|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Fennell v Halliwells LLP  EWHC 2744 (Ch) (22 July 2014)
Cite as:  EWHC 2744 (Ch)
[New search] [View without highlighting] [Printable RTF version] [Help]
B e f o r e :
sitting as a Judge of the High Court
|STEVEN CHARLES FENNELL||Claimant|
|- and -|
MISS LEXA HILLIARD QC (instructed by Addleshaw Goddard LLP) appeared on behalf of the Defendant.
Crown Copyright ©
JUDGE HODGE QC:
(1) Colleagues who specialised in insurance litigation agreed to remain at Halliwells until the end of July 2010, which was a period in excess of their notice period (which ran for six months and would have expired in June 2010). This was at the request of the LLP, which wanted the fee income from their practice for the first three months of the 2010 to 2011 financial year.
(2) Ms. Liversidge and Mr. Fearon were to be released from their notice periods earlier than the 12 months which was required for Full Members.
(3) Mr. Fennell and others were in general terms to cease to be Members of Halliwells on or about the expiry of their notice period, be it three or six months.
(4) They were all to be released from all restrictive covenants.
In addition, the Retirement Deed contained detailed provisions in relation to remuneration and the release of claims (which Mr. Fennell describes later in his witness statement), and which form the subject matter of this action.
"During the period from May 2009 to the date of the appointment of the Administrators, you took drawings on account of profits.
The Administrators' team have undertaken work to finalise the accounts for the period from the year ended 30 April 2010 to the date of the administration order of 20 July 2010, and for the period from 1 May 2009 to 30 April 2010, and copies of these draft accounts are enclosed (together 'the Accounts').
The Accounts indicate that in both periods Halliwells incurred no profit and indeed substantial losses.
We are instructed to write to you in respect of certain claims that Halliwells has against you and which the Administrators are instructed to bring against you for the benefit of the creditors of Halliwells, with the express instructions of the creditors' committee.
It is the intention of the Administrators to follow the intention of clause 35 of the Halliwells [LLP] Deed dated 1 July 2014 (as amended) wherever possible which provides for a dispute resolution procedure to resolve disputes relating to the LLP Deed.
1 Claim regarding overdrawn account
The investigations undertaken to date by the Administrators' team indicate that you have an overdrawn current account.
An amount of £101,283.74 is repayable by you to Halliwells which is the balance of your overdrawn current account as at 20 July 2010. This sum is payable as a result of drawings having been made on account of profits that were never in fact made in the periods covered by the Accounts. A breakdown of the amount claimed is attached in schedule 1 part 1 to this letter.
2 Claim regarding overpaid tax account
The investigations undertaken to date by the Administrators' team indicate that Halliwells has overpaid tax for you in excess of tax that you as a Member had set aside (or which had been set aside for you) in any tax provision account held for you.
Claims in respect of overpaid tax are debt claims for the Administrators to bring on behalf of Halliwells.
Details of the amount due to Halliwells from you are set out in schedule 1 part 2, to this letter."
"At any time after the Accounts have been approved by the LLP in respect of an Accounting Period under clause 8, any Member who is shown in the Accounts to have drawn any amount in excess of his share of Profits for that period, after provision of tax liabilities under clause 9, will refund that excess to the LLP as soon as is reasonably practicable but in any event within 30 days of having received a written request from the Board asking him to do so together with interest on that amount at the rate of 2.5 per cent per annum above the base rate for the time being of the LLP Bank..."
(1) The Retirement Deed, the FSM Deed and the Members Deed constitute the whole of the agreement between the parties as to the cessation of the Retiring Member's participation in Halliwells: see clause 13.1.
(2) The provisions of the Retirement Deed are binding on, amongst others, any liquidator and administrator: see clause 13.4.
(3) In the event of a conflict between the provisions of the Members Agreement, the FSM Deed and the Retirement Deed, the Retirement Deed prevails: see clause 13.9.
(4) The Courts of England have exclusive jurisdiction to settle any dispute that arises out of or in connection with the Retirement Deed: see clause 14.4.
