Reinhard v Ondra LLP & Ors

Where a contract for an LLP role contains inconsistent employment and membership provisions, the court must construe the agreement as a whole and identify the relationship created by its substantive rights and obligations. Labels are not conclusive. Where the parties did not appreciate that an LLP member could not also be an employee, the preferred construction is the one which most closely achieves the commercial effect of the relationship they intended. The terms of an incorporated draft membership agreement must be taken into account. A notice terminating employment-related provisions does not necessarily terminate membership; membership must be ended in accordance with the separate contractual exit mechanism. Earlier informal representations may be corrected by contractual documents which a reasonable person would understand and consider before contracting. A claimant cannot ordinarily establish inducement by relying on a mistaken assumption that the contractual documents did not apply.

This supplemental judgment determined issues left open after the court’s earlier judgment concerning Mr Reinhard’s relationship with Ondra LLP. The principal issue was whether the contract made him an employee or a member holding a share in the LLP, given section 4(4) and the incorporation by reference of the April Draft. The court also considered whether earlier letters constituted valid Exit Notices and whether Mr Reinhard had been induced by a representation that his membership share could not be removed unilaterally.

The court further addressed pleading objections and the application of the principles in Clyde & Co v Bates van Winkelhof, [2014] UKSC 32, and Peekay International Ltd v Australia & New Zealand Banking Group Ltd, [2006] EWCA (Civ) 386.

1. Construction. The Membership construction was preferred. The contract, read with the April Draft, created a membership relationship rather than an employment relationship. The April Draft formed part of the offer accepted by Mr Reinhard and had to be considered in construing the contract as a whole. The language of employment could not prevail over the substance of the rights and obligations. The same result followed, although less clearly, on the alternative assumption that the parties understood the effect of section 4(4).
2. Section 4(4) did not require the court to begin with a predisposition based on the status which the individual would have had in a traditional partnership. The court had to weigh the competing contractual factors and determine whether the contract created employment or membership. The traditional partnership analogy was a legitimate pointer where the contract was ambiguous. On the facts, Mr Reinhard would have been a partner in the notional partnership, which supported the Membership construction.
3. Termination of employment-related provisions was distinct from termination of membership. The letters of 3 June and 21 June 2011 did not constitute valid Exit Notices. The earliest valid Exit Notice was the notice dated 15 January 2015. Written consent under clause 5.5(C) was required as evidence for Ondra’s benefit, but its absence at the time of service did not invalidate the notice where consent had in fact been given.
4. The misrepresentation claim failed. A reasonable person in Mr Reinhard’s position would have understood, on reading the April Draft, that it formed part of the contractual arrangements and contained provisions permitting membership to end without consent. Applying Peekay International Ltd v Australia & New Zealand Banking Group Ltd, [2006] EWCA (Civ) 386, the relevant inducement was the claimant’s mistaken assumption that the April Draft did not apply, not an operative representation by the defendants. The common-law duty relied on under Esso Petrol Co Ltd v Mardon, [1976] QB 801, was not established.
5. The misrepresentation claim was dismissed. The Membership construction and the validity of the 15 January 2015 Exit Notice were determined in favour of Ondra.