Hilton v D IV LLP & Ors

Members of a limited liability partnership have an unqualified contractual right to inspect the LLP’s books and records where the governing deed so provides. The phrase “books and records” has a functional meaning and includes material reasonably necessary or advantageous for establishing the LLP’s rights against third parties or determining members’ rights between themselves.

The member’s purpose is generally immaterial. A Norwich Pharmacal order is exceptional and requires innocent facilitation of wrongdoing and a necessary and proportionate response.

The claimants represented investors in LLPs used to operate collective investment schemes. They sought declarations that they could inspect and copy documents held by the defendants’ former solicitors, either under the partnership deeds or under the Limited Liability Partnerships Regulations 2001. Alternatively, they sought Norwich Pharmacal disclosure against the solicitors.

The defendants disputed the contractual construction and argued that access should be refused because the documents were sought to investigate possible claims, related litigation was stayed, and some documents were privileged. The central issues were the scope of the contractual inspection clauses and whether disclosure from the solicitors was necessary and proportionate.

1. Inspection right. The claimants were entitled to inspect the documents, themselves or through authorised agents, insofar as they were books and records of the LLPs of which they were members. Clauses 12 and 13 created an express and unqualified right of inspection.
2. Functional scope. Applying Inversiones Friera SL v Colyzeo Investors II LP, [2011] EWHC 1762 (Ch), [2012] Bus LR 1136, the court held that the relevant question was whether material was necessary or advantageous for establishing the LLP’s rights against third parties or determining rights between members. Material concerning what might have been was generally excluded, subject to the operating-expense qualification.
3. Statutory context. Regulation 7(7) supplied the default inspection right, subject to the governing deed. The contractual clauses implemented that position. Although the designated members had discretion over what additional records to maintain, any such records became subject to inspection once maintained.
4. Purpose and privilege. The purpose for which inspection was sought was immaterial, subject only to a very plain case of an improper purpose. The court rejected delay, possible limitation, the stay of other proceedings, and investigation of claims as grounds for refusing access. Documents held by solicitors were not excluded merely because they were privileged.
5. Norwich Pharmacal relief. The alternative application failed. The solicitors had, at most, a tenuous connection with the alleged wrongdoing and merely possessed documents relating to it. The claimants had more direct potential remedies against the LLPs, including an application under CPR r 31.16. Disclosure was therefore not a necessary and proportionate response.
6. Order. The claimants were entitled to inspect qualifying books and records. The application for Norwich Pharmacal disclosure failed. Copying, mixed records, and disputed document-by-document scope were left for further argument or agreement.