F&C Alternative Investments (Holdings) Ltd v Barthelemy and Culligan (2011)


Members of a limited liability partnership owed no statutory fiduciary duties to each other nor could such duties be derived from existing partnership law but only from express contractual terms.


Judgment was given in three interrelated proceedings to resolve disputes between H, the corporate member of a Limited Liability Partnership (F) and the defendants, (B) who were two individual members of F, which had been established under an agreement to carry on a fund of hedge funds business. The Agreement establishing F provided a right for B to exercise a Put option to require H to acquire their interests in F on preferential terms if H breached the Agreement in certain circumstances. B claimed that they had validly exercised such rights on three occasions. H denied that. In addition B petitioned against H and its parent company (C), claiming that H and F had conducted the affairs of F in an unfairly prejudicial manner. H denied this and brought a cross-petition claiming that B had themselves conducted the affairs of F in a manner unfairly prejudicial to H. B contended (1) that (R), the three representatives of H who were on the board of F, acted as agents of H and had acted in breach of their fiduciary duties to H, which was in turn in breach of contract with F; (2) that in addition to contractual obligations, the individual and corporate members owed fiduciary duties to F and to each other; (3) by late amendment, B pleaded that a contractual term should be implied such that H had been prevented from stopping F from paying B's monthly drawings; (4) that both H and its parent, C, were liable in respect of the conduct of R.


The first and second, though not the third, Put option had been validly served and H was consequently obliged to purchase the interests of B at preferential terms. (1)The three representatives on the board of F did not sit as agents. It required very clear language in the terms or circumstances of an appointment to relieve a person from a duty of loyalty to one corporate entity and to authorise actions in favour of another (para. 205 ff of the judgment). (2)The Limited Liability Partnerships Act 2000 s.1 had established a new form of legal entity which required its own structure for corporate governance. An LLP was not a traditional partnership and general partnership law did not apply to it, see s.1(5) of the Act (see para.207 ff). The contract did not oblige H as a corporate member to act as an agent for F nor for the individual members and no duty of good faith was derived from the Act or from the Regulations. In view of the wide range of governance structures that could be adopted contractually, it was difficult to generalise about a duty of good faith and fiduciary obligations beyond general equitable principles (para.211-214). The situation was analogous to a company general meeting in which members owed no duty of good faith towards each other but were free to vote in their own interests, (para.218). (3) An express contractual term must be pleaded to be relied on. Parties to a contract, whether multipartite or not, agreed to do what was necessary to perform it and such a term could be implied if not expressed, Mackay v Dick (1880-81) LR 6 App Cas 251 HL applied (para.263-274). Consequently H was in breach when its representative (R) procured F to stop the payments, Attorney General of Belize v Belize Telecom Ltd (2009) UKPC 10, (2009) 1 WLR 1988 considered andMediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The Reborn) (2009) EWCA Civ 531, (2010) 1 All ER (Comm) 1 applied. (4) B and C had been unfairly prejudiced. The test for attribution of responsibility outside an agency relationship was whether the defendant was so connected to the unfairly prejudicial conduct that it would be just to grant a remedy under the Companies Act 2006 s.996. H was responsible for R's attempt to shift decision making for F from its board to a members' meeting where H could dictate policy and that constituted unfairly prejudicial conduct. In addition R had made several other decisions that could be characterised in the same way (paras.1094 - 1107). (4) Despite the fact that C was at one remove from H it was also liable, Meyer v Scottish Cooperative Wholesale Society Ltd (1959) AC 324 HL followed.