Tribe v Elborne Mitchell LLP [2021] EWHC 1863 (Ch)
An LLP agreement made provision for each member to receive a fixed share of profits and, if there was a balance, distributions from a discretionary fund could be allocated by a decision of the members on a recommendation from the senior member. A former LLP member disputed the distributions in certain years.
The court noted first that where an agreement could give rise to rival interpretations, weight should be given to the interpretation which was more consistent with business common sense (Wood v Capita Insurance Services [2017] UKSC 24). Second, where the agreement gave one party a discretion in making an assessment or choosing from a range of options there was an implied term that the discretion would not be exercised in an arbitrary, capricious or irrational manner, and such a term was difficult, though not impossible, to exclude (Braganza v BP Shipping Limited [2015] UKSC 17, Mid Essex Hospital NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200 and Charterhouse Capital Ltd [2015] EWCA Civ 536). The discretion was also fettered because in the context of an LLP a decision-making power must be exercised in good faith and in the best interests of the LLP. Thus the senior member making a recommendation, and the members collectively in making a decision, must exercise good faith and should not take into account irrelevant matters or ignore relevant ones, and the recommendation or decision should not be outside the range of reasonable proposals that might be made in the circumstances.
Applying these principles, the court held that the Agreement here did not require the members to adopt the senior member’s recommendations, or to adopt or reject them in their entirety. Even if this had been a possible interpretation, it would have been rejected because it made less commercial sense, since it would have removed the opportunity for members to bring their personal knowledge and opinions into a debate, and would have meant that the whole process might fail and have to start again because of the senior member’s failure to include a significant fact or matter. The recommendations did not need to be perfect or include all possible analyses, but needed to be full enough to allow a debate between partners. The court concluded that the recommendations had been reasonable exercises of the discretions to recommend and decide on distributions.
Herberstein v TDR Capital General Partner II LP and others [2021] CSOH 64
A limited partner in a limited partnership registered in Scotland brought an action of count, reckoning and payment against the partnership. This action is a two-part procedure in the Scottish courts whereby a person such as a partner can compel payment of sums due to them in circumstances where they are not aware of precisely what sums are due. The first stage is concerned with whether the defender is liable to account, and the second stage is to ascertain what sum is due. This judgment concerned the first stage.
The court noted that there were advantages in choosing a Scottish limited partnership because under Scots law, unlike English law, partnerships had separate legal personality, but those who sought these advantages must accept the consequence of this choice that Scots law applied. It was fundamental to Scottish law that partners must act with what was referred to traditionally as ‘exuberant trust’ and more recently as ‘utmost good faith’, and the Scottish action of count, reckoning and payment was available to determine the amount due to a partner. The purpose of that action was the payment of sums due, not the provision of documents, which was simply a procedural step. This meant that it was different to the purpose in Inversiones Frieira SL and another v Colyzeo II LP [2012] Bus LR 1136, which was to obtain access to documents so as to enable the limited partners to understand the business in which they had invested. Here the pursuer was not seeking to understand the business, but to be paid what was due to him.
The court declined to depart from the normal two stages of the procedure, since this was not a situation where the pursuer had already received accounts. At this first stage the only question was whether the defenders owed a duty to account to the pursuer, and it held that they did. Partners owed a common law duty to account to other partners, and a duty under s28 of the Partnership Act 1890 to render true accounts and full information to the other partners, and the partnership agreement here did not have the effect of contracting the partners out of that duty. Its provisions simply regulated the administrative accounting procedure on the preparation and form of accounts and did not displace the legal obligation to account. The court expressly left open the question of whether it was ever possible to contract out of the s28 or the common law obligation to account, since that issue did not arise on the wording of this particular partnership agreement. It concluded that the action should proceed to the second stage.
Clare Murray, founder and managing partner of law firm CM Murray (which specialises in partnership and employment law) has launched a series of interviews with other law firm founders.
