Horlick v Taylor & Ors

Where an interlocutory injunction would effectively determine a discrete issue, the applicant must show a stronger prospect of success than a merely seriously arguable case. The court must then consider whether damages would be an adequate remedy and where the balance of convenience lies. A contractual obligation of utmost good faith between members may be breached by convening a meeting on the minimum contractual notice where the meeting concerns fundamental changes to an LLP’s deed and members have had no proper opportunity to consider them. Compliance with formal notice requirements does not necessarily satisfy that obligation. The court may postpone the meeting where the proposed changes are significant, damages are difficult to quantify, and the asserted harm from delay is speculative.

The applicant, a member of Rockpool Investments LLP, sought an injunction preventing the respondents from holding a members’ meeting to consider substantial amendments to the LLP deed. The proposed amendments were notified on seven days’ notice, said to be the contractual minimum. The meeting would also involve members whose interests had been created through an earlier, unnotified issue of capital that substantially diluted existing voting rights.

The applicant relied principally on clause 16.1.2 of the deed, which required members to show the utmost good faith to the LLP and to one another. Section 994 of the Companies Act 2006 had been excluded by the deed. The central issues were whether the applicant had a sufficiently strong case of breach, whether damages would be adequate, and where the balance of convenience lay.

1. Threshold for relief. The court held that postponing the meeting would in practical terms grant final relief on that aspect of the dispute. A higher threshold than the ordinary American Cyanamid standard of a seriously arguable case therefore applied, following the approach referred to in China Investment Fund Ltd v Guang Sheng Investment Development Group Ltd [2016] (unreported) and Cayne v Global Natural Resources plc [1984] 1 All ER 225.
2. Good faith. There was a very good prospect that convening the meeting on the minimum notice breached clause 16.1.2. The proposed amendments were fundamental, members had no meaningful opportunity to consider them, and the voting body included newly created interests resulting from an unnotified dilution. Formal compliance with the contractual notice period did not answer the separate obligation of utmost good faith.
3. Remedy and convenience. Damages might not adequately compensate the applicant and would present difficulties of causation and quantification. The respondents’ asserted risks from a short postponement were substantially exaggerated. The court did not determine whether the dilution itself, the proposed profit-sharing provisions, or the proposed inspection provisions independently breached clause 16.1.2.
4. Order. It was just and convenient to grant an injunction. The meeting was prohibited from taking place the following day or being arranged earlier than 28 days after the judgment. The order took immediate effect.

First-instance application in the High Court. No appellate history was stated in the judgment.