Flanagan v Liontrust Investment Partners LLP & Ors

A written notice exercising a contractual power of appointment may also impliedly exercise a power to remove existing office-holders where the document, read in context, makes that intention clear. The court may correct an obvious drafting slip where the intended meaning and the substance of the correction are sufficiently certain. In assessing costs, the successful party is identified by the substance and outcome of the litigation, including significant recovery on an alternative claim. The general rule that costs follow the event remains the starting point, but the court may make proportionate, issue-based orders having regard to the parties’ conduct, relative success and the costs attributable to issues on which each side succeeded or failed.

This was a consequential judgment following the liability judgment in Flanagan v Liontrust Investment Partners LLP and Others [2015] EWHC 2171 (Ch). The court reconsidered whether a written notice dated 1 August 2013 had removed Mr Flanagan from the LLP’s Management Committee. That issue determined whether a later termination letter was valid. The court also determined who was the successful party for costs purposes, the appropriate departure from the general costs rule, and the allocation of costs between the principal issues.

1. Validity of the third termination letter. The 1 August 2013 notice was to be read in its commercial and documentary context. Although it referred to consent to all individual members being appointed, the accompanying list, contemporaneous evidence and restructuring of the governance arrangements showed that the intended purpose was to appoint the listed members and reduce the committee’s size. The reference to “all” was a careless drafting slip which had to be rejected to avoid rendering the notice futile.
2. The power in clause 12.3.2 of the LLP Agreement to appoint committee members included an implied power to remove existing members. The notice therefore removed members omitted from the new list, including Mr Flanagan. The court applied the principles concerning implied exercise of a power discussed in Davis v Richards & Wallington Ltd [1990] 1 WLR 1511. The contemporaneous email was admissible because the relevant intention was that of LIS, the holder of the power, and the transaction was unilateral.
3. The third termination letter was consequently valid. Mr Flanagan ceased to be a member of the LLP on 22 June 2015. It was unnecessary to decide the alternative argument based on his deregistration with the FSA.
4. Costs. Applying CPR rule 44.2, the court treated Mr Flanagan as the successful party because he recovered approximately £214,000, exceeding Liontrust’s unamended offer, notwithstanding his failure on the primary buy-out claim. The principles in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC) and Fox v Foundation Piling Ltd [2011] EWCA Civ 790 supported that approach.
5. The court nevertheless departed from the general rule because Mr Flanagan pursued an opportunistic and high-risk primary claim, substantially unsuccessful sales and marketing allegations, and other issues which materially increased the costs. Mr Flanagan was awarded 50% of his costs on the standard basis and was ordered to pay 60% of Liontrust’s costs on the standard basis. An interim payment of £300,000 was proposed, subject to further submissions.

The judgment was a first-instance consequential judgment following the court’s earlier liability judgment in Flanagan v Liontrust Investment Partners LLP and Others [2015] EWHC 2171 (Ch).