High Court finds LLP member’s profit share can be forfeited for breach of fiduciary duty

On an appeal from an arbitration award, the High Court found that a profit share payable to a member of an LLP was capable of being subject to forfeiture where the member was found to have breached his fiduciary duties to the LLP: Jeremy Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch).

It is an established principle that if a fiduciary breaches his duty he may forfeit his right to fees payable by the principal (provided that forfeiture is proportionate and equitable). This principle was reaffirmed by the Court of Appeal in Imageview Management Ltd v Jack [2009] EWCA Civ 63. In that case, a footballer's agent was held to have forfeited his commission because he made a secret side deal with a football club when negotiating for his client. However, there are no reported English cases where this principle has been applied to an LLP member's profit share, rather than fees or commission.

The present decision means that if an LLP member's profit share can be characterised as a reward for undertaking fiduciary duties (as opposed to reflecting the member's ownership interest in the firm) then it can potentially be subject to forfeiture. Although the forfeiture principle can be excluded in the LLP agreement, the parties do not need to include it expressly in order for it to apply.  

The takeaway message is that when drafting an LLP agreement the parties should make it clear whether any profit share payable to the members is intended to be remuneration for performance of their fiduciary duties and, if so, whether that profit share should be subject to forfeiture if the members breach those duties. Gary Horlock, an associate in the disputes division, considers the decision further below.

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Court of Appeal confirms account of profits available as remedy for dishonest assistance

Some, if not quite born trustees, are appointed as such at the outset of a trust. Some achieve trusteeship at some later stage. And some have some aspects of trusteeship thrust upon them.

Within this third category are strangers to a trust who “dishonestly assist” an express trustee in a breach of the trustee’s fiduciary duty. Through this dishonest assistance, the stranger will be liable to the injured beneficiary, even though no fiduciary relationship exists between them. Although not sued as fiduciaries, such strangers can be held liable to account in equity as if they were a trustee of the beneficiary. Commonly, for convenience (which more often leads to confusion), the stranger is called a “constructive trustee”.

Previously, there was some uncertainty as to the scope of the remedies available for dishonest assistance: specifically, whether the claimant-beneficiary could obtain an account of profits against the dishonest assister, even though no loss was suffered. The unanimous decision of the Court of Appeal in Novoship (UK) Limited & ors v Nikitin & ors [2014] EWCA Civ 908 confirms the availability of the remedy in claims against third parties for dishonest assistance and also the circumstances in which the remedy will be available, namely where there is a sufficient causal connection between the dishonest assistance and the profit and where it would be not be disproportionate to grant the remedy. Robert Hunter and Tom Wood consider the decision below. Continue reading

Court of Appeal confirms implied fiduciary duty in joint venture arrangement

The Court of Appeal has recently upheld a first instance decision in which the court implied a fiduciary duty into a joint venture arrangement, including a fiduciary duty owed by the director of one of the joint venture partners to the other joint venture partner: Ross River Limited and anor v Waveley Commercial Ltd  and others [2013] EWCA Civ 910.

The ability to bring claims against a director of a joint venture partner may be significant where, as in this case, the joint venture partner itself is in liquidation and therefore unable to satisfy an award of damages for breach of the joint venture agreement. Each case will turn on its facts and it is clear that a fiduciary duty will not be found to exist in every joint venture. Such a finding is more likely in cases where, as a result of how the arrangements are structured, one party is required to place a high degree of trust and reliance in the other.

Whilst this decision may provide assistance to joint venture parties where one partner is seeking to exploit the joint venture opportunity, the starting point will always be to ensure that the scope of duties is properly defined within the joint venture agreement to avoid uncertainty. Parties may also wish to seek expressly to exclude any fiduciary duty in their contractual arrangements. Jeremy Garson and Gareth Keillor comment further on the decision below. Continue reading