(5) In general terms, except for liabilities and obligations expressly created or acknowledged by the Retirement Deed, the Retirement Deed is in full and final settlement of claims concerning the applicant's retirement from the LLP: see clause 10.2.
"10.1 Save in relation to liabilities and obligations expressly created or acknowledged in this Deed and on condition that the provisions of this Deed are fulfilled and complied with in full by the LLP, the Retiring Member accepts the fulfilment of the terms of this Deed in settlement of all claims, costs, expenses or rights or causes of action of any kind whether contractual, tortious, statutory or otherwise he has, or may have, against the LLP at the date of execution of this Deed.
10.2. Save in relation to liabilities and obligations expressly created or acknowledged in this Deed, the LLP accepts the terms of this Deed in full and final settlement of all and any claims, costs, expenses or rights or causes of action of any kind, whether contractual, tortious, statutory or otherwise against the Retiring Member arising from the Retiring Member's or the Excluded Members' retirement from the LLP.
10.3. For the avoidance of all and any doubt, the LLP waives all and any rights and claims in respect of the obligations imposed on the Retiring Member in respect of restrictive covenants pursuant to the FSM Deed, and further the LLP will not seek to claim, reduce, extinguish or delay the payment of any sums paid or payable to or for the benefit of the Retiring Member pursuant to the terms of this Deed or the Members Agreement or the FSM Deed and will make all payments to and on behalf of the Retiring Member in accordance with the terms of this Deed and the Members Agreement and the FSM Deed without set-off, deduction or delay."
"... the LLP will not seek to reclaim... any sums paid... to or for the benefit of the Retiring Member pursuant to the terms of... the Members Agreement or the FSM Deed..."
"There will be no overdrawings as we discussed and we are willing to give comfort on that. Please note that whether the tax reserves are sufficient or not will depend on the individual's tax position."
"Profit Share Drawings and Current Account.
3.1. It is confirmed, for the avoidance of doubt, that:
(a) The Retiring Member is at the date of this Deed, and will be up to and including the Cessation Date, entitled to 1/20th (one twentieth) of one Point of the Profits of the LLP;
(b) The Retiring Member is at the date of this Deed, and will be up to and including the Cessation Date, also entitled to a Notional Salary as referred to in the Members Agreement and the FSM Deed at the level noted in clause 1.1 hereto;
3.2. The LLP guarantees to pay the Retiring Member monthly Drawings at the same rate and on the same date that such were paid prior to the service of a Notice of Retirement by the Retiring Member apportioned, as appropriate, on a time basis up to the Cessation Date and undertake not to reduce, reclaim, claw back, or set-off against any Drawings which shall be paid in full without deduction. The LLP shall, in addition, credit to the Retiring Member's Tax Reserve Account amounts equal to the Board's reasonable estimate of the Tax and class 4 national insurance contributions payable by the Retiring Member in respect of the Accounting Periods in which the Retiring Member was a Member of the LLP prior to the Cessation Date. ...
3.4. For the avoidance of doubt, the Drawings, the amounts credited or to be credited to the share of Profit referred to at 3.1(a) above and the Notional Salary shall constitute the guaranteed minimum profit allocation of the Retiring Member up to the Cessation Date and the nominated partner of the LLP shall record no lesser sum as the Retiring Member's profit share derived from the LLP in respect of the Accounting Periods up to the Cessation Date and for the avoidance of doubt the amount in the Retiring Member's Tax Reserve Account will be relevant for the purposes of this clause."
"Subject to clause 6.13, the Profits shall be allocated after the Accounts for the relevant period have been approved by the Members..."
"The Profits are to be shared by the Members in accordance with clauses 6.10 to 6.18 (inclusive)."
"Except as otherwise determined by the Board the LLP will retain such proportion of each Member's share of the Profits in any Accounting Period as the Financial Director recommends is appropriate to meet that Member's individual tax liability (if any) in respect of those Profits... to meet such Member's individual tax liability in respect of that income..."
"Sums retained in respect of each Member for the purposes of meeting that Member's individual tax liability (if any) will be paid or released to him only when and to the extent considered by the Financial Director to be in excess of that Member's actual individual tax liability (if any)."
