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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Hilton v D IV LLP & Ors [2015] EWHC 2 (Ch) (12 January 2015) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/2.html Cite as: [2015] EWHC 2 (Ch) |
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CHANCERY DIVISION
1 Bridge Street West Manchester M60 9DJ |
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B e f o r e :
SITTING AS A JUDGE OF THE HIGH COURT
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MIKE HILTON (Representing himself and the other members of D IV LLP identified in Annex 1) PHILIP STEPHEN BRADLEY (Representing himself and the other members of D III LLP identified in Annex 1) ROGER HUMBER (Representing himself and the other members of D II LLP identified in Annex 1) MICHAEL WARD (Representing himself and the other members of FDP LLP identified in Annex 1) |
Claimant |
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- and - |
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D IV LLP D III LLP THE FILM DEVELOPMENT PARTNERSHIP LLP FDP LLP BIRD & BIRD LLP |
Defendants |
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Mr Peter Knox QC (instructed by the Law Department) for the First to Fourth Defendants
Mr Andrew Ayres (instructed by Triton Global Limited t/a Robin Simon) for the Fifth Defendant
Hearing dates: 4-5 and 8 December 2014 (Rolls Building) and 12 January 2015 (Manchester CJC)
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Crown Copyright ©
HH Judge Pelling QC:
Introduction
The Parties
The Hearing
Background
The Schemes operated by the defendants.
The facts relevant to these proceedings
i) Category I documents which are said to be draft documents, day to day correspondence, correspondence with HMRC in relation to civil tax enquiries, documents that relate to third parties rather than the defendants or to matters that pre-date the defendants' start of trading ("Category I documents");ii) Category T documents that consist of documents prepared for the purposes of the tax appeal referred to earlier in this judgment or for the purpose of taking legal advice in respect of the structuring and operation of the defendants ("Category T documents"); and
iii) Category D documents being a large volume of documents on two CDs ("Category D documents").
The Deeds
"Subject to the rights of the Operator to operate the LLP as required by FSMA, the Designated Members are specifically authorised and empowered for and on behalf of the LLP to:
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(2) [The DMs shall] cause to be paid as soon as reasonably practicable any and all taxes, charges and assessments that may be levied, assessed or imposed upon any of the assets of the LLP, provided that, for the avoidance of doubt, the Designated Members shall have no authority or responsibility for the payment of taxes or the submission of tax returns on behalf of Individual Members, but shall supply to Members (prior to 30th September in respect of the end of the financial year ended 5th April) relevant information in their possession or under their control concerning the LLP and which is necessary for the administration of Members' personal tax affairs;"
"ACCOUNTING
Books and Records
The books and records of the LLP, the Register, the annual financial statements of the LLP and a copy of this Deed shall be maintained by the Designated Members at the above address and shall be available to the Members and their duly authorised representatives for inspection at any and all reasonable times. The LLP may maintain such other books and records and may provide such financial or other statements as the Designated Members in their sole discretion deems necessary or appropriate."
Clause 12.2 and 13.2 provide for the DMs after the end of each financial year to send to the members a "financial report of the LLP, including a balance sheet and a profit and loss statement".
"(a) The Operator hereby delegates to the Designated Members with power for the Designated Members to further delegate, but without affecting the Operator's duties under the Deed, responsibility for establishing the business objectives and policies of the LLP and for the supervision of the day to day business of the LLP.
(b) The Designated Members shall at all times keep the Operator and the Members fully informed of the activities and shall promptly supply such further general or specific information as the Operator and/or the Members may from time to time request."
The Construction Issues
The Legal Framework
"221(1) Every LLP shall keep accounting records which are sufficient to show and explain the LLP's transactions and are such as to (a) disclose with reasonable accuracy, at any time, the financial position of the LLP at that time, and (b) enable the members to ensure that any balance sheet and profit and loss account prepared under this Part complies with the requirements of this Act.
(2) The accounting records shall in particular contain (a) entries from day to day of all sums of money received and expended by the LLP, and the matters in respect of which the receipt and expenditure takes place, and (b) a record of the assets and liabilities of the LLP.
222(1) A[n] LLP's accounting records shall be kept at its registered office or such other place as the members think fit, and shall at all times be open to inspection by the LLP's members ..
(4) If a[n] LLP fails to comply with any provision of subsections (1) to (3), every member of the LLP who is in default is guilty of an offence and liable to imprisonment or a fine or both, unless he shows that he acted honestly and that in the circumstances in which the LLP's business was carried on the default was excusable."
CA85 applied at all times material to this dispute and both parties have made submissions by reference to it. CA85 has been repealed by and replaced with the Companies Act 2006 which contains provisions to similar effect as those cited above.
"The mutual rights and duties of the members and the mutual rights and duties of the limited liability partnership and the members shall be determined, subject to the provisions of the general law and to the terms of any limited liability partnership agreement, by the following rules:
(7) The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them.
