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Flanagan v Liontrust Investment Partners LLP and Others

Judicial decisions relating to Limited Liability Partnerships (“LLPs”) have been relatively rare since their statutory invention by the Limited Liability Partnerships Act 2000. Like London buses, two have now come along at once: the judgments of Warren J.

 - in Hans Henning Reinhard v Ondra LLP and Others (2015) EWHC 26 Ch., delivered on 14th January, and of Henderson J. in Flanagan v Liontrust Investment Partners LLP and Others [2015] EWHC 2171 Ch., delivered on 24th July.

Henderson J. expressly based his summary of the law relating to LLPs upon the earlier judgment in Reinhard, Nevertheless, a specific issue had to be considered in Flanagan: did the common law contractual doctrine of repudiatory breach apply to LLP Agreements? As to the facts, Flanagan was an ordinary tale of London hedge fund managers falling out over declining markets and performance, mixed in with a heady cocktail of what was once said to whom in “Christopher’s Bar”, Wellington Street. Mr Flanagan established serious breaches of the LLP Agreement. He established that such breaches constituted a renunciation of the LLP Agreement, and would in any event have constituted repudiatory breaches. He had accepted such conduct as repudiatory: a counter-argument of affirmation failed.

To no avail. Henderson J. rehearsed the obiter comments of Lord Millett in Hurst v Bryk (2002) 1AC185 (HL) expressing his doubts as to whether the doctrine could be used to terminate a traditional partnership, and noted that, by the combined effect of Mullins v Laughton (2003) Ch.250 and Goldstein v Bishop (2014) Ch.131, “it must now be taken as settled at first instance in England that the doctrine has no application to traditional partnership agreements governed by the 1890 Act.” So too, per Henderson J., for new LLPs governed by the 2000 Act. The practical difficulties anticipated, were the doctrine to be applied, means that this far reaching decision will affect not only partnerships and LLPs, but also ordinary multi party commercial contracts with no element of partnership whatsoever.

Clive Blackwood / 1st Aug 2015


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