"40. The Liquidators' position regarding the Part 8 claim is that on its proper construction the amounts paid to Mr. Fennell are repayable to the LLP because they were not paid pursuant to the terms of the LLP Deed or they were paid by mistake.
41. If the Liquidators are wrong, I believe that the LLP entered into a transaction at an undervalue with Mr. Fennell. If the effect of the Retirement Deed is that the LLP agreed to pay Mr. Fennell and to make payments to HMRC on his behalf irrespective of whether the LLP made Profits, the consideration given by Mr. Fennell in return for that agreement was worth significantly less than the consideration provided by the LLP. Mr. Fennell, in fact, gave no consideration at all for such promise by the LLP. Mr. Fennell was obliged to give six months' notice if he wished to retire from the LLP. He gave that notice and ordinarily he would be entitled to a fixed share of Profits as he had always been down to the date when he ceased to be a Member. Mr.†Fennell's construction of the Retirement Deed is that the LLP agreed to pay him even if the LLP made no Profits at all and the LLP would have no right to claw back any overpayments. Mr. Fennell gave nothing at all in return for that promise which was made at a time when the LLP was heavily insolvent. Also as a result of the LLP paying tax to HMRC on behalf of Mr. Fennell, which was not in fact due, Mr. Fennell can now reclaim or set-off the amount paid from HMRC as overpaid tax. He can also claim for his share of the tax loss relief claim, those losses having in part been contributed to by the payments that were made to him by the LLP when it was making losses, not Profits."
(1) sets out the date for Mr. Fennell's retirement on 26th July 2010;
(2) sets out provisions as to how the profit share, drawings and current account are to operate in relation to Mr. Fennell pending his retirement (at clause 3);
(3) makes provision for the operation of the capital account (at clause 4);
(4) similarly makes provision for the operation of Mr. Fennell's tax reserve account (at clause 5);
(5) imposes certain restrictions on what Mr. Fennell can do after his retirement from Halliwells (at clause 7);
(6) sets out certain waivers, releases and indemnities between Mr. Fennell and the LLP (at clause 10); and
(7) is to be governed by, and construed in accordance with, English law: see clause 14.1.
"the Retiring Member shall not, and shall not be entitled to, receive any share of the profits of the LLP generated after the Cessation Date."
Clause 3.1(d) provides that:
"the LLP shall not, and shall not be obliged to, prepare any accounts to the Cessation Date or as a consequence of the retirement of the Retiring Member and shall prepare Accounts at the Accounts Dates in respect of the Accounting Periods."
The relevant Accounts Date in each year was 30th April. I have already set out the provisions of clause 3.2.
"Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."
Mr. Adkin also relies upon the statement at page 913D:
"The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had."
In ascertaining that, where the words have an unambiguous and sensible meaning as a matter of ordinary language, that is the meaning they should be given.
"Where the parties have used unambiguous language, the court must apply it."
(1) Those claims are said to involve an attempt by the LLP, through its liquidators, to reclaim the sums that were paid to Mr. Fennell, namely the notional salary he was paid by way of drawings made between May 2009 and 20th July 2010, and sums paid for his benefit, namely the tax paid to HMRC over the same period.
(2) There is said to be some ambiguity in the second part of the clause as to whether the words "pursuant to the terms of this Deed, the Members Agreement, or the FSM Deed" are intended to refer (i) to the claims that the LLP is precluded from making (i.e. the precluded claims are claims "pursuant to the terms of this Deed" etc), or (ii) to the sums paid to or for the benefit of Mr. Fennell (i.e. the claims precluded are for sums paid to Mr. Fennell "pursuant to the terms of the Deed" etc). It is said by Mr. Adkin that the resolution of that ambiguity does not matter much because the consequence is the same however the clause is viewed:(i) The overdrawing and overpayment claims are made pursuant to clause 7.2 of the LLP Deed and so are precluded on the first of those two readings;
(ii) The payments made to Mr. Fennell were made pursuant to the drawings provisions of clause 7.1 of the LLP Deed and clause 2 (at the top of the third page) of the FSM Deed, and the payments to HMRC on his behalf were made pursuant to clause 9.2 of the LLP Deed, so the claims to reclaim those payments are thus precluded on the second of the above two readings. As Mr. Adkin rhetorically asks: "If the payments to Mr. Fennell and to HMRC were not made pursuant to the terms of the LLP Deed, under what authority, or upon what basis, were they made at all?"
