The High Court has held in Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch)  that the principle of repudiatory breach cannot apply to LLP agreements.

The Claimant argued that the Defendant had committed repudiatory breaches of an LLP agreement between them and that he had therefore been entitled to treat the agreement as having been terminated. The Claimant submitted that, as a result, he was a member of the LLP subject to the default rules comprised in the LLP Regulations 2001 (which provide for an equal share of profits) rather than a member under the LLP agreement and that, consequently, he was entitled to an equal equity share in the LLP as opposed to his lower annual fixed profit share.

The Defendant submitted that the principle of repudiatory breach cannot apply to agreements which fall within the scope of the statutory scheme. Consequently, all members of an LLP must be governed either by an agreement between its members or by the default provisions. In other words the same regime must apply to all members.

The Court agreed with the Defendant noting in particular the practical difficulties in, as the Claimant suggested, one member being subject to the default rules and other members remaining subject to the LLP agreement. Therefore, the principle of repudiatory breach cannot apply to English LLP agreements save perhaps in some cases where the LLP in question has only two members.

This demonstrates that a member of an LLP who is entitled to a low share of the profits can no longer argue that the LLP agreement has been repudiated and is entitled to a higher profit share under the default rules.

If you require further information regarding LLP and Partnership disputes, please speak to Charles Spragge or Julian Johnstone of Druces LLP’s Litigation & Dispute Resolution team.

Please note that this note does not constitute legal advice. It is guidance only and reflects the law as at 28 July 2015

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