Bah humbug: take care over your fee definitions

Rhona Egerton

In Blackstar v Cheyne Capital, the Court of Appeal held that restructuring an investment meant it was no longer subject to the original arrangement so the right to a fee was extinguished.

Starting with a memorandum of understanding, the parties had entered into various agreements between 2006 and 2009 that set out the terms on which Blackstar would be entitled to fees. Blackstar would introduce Cheyne to investors, and then receive a proportion of Cheyne’s fees on certain investments stemming from those introductions. One of these investments, an EUR 220m tranche with a French pension fund, was defined in agreements between Blackstar and Cheyne as the “LuxCo Investment”.

In 2014, this investment was restructured, with one of the original parties, HDFP (defined in a letter agreement as the “LuxCo Investor”), novating its portion to another entity.

The issue for the court was whether Cheyne still had to pay fees to Blackstar on the restructured investment. This boiled down to the proper construction of the terms “LuxCo Investment” and “LuxCo Investor”. The court held that there was no need to read the definition in an “expansive way” when it was clearly defined in the agreements. The LuxCo Investment was made pursuant to an agreement made between HDFP and Cheyne: with HDFP out of the picture, the EUR 220m was no longer the LuxCo Investment on which Blackstar could claim fees.

The court was also tasked with deciding what rate of fees would be payable by Cheyne. The relevant wording was that the EUR 220m investment “currently produces a management fee … to Blackstar of 1.39% … as well as an incentive fee currently equivalent to 0.54%…”.

The court confidently rejected the argument that this imposed a specific obligation to pay. Rather, the rates noted in the agreement merely described the arrangement as it was at the time.