The third podcast is now available at:
https://www.cm-murray.com/knowledge/law-firm-founder-conversations-podcast-episode-3-michael-kim-co-founder-of-kobre-kim/?utm_source=rss&utm_medium=rss&utm_campaign=law-firm-founder-conversations-podcast-episode-3-michael-kim-co-founder-of-kobre-kim#page=1
The second podcast is available at: https://www.cm-murray.com/knowledge/law-firm-founder-conversations-podcast-episode-2-joydeep-hor-founder-of-people-culture-strategies-sydney-australia/
The first podcast is available at: https://soundcloud.com/user-30089331/law-firm-founder-conversations-episode-1-laura-devine-founder-of-laura-devine-solicitors?utm_source=clipboard&utm_campaign=wtshare&utm_medium=widget&utm_content=https%253A%252F%252Fsoundcloud.com%252Fuser-30089331%252Flaw-firm-founder-conversations-episode-1-laura-devine-founder-of-laura-devine-solicitors
Law firm Lowenstein Sandler has a blog with a couple of interesting recent articles on:
- limited partner's waiver of right to inspect documents (Delaware), available at: https://www.businesslitigationblog.com/2021/12/is-a-limited-partners-waiver-of-their-statutory-right-to-book-and-records-enforceable-the-answer-is-less-than-clear/#page=1
- continuing partners' fiduciary duties to a departing partner (New York), available at: https://www.businesslitigationblog.com/2021/12/dealing-with-fiduciary-duties-to-a-business-partner-upon-exit/#page=1
Law firm Solsidus Law has published a brief update on the new requirement for Cypriot partnerships to comply with the laws on disclosure of beneficial ownership, noting that it had been widely assumed that these laws did not apply to partnerships. Stella Koukounis' article 'Attorney general's opinion on disclosure of beneficial owners of partnerships' is available via Lexology at https://www.lexology.com/commentary/corporate-commercial/cyprus/solsidus-law/attorney-generals-opinion-on-disclosure-of-beneficial-owners-of-partnerships?utm_source=Lexology%2bDaily%2bNewsfeed&utm_medium=HTML%2bemail%2b-%2bPro%2bEmbed%2b-%2bGeneral%2bsection&utm_campaign=Lexology%2bsubscriber%2bdaily%2bfeed&utm_content=Lexology%2bDaily%2bNewsfeed%2b2021-10-08
If you are not already subscribed to Lexology, you will need to subscribe - but it is a free service.
I am delighted to report a successful in-person Conference, which was attended by a range of delegates including academics, solicitors, barristers, paralegals, journalists, and representatives of BEIS, the Law Commission and HMRC. The speakers were Roderick I’Anson Banks, senior barrister in partnership law and editor of the leading partnership text (regularly quoted by the courts) Lindley and Banks on Partnership; Professor Geoffrey Morse of the University of Birmingham, author of the leading academic partnership text; Jeremy Callman, barrister in partnership law and author of many Practical Law sources on partnership law; Mark Baldwin, tax partner in a leading City firm and co-author of a forthcoming text on investment partnerships; Dr Lida Pitsillidou of UCLAN Cyprus; Luke Burgin, paralegal at a Newcastle law firm; and Oliver Bullough, investigative journalist and author of Moneyland. This reflects the Forum’s mission to promote debate on partnership law and the law relating to other business vehicles which provide alternatives to the limited company and to develop collaboration between academics and practitioners researching and teaching in these areas of law and connected areas.
The round table discussion which concluded the event considered:
i) That this was the best Conference yet.
ii) Early/mid September was a good time for the Conference to be held in the future.
iii) a blended approach to attendance, with both in-person and online attendance, would not work. The Conference should therefore continue to be an in-person only event, unless Covid restrictions require it to be moved entirely online as in 2020.
iv) The Conference should continue to include a range of speakers – from the profession, from academia, and from the 4th estate. I have already asked the Law Commission to speak at the next available Conference after their current informal consultations result in more concrete consultations. The delegate from HMRC also offered a paper from either himself or one of his team.
v) Other possible speakers or delegates who should be contacted (in addition to the current mailing list of past speakers/delegates, APP/SLS/SLSA/ALT members) included anyone who had contributed to a relevant BEIS consultation in recent years. included partnership tax advisers, partnership accountants and partnership mediators.
vi) Consideration should be given as to how students might be encouraged to attend.
Feedback from delegates has suggested the following topics for future Conferences – so if you have an interest in any of these areas, please do considering submitting a proposal when the Call for Papers for the 2022 Conference is made (though we will of course welcome proposals on any topics relating to partnerships, LLPs or other business vehicles which provide alternatives to the limited company).
• Partnership insolvency
• Law reform
• LLPs and the structure of partnership firms
• Restrictive covenants in partnership context (2 requests)
• Dealing with negotiated partner exits (leverage and strategy).
• PFLPs
• Team moves
4th Annual Conference of the Partnership, LLP and LLC Law Forum
Nottingham Law School, Nottingham Trent University,
9 September 2021 (10am-4pm, registration from 9.30am)
Registration is now open for this one day in-person conference. The deadline for registration is 31 August 2021. We look forward to welcoming academics, postgraduate students and practitioners.
https://www.ntu.ac.uk/about-us/events/events/2021/09/4th-annual-conference-of-the-partnership,-llp-and-llc-law-forum
The programme includes:
• Roderick I’Anson Banks, Partnership Counsel, 9 King’s Bench Walk - Share and share alike – or are they?
• Professor Geoffrey Morse, University of Birmingham - What is the point of section 26 of the Partnership Act 1890?
• Lida Pitsillidou, University of Central Lancashire (Cyprus) - Derivative actions and LLPs
• Jeremy Callman, Ten Old Square, Lincoln’s Inn - Forfeiture in LLPs and Partnerships: an aberration or a new frontier?
• Mark Baldwin, Macfarlanes - Director/shareholder, partner, member – what’s in a name?
