Nylon Capital was a hedge fund that was set up seven years ago, and Barclays made an initial capital investment of £250 million into funds under its management. The parties entered into an LLP agreement to cement the relationship and to provide for the management of the funds. However, in December 2009 Barclays gave notice that it wanted to withdraw its investment early, and, following that withdrawal, the funds’ assets were liquidated and cash returned to investors. Nylon argued that, in withdrawing its funding, Barclays was obligated to pay its share of expenses incurred by the funds, which Nylon’s accountants estimated to be more than £10 million, under the terms of the LLP agreement.
Barclays disputed that it owed Nylon any money for expenses, and issued legal proceedings to obtain a declaration from the High Court that Barclays was under no obligation to pay Nylon those expenses. The High Court agreed with Barclays and ruled that it was under no obligation to pay the expenses that Nylon had claimed.
Barclays also asked the High Court to confirm that Barclays did not have to pay Nylon its profits on its original capital investment, which Nylon rejected, again arguing that Barclays was obliged to do so under the terms of the LLP agreement. Nylon applied for a stay to bring an end to the proceedings brought by Barclays, which was initially rejected but appealed to the Court of Appeal.
The Court of Appeal has now rejected that application for a stay, saying that a satisfactory outcome could only be obtained by a full trial with evidence, entitling Barclays to continue with proceedings. However, in giving its ruling, the Court of Appeal noted that the parties had reached a settlement and had asked the Court of Appeal not to actually give its judgment on Nylon’s appeal. The Court of Appeal decided, however, that there was no reason why the judgment should not be given, despite the settlement that had been agreed.
The main implication from this ruling is that, whilst the parties had reached a settlement, the Court of Appeal still issued the judgment. However, the case is also a useful reminder of the need for clarity and certainty in drafting commercial agreements, including those that define investment relationships.