Helen Mary Ross v Andrew John Phillips

The claimant brought a derivative claim on behalf of HRP Complete Solutions LLP (the Old LLP) challenging a declaration of trust dated 31 October 2015 which purported to vest beneficial title in HRP Complete Solutions (Kent) LLP (the New LLP). The court held that regulation 7(6) of the Limited Liability Partnerships Regulations 2001 applied as a default rule and that the Declaration effected a change in the nature of the Old LLP’s business requiring unanimous member consent. There was no binding written LLP agreement displacing the default rule and the pleaded oral/written agreement case was not made out. The purported appointment of HRP Total Solutions Ltd as a third member was invalid, the relevant documents had been signed by Miss Ross under undue influence and not knowingly, and the Declaration was therefore invalid. The court further held that the limitation period was postponed by concealment until late 2018 or early 2019 (Limitation Act 1980 s.32) and that the proceedings were not an abuse of process (issue estoppel and Henderson v Henderson arguments rejected). As a result, the Properties remained beneficially owned by the Old LLP and declarations to that effect were ordered.

This is a first-instance judgment in a derivative claim by Miss Helen Ross on behalf of HRP Complete Solutions LLP challenging a declaration of trust of 31 October 2015 which purported to transfer beneficial ownership of three properties in Chatham to a newly formed LLP. The claimant argued the Declaration was invalid because (i) under reg.7(6) of the Limited Liability Partnerships Regulations 2001 the change in the nature of the LLP’s business required unanimous consent and no such consent existed, and (ii) the apparent majority necessary to authorise the Declaration (the appointment of HRP Total Solutions Ltd as a member) was procured by undue influence and so was void.

The court summarised procedural history: the Old LLP had been restored to the register; the New LLP and other entities were defendants; applications made at trial included a refused adjournment and exclusion of late evidence; trial management measures were adopted because of allegations of domestic abuse, with the judge reframing questions to the claimant to avoid direct cross-examination by the unrepresented defendant.

The principal issues for decision were (i) whether the Declaration altered the nature of the Old LLP’s business so as to require unanimous consent under reg.7(6); (ii) whether a different LLP agreement displaced that default rule; (iii) whether the appointment of the Old Company as a third member was valid; (iv) whether the claim was barred by limitation or an abuse of process. On the first issue the court found that the Old LLP’s business was essentially holding the Properties and that the Declaration effectively stripped the LLP of virtually all its assets, thus changing the nature of its business; analogies to Partnership Act 1890 s.24(8) and relevant commentary supported that conclusion. On the second issue the court rejected the defendant’s case that a comprehensive signed LLP agreement existed: the pleaded defence did not assert such a document, correspondence from the accountants was inconsistent with its existence and the defendant’s explanations were implausible. On the third issue the court found that minutes and a written resolution were not signed knowingly by Miss Ross but were obtained by undue influence and therefore the Old Company’s appointment was invalid. On limitation the court accepted that the primary limitation period under s.21(3) Limitation Act 1980 had been postponed by concealment until the claimant discovered the position on receipt of the defendant’s Form E in late 2018/early 2019 (s.32). On abuse of process the court found no issue estoppel or Henderson v Henderson bar: the derivative claim was brought on behalf of a distinct entity which did not exist at the time of the Family Court proceedings and the Family Court decision did not necessarily determine beneficial ownership.

Overall, the Declaration was held invalid and the Properties remained beneficially owned by the Old LLP. The court ordered declarations to that effect and left consequential matters of winding up and division of proceeds to further order, noting the default rule that members share equally in capital and profits in the absence of a different LLP agreement.

The claim succeeded. The court held that the Declaration of Trust dated 31 October 2015 was invalid because it effected a change in the nature of the Old LLP’s business and therefore required unanimous consent under regulation 7(6) of the Limited Liability Partnerships Regulations 2001; no binding LLP agreement displaced that default rule; the appointment of the Old Company as a member was invalid (documents not signed knowingly and obtained by undue influence); limitation was postponed by concealment under s.32 Limitation Act 1980; and the claim was not an abuse of process. Consequently the Properties remain beneficially owned by the Old LLP and declarations to that effect were ordered.