• Luke Burgin, trainee solicitor, St James’ Square Law Firm - Old Dogs and New tricks – the evolving role of the General Partnership in the professional services sector
• Oliver Bullough, investigative journalist - Why the UK failed to regulate Limited Partnerships
Attending the Conference
• To register for the conference please visit our online store at https://www.ntu.ac.uk/about-us/events/events/2021/09/4th-annual-conference-of-the-partnership,-llp-and-llc-law-forum
• There is a conference fee of £25 payable via the online store.
• There will be lunch provided, as well as tea/coffee and refreshments at registration and during the morning and afternoon breaks.
• This will be an in-person event unless the re-imposition of Covid-19 restrictions require it to be moved online.
Please do email Elspeth Berry at elspeth.berry@ntu.ac.uk if you have any queries.
We look forward to seeing you!
Hong Kong law firm LC Lawyers LLP has published a short article discussing the judgment in the recent Tai Dou Building Contractor case, 'A salutary lesson for partners: you are liable for your firm’s anti-competitive practices even if you were not involved in them'. It is available at: https://s3.amazonaws.com/documents.lexology.com/c4359415-5c6b-4093-b26f-c6652f74e95f.pdf?AWSAccessKeyId=AKIAVYILUYJ754JTDY6T&Expires=1630499657&Signature=qcLqJiTe0iTNWr2JKtTjOv81qFg%3D
Law firm CM Murray have published a short article on 'Investigations into Partner Wrongdoing - Common Concerns and Best Practice'. It is available at:
https://www.cm-murray.com/knowledge/investigations-in-to-partner-wrongdoing-common-concerns-and-best-practice/
The Law of Limited Liability Partnerships, John Whittaker and John Machell QC (5th edn, Bloomsbury Professional 2021), 792pp., hardback, ISBN: 9781526516695. Also available as ePDF, ISBN: 9781526516688; and EPub, ISBN: 9781526516701.
This is one of two leading texts on UK LLPs, the other being Palmer’s Limited Liability Partnership Law (reviewed elsewhere on this website).
This book continues to be multi-authored and although there have been some changes to the team, it continues to benefit from the extensive practical experience and expertise of its authors. John Machell QC, the General Editor, is a senior barrister focussing on commercial law including partnerships and LLPs, John Whittaker, the Consultant Editor, is a retired barrister, and many other members of Serle Court chambers are also credited in this edition. Specialist contributions included the chapters on discrimination and whistleblower protection (Susanne Foster, updated for this edition by Clare Murray, Sarah Chilton and Beth Hale), taxation (Colin Ives with assistance from Sean Richardson), and Financial Services Regulation (John Goodhall, updated by Nick Williams.
This 5th edition retains the basic chapter structure of the 3rd and 4th edition, (see further the review of the 4th edn on this website) with a detailed consideration of the law relating to all aspects of an LLP’s life from formation to winding up. In addition to what might be described as standard chapters (such as incorporation, the rights and duties of members, and decisionmaking), it includes chapters on the LLP as a corporate entity, charges and debentures, conversion from a partnership, accounts and audit, the appointment and role of auditors, and investigations and striking off. It also includes many chapters on the separate issues arising on winding up and insolvency. The Appendices include the full text of the Limited Liability Partnerships Act 2000 and the Limited Liability Partnerships Regulations 2001, though not – no doubt due to their length – the Limited Liability Partnerships Regulations 2009.
New sections for this edition include separate sections on the duty to notify changes to the Registrar, forfeiture (including the judgement in Hosking v Marathon), sexual harassment and bullying, permanent health and disability insurance, detriment (in the context of whistleblowing claims), Brexit (in the context of financial services regulation), the term of office of auditors, rectification of the register (including the judgment in Grupo Mexico de CV v Registrar of Companies), and compensation orders in disqualification proceedings. The chapter on accounts and audit now has several new sections including filing derogations for small LLPs and, in relation to non-IAS individual accounts, abridged accounts, reports, micro-entity LLPs and dormant subsidiary LLPs. The chapter on voluntary arrangements has been re-organised to include the new free-standing moratorium. Other new developments covered in this edition include the judgment in McTear v Eade on the clawback provisions of 214A of the Insolvency Act 1986, and a number of judgments on derivative claims. The sections dealing with fetters on decision-making powers has been expanded as the effects of the decision in Braganza continue to be explored by the courts and commentators.
The text continues to highly readable. Although some closely related material is contained in separate chapters, this is inevitable in a book of this length and there are plenty of cross references. The use of numbered paragraphs and chapter subheadings, as well as the detailed contents list and index, assists in ensuring that all relevant material can be located by the reader. There are substantial footnotes directing the reader to relevant primary sources, and often providing considerable further information, although some of the references to cases which do not appear in the main text are easily missed.
This edition therefore continues to be a comprehensive and authoritative source of reference on all aspects of LLP law for practitioners, and also for academics and postgraduate students. The close relationship of LLP law to that of general and limited partnerships, and to limited companies, means that this book will also be of interest to practitioners and researchers in those areas.