Thitchener & Anor v Vantage Capital Markets LLP

In an LLP, members’ rights on leaving depend on the LLP agreement where that agreement contains provisions governing cessation of membership. A fixed minimum term may therefore exclude reliance on statutory reasonable notice under section 4(3) of the Limited Liability Partnerships Act 2000.

There is no repudiatory breach merely because drawings are withheld temporarily while the LLP determines an appropriate level, where the contract gives the board discretion over drawings and contains no fixed payment date. A contractual set-off provision may extend to losses arising from a member’s acts or omissions, including a desk deficit, rather than only losses caused by the member’s breach. The claim and counterclaim were dismissed.

The claimants were members of the defendant LLP and worked as interest rate options brokers. Their contractual arrangements included a Partnership Deed and individual Allocation and Contribution Deeds. After the LLP reduced or withheld their drawings while discussing the financial position of their desk, the claimants left and contended that the LLP was in repudiatory breach. They also relied on section 4(3) of the Limited Liability Partnerships Act 2000 and claimed repayment of sums held in retention accounts.

The LLP removed them for alleged breaches, exercised a contractual set-off against the retention sums, and counterclaimed for future lost profits. The issues were whether the claimants had validly terminated the agreements, whether they were entitled to the retention sums, whether the LLP’s set-off was valid, and whether the counterclaim was proved.

1. The claim and counterclaim were dismissed. The LLP was not in repudiatory breach. The contracts gave it a contractual right to adjust or withhold drawings by reference to anticipated income allocation, and there was no contractual date for payment of drawings. The discussions about reducing drawings did not amount to a threat that payment would be made only if the claimants agreed to a variation.
2. Section 4(3) of the Limited Liability Partnerships Act 2000 permits cessation by reasonable notice only in the absence of agreement as to cessation of membership. The references to agreement in sections 4(3) and 5(1) were capable of referring to the LLP agreement. Clause 12 of the Allocation and Contribution Deeds and clause 17 of the Partnership Deed contained agreement as to cessation and imposed an initial fixed term. There was consequently no scope for immediate reasonable notice. No effective notice had in any event been given.
3. The claimants’ departure and refusal to perform their contracts entitled the LLP to remove them under clause 16.4(K) of the Partnership Deed for serious breach of their obligations, including the obligations in clause 19.1.
4. Clause 10.8(B) permitted set-off against the retention accounts for losses, costs, expenses or liabilities which the LLP had, in the board’s reasonable opinion, suffered as a result of the claimants’ acts or omissions. The provision was not limited to losses caused by the contractual breach itself. It could cover the desk deficit arising when members left in circumstances of material breach. The board had to form a genuine and honest opinion, and that requirement was satisfied.
5. Clause 10.6, which prevented members from repaying profits standing to the credit of their distribution accounts, did not apply to outgoing members. The sums properly available for set-off substantially exceeded the retention sums, so the claimants could not recover them.
6. The counterclaim for future lost profits failed because the proposed projection from the desk’s early revenues was speculative. The evidence showed a substantial decline in revenues, market contraction, loss of clients and continuing commercial uncertainty. The LLP had not proved on the balance of probabilities that the claimed profits would have been earned.