"'Drawings' means sums paid monthly by the LLP to a Member up to and including the Cessation Date [i.e. 26th July 2010] (excluding sums credited to the Tax Reserve Account) which for the Retiring Member [i.e. Mr. Fennell] amounts to £7,353.00 per month."
Those words are said to be plain and unambiguous and to admit of no gloss on the concept of "Drawings".
"... guarantees to pay the Retiring Member monthly Drawings at the same rate and on the same date that such were paid prior to the service of a Notice of Retirement by the Retiring Member... and undertake not to reduce, reclaim, claw back or set-off against any Drawings which shall be paid in full without deduction."
It is said that that clause makes it very clear that Halliwells agrees not to reclaim or claw back any of the monthly drawings which it has guaranteed to pay. That is plainly, it is said, the effect of the threatened overdrawing claims, by which Halliwells seek to reclaim the monthly drawings that were paid to Mr. Fennell between the date of the Retirement Deed and the date of his retirement.
(1) The Retirement Deed was drafted by lawyers for lawyers, all of whom will have been well aware of the terms of the LLP Deed. It is to be assumed that care was taken to ensure that the language used reflected what was intended to be agreed; and, given that context, it is said that it would be quite wrong to conclude that the inclusion of the word "reclaim" in clauses 10.3 and 3.2 (and the word "claw back" in clause 3.2) was unintended, or that those words were mere verbiage.
(2) The agreement made in clause 10.3 that Halliwells will not seek to reclaim monies paid to or for the benefit of Mr. Fennell under the terms of the Retirement Deed, the FSM Deed or the LLP Deed is unequivocal and unqualified. So is the guarantee given in clause 3.2, that drawings to be paid prior to retirement would not be reclaimed. Had the parties wished to qualify these provisions in the way the liquidators now suggest that they should be read (so as to permit monies to be reclaimed under clause 7.2 of the LLP Deed in the event that insufficient profits were made), it would have been easy for the parties to have said so. They did not; and that omission should be taken as deliberate.
(3) Such a qualification makes little sense in the relevant commercial context. It is plain from its terms that the object of the Retirement Deed was to effect a clean break between the LLP and the retiring FSMs, with wide-ranging mutual releases being given in clauses 10.1 to 10.3. The construction contended for by the liquidators involves the opposite of a clean break, since it contemplates ex post facto adjustments to what the departing FSMs were to get, and accompanying disputes as to what those adjustments should be; matters the parties can reasonably be taken to have wished to put firmly behind them.
(4) The parties used the word "reclaim" in clauses 10.3 and 3.2 of the Retirement Deed with full knowledge of the provisions of clause 7.2 of the LLP Deed. If the word "reclaim" in clauses 10.3 and 3.2 (and the further words "claw back" in clause 3.2) are not read so as to preclude a claim under clause 7.2 of the LLP Deed to recover drawings paid to Mr. Fennell and tax paid on his behalf, it is said that it is difficult to see what else the use of that language could have been intended to cover. There is said to be no other provision of the LLP, or the FSM, Deeds, apart from clause 7.2, which would permit the LLP to reclaim monies paid out to Mr. Fennell or any other FSM. So, if the use of the word "reclaim" in clauses 10.3 and 3.2 does not preclude such claims, what does it preclude? It is said that the liquidators are unable to proffer any answer.
(5) Similarly, if the phrase "for the benefit of" in clause 10.3 is not to be read as referring to payments made by Halliwells to HMRC for the benefit of an FSM, it is difficult to know what else it might mean. There would appear to be no other form of payments contemplated by the LLP or the FSM Deeds which could be described as being "for the benefit of" an FSM (aside of course from payments made directly to them, which are already covered by the language of the clause).
