Book chapter on fiduciary duties of partners and LLP members

As those of you who attended this year's Partnership Forum Conference may recall, one of our speakers, Professor Laura Macgregor of the University of Edinburgh, referred to a book chapter which she had recently published, and a number of delegates asked for further details.

The book is:

Paul S Davies and Tan Cheng-Han (eds), Intermediaries in Commercial Law (2022) Hart Publishing. 9781509949090. £95.

The chapter is:

Laura Macgregor, ‘The Partner’s Fiduciary and Good Faith Duties: More than Just an Agent?’ (pp 253-272 of the book)

The chapter explores the partner in the UK partnership as a type of commercial intermediary. It explores the way in which more general agency law and fiduciary law scholarship applies to the specific commercial context of partnerships. Ultimately, it questions whether designation of the partner as an “agent” continues to be a key factor in understanding the totality of the partner’s rights and duties. Rather, many important rights and duties are either sui generis or emanate from fiduciary (rather than agency) law.

The partnership structure poses challenges to the application of standard agency and fiduciary law principles. The partner is an unusual agent, being present at both the level of agent, and at the level of principal (as an actor who forms part of the partnership). In key respects, partnerships differ from classic fiduciary relationships. The partner is, for example, perhaps not as vulnerable as other types of principals. Rules on secret profits apply with difficulty where the partner in fiduciary breach shares in secret profits disgorged to the partnership. These facts should lead us to question whether the designation as “agent” continues to be as important in understanding the totality of partnership law (beyond the partner’s ability purely to bind the firm). This perhaps mirrors developments in agency case law, as we question whether the label “agent” necessarily determines the extent of fiduciary duties (Prince Arthur Ikpechukwu Eze v Conway and anor [2019] EWCA Civ 88).

A key problem is the need to unravel the interaction of good faith and fiduciary duties within partnerships. In this exercise, partner to partner duties, on the one hand, and partner to firm duties, on the other, must be differentiated. Of particular interest is the heightened relevance of partner to partner duties at times of “stress” within partnerships, for example where an individual partner is being excluded from, or is resigning from, the partnership (as illustrated recently by Rennie v Rennie [2020] CSOH 49). It may be possible to draw on scholarship (Nolan and Conalgen) on what it means for fiduciaries to act in good faith.

The chapter takes into account differences between Scots law (where the partnership is a separate juridical person) and English law (where it is not). Analysis will draw upon different types of partnerships: the partner formed under the Partnership Act 1890; limited partnerships and limited liability partnerships.

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