16/11/2023

Commercial Court summarily dismisses $38 million claim for carried interest

On 15 November 2023, Cockerill J handed down judgment in the case of Normann & Steinborn v XiO [2023] EWHC 2862 (Comm), summarily dismissing a claim for carried interest in connection with certain private equity investments.

The claimants were employees in the XiO Group, a global alternative investment business. During their employment, the XiO Group entered into certain investments which turned out to be very profitable. The claimants contended that they were entitled to a share of these profits, in the form of carried interest. Their primary claim was put in contract, but they alternatively pleaded the claim in unjust enrichment, proprietary estoppel, and on the basis of an express or constructive trust.

The third to fifth defendants (“D3–5”) applied to strike out the claims against them, or alternatively for reverse summary judgment, on the basis that the statements of claim disclosed no reasonable grounds for bringing the claim, and there was no real prospect of the claims succeeding.

The application succeeded in full. So far as the contract claim was concerned, it was held that there was no real prospect of showing that there was any offer and acceptance, but even if there was, any contract was not with D3–5, with whom the claimants had no relationship.

As for the unjust enrichment claim, it was held that in circumstances where the claimants had contracts with the first and second defendants which did not provide for carried interest, there was no room for a claim in unjust enrichment to circumvent those contracts. The claims based on proprietary estoppel and trusts were dismissed for similar reasons.

In granting summary judgment, Cockerill J emphasised that the summary judgment regime is designed not only to save the winning party from a longer wait for victory, but also to save the losing party from the expense and stress of a trial which it is destined to lose (para 61). It followed that, no matter how much the claimants may have wanted a trial, if the court were to let the claims go to trial, it would in truth be doing the claimants a disservice.

Luke Pearce KC appeared on behalf of the successful applicants, instructed by Debevoise & Plimpton LLP.