(6) Further, there is every reason to believe that the Board would have been aware of the possibility that overdrawing claims might arise under clause 7.2 of the LLP Deed at the time they entered into the Retirement Deed on the terms that they did: (a) Halliwells went into administration less than four months after the Retirement Deed was signed, and it is difficult to believe that the Board did not at least have some inkling that profits might not hold up at the time they signed the Deed at the end of March 2010; (b) indeed, it is the liquidators' position, as set out in Addleshaw Goddard's letter of 24th October 2011, that by early April 2010 "it was abundantly clear to the Board... that Halliwells was making losses and facing serious financial problems"; (c) the pre-contractual correspondence discloses that the issue of overdrawings was expressly in the contemplation of the parties. It further discloses that Halliwells were willing to give comfort on this.
(7) There were sound commercial reasons, so it is said, why the parties would wish to make a contract on the terms that Mr. Fennell says they did. The benefits to the departing FSMs of obtaining a clean break, and not having to concern themselves with the future possibility of overdrawing claims, are said to be quite obvious. The Retirement Deed also contains substantial benefits for Halliwells: (a) it obtained the benefit of the very broad releases conferred by Mr. Fennell (and the other departing FSMs who signed substantially similar deeds) at clause 10.1, which can be found only in the Retirement Deed; (b) it obtained the significant benefit of the non-disparagement provisions contained at clause 7.1, under which Mr. Fennell (and the other retiring FSMs) agreed not knowingly to say "anything that might reasonably be expected to be derogatory concerning or relating to the LLP or the Business [i.e. the practice carried on by Halliwells]"; (c) the terms of the Retirement Deed were negotiated collectively by the retiring FSMs, several of whom agreed, as part of that negotiation, to serve out longer than their notice periods at the request of Halliwells.
(1) A reasonable person in the position of the parties would have been well aware of the terms of the LLP Deed, including clause 7.2.
(2) The Retirement Deed was to modify the LLP Deed and, in the event of any conflict, it was the provisions of the Retirement Deed which were to prevail.
(3) A reasonable person would appreciate that profits might have gone down since the last accounts had been prepared, so that clause 7.2 might be invoked. Indeed, in their letter of 24th October 2011, the liquidators' solicitors asserted that, as at 7th April 2010 (when a resolution was signed purporting to allocate profits in accordance with the LLP Deed), it was abundantly clear to the Board that Halliwells was making losses and facing serious financial problems, and was insolvent or likely to become insolvent. Although Mr. Adkin made it clear, in the course of his reply, that it was no part of Mr. Fennell's case that the Board knew that Halliwells was insolvent at the time of the Retirement Deed, Mr.†Adkin nevertheless drew attention to that submission on the part of the liquidators.
(4) The parties deliberately chose to use the phrase in clause 10.3 of the Retirement Deed "any sums paid or payable to or for the benefit of the Retiring Member". They would have known that it could only possibly refer to claims under clause 7.2 of the LLP Deed. It is said that there is no other explanation for the meaning of that phrase.
(5) Clause 10.3 precludes Halliwells from reclaiming sums paid "to or for the benefit of" Mr. Fennell. There is no express provision in the LLP Deed enabling the LLP to recover back sums overpaid to the relevant tax authority, and no obvious reason why, if it is the tax authority that has been overpaid by the LLP, it is Mr. Fennell, rather than the tax authority, who should effect repayment to the LLP.
(6) The result for which Mr. Fennell contends is said to make perfect commercial sense. The merits of a clean break between the parties are said to be obvious; and without a guarantee of Mr. Fennell's drawings, a clean break would be impossible, especially since Mr. Fennell was to retire on 26th July 2010 and that year's accounts would not be available until some time after 30th April 2011. There are said to be obvious sound and commercial reasons for the LLP to confer upon Mr. Fennell the degree of comfort which he says it did. The LLP also received the benefit of a clean break in clause 10.1, and of the non-disparagement provisions in clause 7.1. It also received an extension of the notice period for certain of the other departing FSMs. It is said that Mr.†Fennell's construction does not result in a commercial nonsense.
(1) That the Retirement Deed only bars recovery of (a) payments made to Mr.†Fennell by the LLP if the payment is made out of profits, and (b) payments made by the LLP to HMRC on the defendant's behalf in respect of tax properly due on profits actually made.
