in breach of the IMAA.

After a 4 week trial, Popplewell J decided that the IMAA required the joint managers to work cohesively as a team.  Where there were disagreements they needed to resolve their views and come up with a single approach.  He held that the managers were in material breach of their obligations to provide management services jointly and that the complete breakdown in the working relationship between the managers had the potential to do real damage to the Fund, and had already done so.  The notice of breach was sufficiently clear and unambiguous and it had not been remedied.  The IMAA was properly terminated and the action was therefore dismissed.  He further held that, in any event, QOGT had failed to prove that it had sustained any loss as a result of the termination of the IMAA.  The counterclaim was dismissed.

The judgment is here.