Flanagan v Liontrust Investment Partners LLP & Ors

A compulsory-retirement notice under an LLP agreement must comply precisely with the agreed notice period. A notice giving more than the specified period is ineffective where the agreement requires notice of six months expiring no earlier than a stated date. A contractual power to place a member on garden leave must be exercised by the body to which the agreement assigns that power.

Unjustified exclusion of an LLP member from the business may breach the contractual framework, particularly where the agreement contemplates an initial period of active participation. However, the common-law doctrine of repudiatory breach is implicitly excluded from multi-party agreements governing an LLP’s internal rights and duties, because its operation could produce inconsistent regimes among members.

The petitioner was a member of Liontrust Investment Partners LLP under an LLP agreement and side letter. The agreement provided for a compulsory initial term and allowed compulsory retirement on six months’ notice following a decision of LIS as a Reserved Matter. It separately vested garden-leave powers in the Management Committee.

Liontrust closed the fund managed by the petitioner, served a purported retirement notice, and excluded him from the business. Further notices were later served. The petitioner challenged their validity, alleged breach of contract and unfair prejudice, and contended that he had accepted a repudiatory breach so that the statutory default rules applied. The central issues were the validity of the notices, the contractual effect of the exclusion, and whether repudiation could operate in a multi-party LLP agreement.

1. The first retirement notice was invalid. The agreement required notice of precisely six months, expiring no earlier than the end of the compulsory initial term. It did not require merely six months or more. The notice could not retrospectively mature into a valid notice on the earliest date on which it could have been served.

2. The words in clause 18.1.3 requiring a decision of LIS as a Reserved Matter imposed a dual condition. LIS had to decide to require retirement, and the matter also had to be considered and approved by the Management Committee. The first and second notices were therefore ineffective because the Management Committee had not been involved. The third notice was provisionally also invalid because the petitioner remained a Management Committee member and had not been given notice of the relevant meeting.

3. The garden-leave decision was invalid. A valid retirement notice was a condition precedent to the power, and clause 21 vested that power in the Management Committee alone. The petitioner’s complete exclusion from the LLP’s business therefore breached the LLP’s contractual rights under the LLP agreement and side letter. Closure of the fund did not automatically justify exclusion. Liontrust should at least have discussed in good faith whether a new fund or another role could use his talents.

4. The exclusion was repudiatory. Objectively, the LLP showed an intention to disregard fundamental contractual provisions governing the petitioner’s membership and participation. The fabrication of minutes of a non-existent Management Committee meeting reinforced that conclusion. The petitioner had not affirmed the agreement merely by receiving fixed monthly allocations and continuing to receive health insurance. In any event, the continuing breaches gave him a fresh right to accept repudiation after payments ceased.

5. Despite that conclusion, the common-law doctrine of repudiatory breach was implicitly excluded from this multi-party LLP agreement. Section 5 of the Limited Liability Partnerships Act 2000 required the LLP and its members to remain subject to one coherent set of internal rules. Acceptance by one member could not replace the agreed regime with the default rules as between that member and the LLP while the agreement continued among others. The petitioner therefore remained governed by the LLP agreement and acquired no equal share of profits or capital under the default provisions.

6. The meeting at Christopher’s Bar created no collateral contract and involved no actionable misrepresentation. No sufficiently precise marketing term could be implied into the LLP agreement or side letter. The exclusion was unfairly prejudicial for section 994 purposes, but the petitioner’s substantive relief lay in declarations and damages rather than a buy-out order.