(2) Mr. Fennell's construction should be rejected. It would mean that when Mr.†Fennell gave notice of retirement in order to join a rival firm, the parties intended, for no obvious commercial reason, for Mr. Fennell to acquire substantially greater rights as a Member down to his actual date of retirement than he had enjoyed prior to serving notice of retirement.
(3) Under the terms of the LLP Deed and Mr. Fennell's FSM Deed, as a Member of the LLP, Mr. Fennell was entitled to be paid only out of profits.
(4) If Mr. Fennell's construction of the Retirement Deed is correct, it means that the parties agreed, from 31st March 2010 down to Mr. Fennell's date of retirement as a Member on 26th July 2010, that he would be entitled to keep all payments made to him by the LLP even if (as was the case) the LLP made no profits during that period. There is said to be no obvious commercial reason for the parties to so radically change the basis of Mr. Fennell's remuneration in his last few months of Membership. More importantly, there was no obvious commercial reason for the parties to have agreed that Mr. Fennell should be paid, and be entitled to keep those payments, in preference to the LLP's very substantial creditors.
(5) The commercial absurdity, alternatively improbability, of Mr. Fennell's construction compels its rejection in favour of one which is said to accord with the commercial reality against which the Retirement Deed was executed. That commercial reality was that the LLP was losing a fee-earning Member to a rival firm. There was no commercial imperative for the LLP to place Mr. Fennell in a substantially better position, qua Member, in the last few months of his Membership under the terms of a deed that was seeking merely to regulate the relationship as a result of Mr. Fennell's resignation to join another firm.
(1) The ultimate aim of interpreting a provision in a contract is to determine what the parties meant by the language used: see paragraph 14.
(2) This task involves ascertaining what a reasonable person would have understood the parties to have meant and, in so doing, the court must have regard to all the relevant surrounding circumstances: see paragraphs 14 and 21.
(3) The relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: see paragraph 14.
(4) Where the parties have used unambiguous language, the court must apply it: see paragraph 23.
(5) If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense, and to reject the other, even if the other is the more natural one: see paragraph 21.
(6) The more natural meaning will not be rejected only where the commercial consequences produce an absurd result, but also where the less natural meaning produces a more commercially sensible result: see paragraphs 20 and 29.
(7) The commercial purpose of the contract is more important than the niceties of language. In the event of doubt, the working assumption will be that a fair construction best matches the reasonable expectations of the parties: see paragraph 25.
(1) That the contract must be construed as a whole, and particular clauses must be interpreted "in the landscape of the instrument as a whole". Further, first impressions are not always a reliable guide. She quotes Lewison LJ in Napier Park European Credit Opportunities Fund Ltd. v. Harbourmaster Pro-Rata Clo 2 BV  EWCA Civ 984 at paragraph 24 (referring, with apparent approval, to the submissions of counsel):"It is important for the interpreter not to be beguiled by his or her initial impression or to limit the process of interpretation to purely linguistic points, but to delve deeper into the landscape of the transaction as a whole."
Whilst I acknowledge that a contract must be construed as a whole, and that particular clauses must be interpreted in the landscape of the instrument as a whole, nevertheless it seems to me that the landscape must not be allowed to obscure, or blur, the clarity of the characters which are in the foreground of the picture being viewed.
(2) That principle is said to apply as much to deeds as to contracts.
(3) If there is a relevant statutory landscape within which the contract is to operate, then that statutory context can be a legitimate aid to construction.
