Hosking v Marathon Asset Management Llp

A partner’s or LLP member’s profit share is not inherently immune from the equitable forfeiture principle. Where profit share can be identified as a reward for undertaking specific duties, it may constitute remuneration and be forfeited for serious fiduciary breaches, subject to proportionality and equity. A partnership or LLP agreement may exclude the principle, but silence does not necessarily do so. The statutory regimes governing partnerships and LLPs preserve the operation of equitable and common-law rules.

Mr Hosking appealed under section 69 of the Arbitration Act 1996 against arbitration awards arising from his retirement from Marathon Asset Management LLP. The arbitrator found that Mr Hosking had breached contractual and fiduciary duties by discussing a possible competing business with Marathon employees and awarded Marathon equitable compensation.

The arbitrator also ordered forfeiture of 50 per cent of certain profit-share payments, treating that element as remuneration for executive duties. The issue was whether profit share paid under a partnership or LLP agreement could in principle be subject to forfeiture for breach of fiduciary duty.

1. The appeal was dismissed. Profit share paid to a partner or LLP member can potentially be subject to the equitable forfeiture principle.
2. The principle is not confined to agents in the narrow sense. A partner and an LLP member are agents of the firm or LLP, and the rationale of forfeiture for fiduciary misconduct extends to fiduciaries more generally.
3. The distinction between profit share and remuneration is not absolute. Profit share may, in an unusual case, be identifiable as compensation for specified services. The law looks to substance rather than form.
4. The Partnership Act 1890, the Limited Liability Partnerships Act 2000 and the Limited Liability Partnerships Regulations 2001 do not exclude the principle. The partnership legislation preserves applicable equitable and common-law rules, while the LLP default rules are subject to the general law.
5. A contractual provision may exclude forfeiture, but its absence does not necessarily prevent forfeiture. The arbitrator had found that the forfeited sums were, in substance, remuneration for executive duties. The challenge therefore failed.

The judgment describes an appeal under section 69 of the Arbitration Act 1996 from arbitration liability and remedies awards. The court dismissed the appeal.