The Application of the Default Provisions in the LLP Regulations 2001

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APP Article Article

Jeremy Callman, Ten Old Square

Gavin Foggo, Fox Williams LLP

THE APPLICATION OF THE DEFAULT PROVISIONS IN THE LIMITED LIABILITY PARTNERSHIPS REGULATIONS 2001 By Jeremy Callman, Gavin Foggo and Molly Ahmed As recently as 2009 Sir Michael Briggs characterised: “a feature of the arrival and success of the LLP [as being] that it has yet to give rise to any serious or expensive litigation about how it works… [and] that users of LLPs and those who deal with them have yet to get bogged down in any real legal controversy about them.” 1 However, the recent case of Eaton v Caulfield (1) Holloway (2) Caulfield Search (Legal) LLP (3) [2011] EWHC 173 (Ch), [2011] All ER (D) 63 (Feb) is a noteworthy development in the area of the law on LLPs. So far as the authors are aware, Eaton is the only reported case dealing with: • t he expulsion of a member from an LLP where there is no written members’ agreement; • t he application of the default provisions in relation to the sharing of capital and profits; and • t he unfairly prejudicial treatment of one member by the other members

Molly Ahmed, Fox Williams LLP

8 Issue 31 – May 2011

under the Companies Act 2006. It also applies section 122(1)(e) of the Insolvency Act 1986 (just and equitable winding up) in the LLP context. The facts Caulfield Search (Legal) LLP (the “LLP”) was a legal recruitment/headhunting firm, incorporated by Mr Eaton, Mr Caulfield and Mr Holloway in 2007. The rationale behind the incorporation of the LLP was to formalise the members’ relationship, since prior to 2007 the three of them had been working together, and marketing themselves under a common brand to the outside world. Crucially, there was never a written LLP members’ agreement. The relationship between Mr Eaton and Mr Caulfield deteriorated over time. In 2008, matters came to a head and Mr Caulfield sought summarily to expel Mr Eaton from the LLP. Mr Caulfield effected this purported expulsion in a number of ways. Mr Caulfield locked Mr Eaton

1 Whittaker, John and Machell, John (2009) The Law of Liability Partnerships, 3rd edition, Bloomsbury Professional, the foreword.


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