(a) the LLP was a relatively new form of incorporated entity with limited liability;
(b) that limited liability is a privilege and not a right. It protects the participants in the entity from the unlimited liability that would ordinarily apply from being a participant in an unincorporated entity, such as a traditional partnership;
(c) a limited liability partnership is a tax-transparent vehicle. For tax purposes its business is treated as though carried on in partnership by its Members. Thus, the tax liability arising on the income of a limited liability partnership is the liability of the individual Member and not of the LLP;
(d) typically, unless salaried, Members of limited liability partnerships are remunerated by a share of the profits of a limited liability partnership. Halliwells is said to have been typical in that respect;
(e) Mr. Fennell joined the LLP on 31st July 2006 as a Salaried Member, or employee, at a salary of £130,000;
(f) on 4th December 2006 Mr. Fennell elected to become a Fixed Share Member of the LLP pursuant to the terms of his FSM Deed, which expressly provided that it was supplemental to the LLP Deed. Thereafter, Mr. Fennell ceased to be a salaried employee and became a Member with an entitlement to a fixed share in the profits of the LLP;
(g) Mr. Fennell's legal relationship with the LLP, until the execution of the Retirement Deed, was governed by his FSM Deed and the LLP Deed;
(h) at or around the date that Mr. Fennell served notice of resignation as a Member on 27th January 2010, the LLP had over 100 Members and 600 employees;
(i) the Retirement Deed addressed the circumstances of Mr. Fennell ceasing to be a Member of the LLP, and not his Membership of the LLP;
(j) the LLP did not want Mr. Fennell to leave the LLP: according to the email dated 27th January 2010 (in which Mr. Fennell gave notice of his resignation), Andrew Buchanan of the LLP "did everything possible to change Mr. Fennell's mind";
(k) the email that was addressed to Mr. Brown, the LLP's managing partner, went on to say that Mr. Fennell had not found it an easy decision to leave the LLP. He was said to have "enjoyed working at Halliwells, and have great respect and affection for many of the people there". His reason for leaving was his "conclusion that there is no long-term future for me at Halliwells";
(l) Mr. Fennell wished to cease being a Member of the LLP in order that he could join a rival firm.
(m) at around the same time as Mr. Fennell served notice of resignation, eight other Fixed Share Members of the LLP also served notice in order to join Kennedys;
(n) Mr. Fennell and the Kennedys' FSMs instructed Lewis Silkin to act in connection with their retirement from the LLP. The Retirement Deeds for Mr.†Fennell and the Kennedys' FSMs are in substantially the same terms;
(o) the LLP, as a limited liability partnership in the business of providing commercial and insurance legal services, and Mr. Fennell, as a Member, solicitor, and licensed insolvency practitioner, would have been mindful of any risk of elevating the interests of profit sharing Members above those of creditors, including salaried employees, so that a Member's, or Members', interests were preferred over the interests of creditors.
(1) The term "Drawings" is used in the same sense as it is used in the LLP Deed and the FSM Deed. It is said that there is nothing in the Retirement Deed to suggest that "Drawings" was intended to have any other meaning.
(2) The reference to not reducing, reclaiming etc. is said to be temporal. What it means is that the LLP was obliged to pay drawings down to the Cessation Date. During the period down to the Cessation Date, the LLP could not reduce the drawings, reclaim them, etc. In other words, the words were designed to prevent the LLP from refusing to make payments on account of anticipated profits in the period to the Cessation Date by deploying delaying tactics. Mr.†Fennell was leaving. A limited liability partnership does not have the same incentive to allow a leaving Member to draw down on account of profits as in the case of a continuing Member. The provision avoids the risk that Mr. Fennell would suddenly be denied the regular payments he had been used to in the period while he was waiting to join Kennedys.
(3) It is said that the clause was only intended to deal with the situation where profits were in fact generated which were at least equal to the drawings. It was not intended to deal with the situation where there were no profits at all over the period.
(4) It is said that the fact that clause 3.2 was concerned with the situation only where profits were in fact generated is underlined by clause 3.4 of the Retirement Deed (previously cited).
(5) It is said that what the Retirement Deed did was accordingly to provide that: (a) Mr. Fennell's share of profits (one twentieth of one point and his Notional Salary) would remain the same to the Cessation Date; (b) Mr. Fennell was not entitled to any profits generated after the Cessation Date; (c) if the LLP's profits exceeded the Drawings, he was to be paid his share of any excess; (d) Mr. Fennell could continue to make Drawings on account of his share of profits that were anticipated to be made down to the Cessation Date; (e) the LLP would not, during the period when Mr. Fennell made drawings down to the Cessation Date, prevent him from doing so by seeking to delay making payment of, or reclaiming them, etc; (f) the Drawings were guaranteed in the sense that the LLP could not unilaterally change the amount that would be paid down to the Cessation Date; (g) however, that guarantee did not mean that the amounts paid would not be repayable if, as was the case, there were no profits out of which to make them. If there had been some profits, albeit insufficient to meet all Members' agreed profit shares, Mr. Fennell had an argument that his profit share (and therefore the payments that were made on account of his profit share, i.e. his drawings) should have priority, and that the profit shares of continuing Members would have to abate: see clause 6.10 of the LLP Deed. It is said that the insuperable difficulty for Mr. Fennell in the present case, however, is that no profits at all were generated in the period down to the Cessation Date.