(8) Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives."
It is common ground that these provisions are default provisions that apply subject to the provisions of the general law and to the terms of any limited liability partnership agreement. The claimants rely on Reg.7(7) as part of the factual matrix against which the clauses of the deeds to which I have referred above are to be read. They also maintain that they are entitled to the relief they seek by operation of Reg. 7(8) even if otherwise they are wrong in their contentions concerning the provisions within the deeds on which they rely.
The Clause 5.4 Issue
"83. In order for the Claimants and those we represent to understand and take informed advice on our position as members of the FDPs and to consider bringing proceedings to recover the money we were persuaded to invest, it is necessary for us to have access to the documents of the LLPs, particularly those which are held in connection with the Tax Tribunal Proceedings.
95. The Claimants are seeking access to the Documents because we believe that they will cast considerable light on the structure which was established by those who set up and promoted the FDPs and the Scheme, how that structure was operated, which individuals and corporate entities were involved, and where the money paid into the FDPs has gone. They may also be relevant to the personal tax position of individual investors, some of whom otherwise face claims for repayment and penalties as a result of investing in what was believed to be a legitimate scheme."
The Clause 12/Clause 13 Issue
"What is required to fulfil such a general obligation will vary from case to case depending on the nature of the partnership business and its mode of conduct and the terms of the governing documents read in the light of current business practice. There is little to be gained by looking at the decided cases to see if they establish categories of document which as a matter of law every partnership must maintain as part of its records and which every partner has a right to inspect. The test is a functional one. As a rough rule of thumb, if it would be necessary or advantageous for CIM or Capital to rely on the document or record in order to establish the rights of the Partnership as against a third party, or in order to determine or adjust the rights of the partners inter se, then it is a "book, document or record" which relates to the affairs of the Partnership, and a limited partner is entitled to see it: and if the Partnership has paid for the document that would also establish that it related to the affairs of the Partnership (for why else would a fiduciary agent charge the Partnership for it?).
The only qualification that Norris J identified was that he referred to in Para.23(r) of his judgment, which is in these terms:
"The only general restriction is that the documents and information relate to the business and prospects of the Partnership as it is. What might have been (offers that were unsuccessfully solicited, applications which failed, proposals that did not come to fruition, drafts that were subsequently altered) is not relevant to the current state and prospects of the Partnership and would not in my judgment be in principle open to inspection or copying; unless they were documents for which the Partnership paid because the cost of their preparation was treated as an operating expense of the Partnership (in which case the limited partners would be entitled to see what was done with the Partnership money)."
I consider that Reg. 7(7) accords the same rights to an ordinary member of an LLP in the absence of a provision to lesser or contrary effect in the deed governing the affairs of the LLP.
Discretion to refuse orders sought
"25. There is one further matter of principle to be addressed. that the mounting of litigation is not a legitimate purpose for which to seek the inspection of documents or the provision of information.
26. In my judgment the question of motive or purpose is irrelevant to the exercise of a statutory right of access to the partnership books...
27. I would accept that the position may be different in relation to the exercise of a contractual or other non-statutory right. There, if it is absolutely clear that the partner is using a contractual right to obtain partnership documents not for the purpose for which it is expressly or implicitly conferred (in connection with his interests as partner) but for the purpose of injuring the partnership, or for some other manifestly improper purpose, then the Court will not assist the partner to exercise the right to access partnership books, records and information: compare Oxford Legal Group Limited v Sibbasbridge Services Ltd [2008] EWCA Civ 387 at [24]. But that principle can only apply in very plain cases: otherwise (as Slade J pointed out in Conway v Petronius Clothing Limited [1977] 1 WLR 72 at 90E) a right of inspection could be rendered more or less nugatory by specious allegations that it was being exercised with intent to injure or for some other improper motive. The principle has no application here. It is simply not the law that if a partner thinks he may have grounds to complain about the way a general partner (or its delegate) has performed its obligations then the partner thereby loses any right to obtain access to partnership documents."
The paragraph 2.6 of schedule 3 and Regulation 7(8) Issues
The Norwich Pharmacal Application
i) The strength of the possible cause of action identified by the applicant for the order;ii) The strong pubic interest in allowing an applicant to vindicate his legal rights;
iii) Whether making an order will deter similar wrong doing in the future;
iv) Whether information could be obtained from another source;
v) Whether the respondent was aware or ought to have known that he was facilitating arguable wrong doing; and
vi) The degree to which the material sought is confidential.
Conclusions
i) The claimants are entitled to inspect the Documents the subject of these proceedings whether by themselves or their authorised agents to the extent that they are books and records in the sense set out above of the defendant of which they are members by operation of clauses 12 and 13 of the various deeds; butii) The application for Norwich Pharmacal disclosure fails.