F&C Alternative Investments (Holdings) Ltd v Barthelemy (No 2)

The court considered a multi-faceted dispute arising out of the LLP agreement dated 3 December 2004 for F&C Partners LLP. Central legal issues were (i) the validity of Put Option notices served by the two individual members under paragraph 1.7 of the Fourth Schedule (rights triggered by specified breaches amounting to gross negligence or gross misconduct with a materially adverse effect), (ii) whether the conduct of Holdings and/or F&C plc amounted to unfairly prejudicial conduct under sections 994–996 as applied to an LLP, and (iii) the lawfulness of internal investigatory steps and IT measures taken by the parties (including alleged breaches of the Computer Misuse Act 1990 and the Data Protection Act 1998).

The court held the First and Second Put Option notices (25 February 2009 and 22 May 2009) valid. It found that Holdings (acting by its representatives) had, by the Members' meeting and related steps culminating in the stoppage of the individual members' advance drawings on 25 February 2009, repudiated key management and payment arrangements and breached clause 11.1 (and an implied term not to procure non‑performance) and clause 13.6 of the Agreement. That conduct objectively amounted to "gross misconduct" with a materially adverse effect and justified the exercise of the Put Option under paragraph 1.7. The Third Put Option notices (24 December 2009) were not valid.

The court also found that Holdings and F&C plc had, by a course of conduct (including the way meetings and the Service Agreement/Group policies were used, and the handling of the compliance/IT investigation), conducted the LLP’s affairs in a manner unfairly prejudicial to the interests of the two individual members and therefore the Defendants succeeded under section 994. Conversely the Cross‑Petition brought by Holdings failed: the court rejected the allegation that the partners had mis‑managed or acted oppressively to justify relief against the Defendants.

The proceedings comprised (i) a Part 7 claim by Holdings seeking declarations that Put Option notices were invalid, (ii) a petition by the individual members under sections 994–996 (unfair prejudice) and (iii) a cross‑petition by Holdings under the same statutory provisions. The LLP had been formed in 2004 under a detailed LLP Agreement (including a Fourth Schedule with Put and Call options). Key contested themes were: the scope of authority and duties of F&C representatives on the LLP Board and Management Committee; applicability of F&C Group IT and information policies to the partly independent LLP; the LLP’s marketing arrangements under clause 13.7; and whether Holdings/F&C plc had used corporate processes to deprive the two individual partners of contractual and equitable protections.

• Nature of relief sought: Defendants sought declarations and orders to give effect to their Put Options and, alternatively, orders under sections 994–996 requiring a buy‑out. Holdings sought declaration of invalidity of notices and cross relief under sections 994–996.
• Issues framed: (a) validity of Put Option notices under para.1.7 (definition and proof of "gross misconduct"/"gross negligence" and "materially adverse effect"); (b) construction and effect of specific Agreement provisions (notably clauses 11.1, 13.6, 13.7, 17–19, 18.4.11 and the Fifth Schedule); (c) whether LLP Board representatives are agents of Holdings or owe fiduciary duties to the LLP and the proper content of those duties; (d) applicability of Group IT and compliance policies to the LLP; (e) lawfulness and fairness of the compliance investigation and the reports produced; and (f) whether sections 994–996 applied and if so against which corporate defendants.
• Court’s reasoning (concise): The Agreement was the primary constitution; fiduciary duties of board and committee members must be moulded by that contract and business context. The corporate member’s contractual duty of "utmost good faith" (clause 13.6) and the LLP’s governance structure limited how far group policies could be imposed on the semi‑independent LLP. Nevertheless F&C (via holdings’ representatives) breached express and implied contractual obligations by seeking to channel decision‑making to a Members' meeting and by the deliberate stoppage of the partners’ advance drawings on 25 February 2009. On objective assessment those acts amounted to gross misconduct and had a materially adverse effect, so the Defendants validly exercised their Put Options. The compliance investigation was poorly conducted and unfair in parts, and the reports could not justify the exclusion and removal steps taken against the partners; as to IT, the LLP was entitled to pursue its own interim arrangements though the dual‑homed linkage presented a serious risk to F&C’s network and was inappropriate without cooperative resolution.

The court ordered that liability be determined in these terms and that quantification and remedial steps (buy‑out price mechanics, relief under s.996) be addressed at further directions/hearings.

The court upheld the Defendants’ First and Second Put Option exercises and ordered that Holdings is liable to purchase their respective interests pursuant to paragraph 1.7 of the Fourth Schedule, concluding that Holdings’ conduct (implemented in particular by the Members' meeting and the stopping of monthly drawings on 25 February 2009) repudiated key contractual protections and amounted to gross misconduct with a materially adverse effect. The Defendants also succeeded in their petition under sections 994–996: the court found that Holdings and F&C plc had conducted the LLP’s affairs in a manner unfairly prejudicial to the Defendants. The Cross‑Petition by Holdings failed. The court gave detailed reasoning about duty, the LLP governance structure, construction of the Agreement, the limited application of Group IT policies to a partly independent LLP and unfairness in the conduct of the compliance investigation.