(6) Crucially, the payment provisions in the Retirement Deed were predicated, and conditional, upon the LLP generating sufficient profits to cover them. It is said that there is nothing to suggest that the parties intended that Mr. Fennell should be remunerated on any basis other than that on which he had been remunerated under the FSM Deed, when he had agreed to be remunerated out of profits rather than by way of salary.
(7) Accordingly, it is said that the payments made to Mr.†Fennell were not in fact Drawings. Alternatively, if they were Drawings, the bar on reclaiming etc. them only applied whilst they were being paid down to the Cessation Date.
(1) Clause 10.2 is a full and final settlement clause of all claims "arising out of the Retiring Member's... retirement from the LLP". The LLP's claim to recover sums paid to Mr. Fennell on account of profits that were never made does not arise out of Mr. Fennell's retirement, but rather from the fact that, whilst Mr.†Fennell remained a Member of the LLP, the LLP made no profit out of which Mr. Fennell (or any other Member) could properly be paid. During the course of oral argument, Mr. Adkin accepted that Mr. Fennell places no reliance upon clause 10.2 of the Retirement Deed for the very reasons given by Miss Hilliard.
(2) The introduction to clause 10.3 is not relevant as it merely waives rights in respect of restrictive covenants. The second part of clause 10.3 is said to mean that provided that sums are paid pursuant to the terms of, for example, the Retirement Deed, they must be made without set-off, deduction or delay. It is not suggested that there was any attempt to set-off, reduce or delay Drawings which were payable down to the Cessation Date. It is said that clause 10.3 does not, however, preclude recovery where, having paid the Drawings, it transpires that there were no profits pursuant to which the Drawings on account could properly be made.
(1) As suggested in her skeleton argument, the reference to "not reducing or reclaiming" etc, merely had a temporal effect, so that Mr. Fennell and the other Fixed Share Members would receive their agreed drawings in full up to the Cessation Date, but subject to any appropriate repayment under clause 7.2 of the LLP Deed thereafter.
(2) The provisions of clauses 3.2 and 10.3 of the Retirement Deed were intended to affect, and adjust, the payment provisions in clause 6.11 of the LLP Deed, so as to promote the position of the departing Fixed Share Members in relation to the other Members of the LLP. Provided there were sufficient profits to pay for the drawings of the departing FSMs in full, the LLP would not seek to recover back their drawings, any such recovery being directed, and limited, only to the remaining Members, who would bear the burden of any reduction in profits to the exclusion of the departing FSMs.
(3) Clauses 3.2 and 10.3 of the Retirement Deed are predicated on there being profits out of which drawings can be made. If there are no profits, the provisions do not apply. That was said to be Miss Hilliard's favoured construction.
"... sums paid monthly by the LLP to a Member up to and including the Cessation Date (excluding sums credited to the Tax Reserve Account) which for the Retiring Member amounts to £7,353.00 per month."
(1) The suggestion that clause 3.2 is limited in time to the period before the Cessation Date is not acceptable because that is not what the clause says. It is also said to be conceptually incoherent. If the concern of the Fixed Share Members was to ensure that they received their drawings in full, why should they be prepared to pay them back at a later date?
(2) There is nothing in clause 3.2 that comes remotely close to effecting any adjustment to the normal abatement provisions in the LLP Deed.
(3) The suggestion that clause 3.2 is predicated on the existence of profits is said to collapse in the light of the definition of "Drawings".
LATER (AFTER ARGUMENT):
"Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so."
LATER STILL (AFTER FURTHER ARGUMENT):