Flanagan v Liontrust Investment Partners LLP & Ors

Factual and Procedural Background

The present judgment follows an earlier ruling on liability issues in a case heard between January and February 2015, with the main judgment delivered in July 2015. The hearing in December 2015 addressed consequential matters arising from that judgment. The case concerns the validity of a third termination letter issued to a member of a limited liability partnership (LLP), the allocation of costs between the parties, the form of relief to be granted, and applications for permission to appeal. The key factual dispute centered on whether the member was still part of the LLP’s Management Committee when the termination notice was issued, which affected the validity of the notice and the termination of membership.

Legal Issues Presented

1. Whether the third termination letter was valid, specifically if the Plaintiff was still a member of the Management Committee at the relevant time.
2. Determination of the appropriate costs orders given the complexity and outcome of the litigation.
3. The form of relief to be granted following the court’s findings.
4. Any applications for permission to appeal (deferred pending ruling on other matters).

Arguments of the Parties

Appellant's Arguments

• The Plaintiff argued the third termination letter was invalid because he remained a member of the Management Committee in December 2014, and he had not been given proper notice of the meeting at which his removal was decided.
• He contended that the document dated 1 August 2013 did not effectively remove him from the Committee, relying on the literal wording referring to "all Individual Members" being appointed.
• The Plaintiff maintained that Liontrust’s conduct, including fabrication of minutes and pursuit of complex claims, complicated the case unnecessarily.
• He submitted he was the successful party for costs purposes, having recovered a significant sum despite failing on his primary claim.
• The Plaintiff argued for a costs order reflecting his partial success and Liontrust’s conduct, including the wasted mediation based on fabricated documents.

Appellee's Arguments

• The Defendant contended the Plaintiff’s membership of the Management Committee ended before December 2014, either by deregistration with the FSA or by the 1 August 2013 document effectively removing him.
• They argued the 1 August 2013 document should be construed as appointing only the listed members, thereby terminating others, including the Plaintiff.
• The Defendant submitted the Plaintiff should not be treated as the successful party, given the failure of his primary claim and the relatively small recovery compared to the total claim value.
• Liontrust argued for an issue-based costs order, seeking indemnity costs for the Plaintiff’s pursuit of unmeritorious sales and marketing allegations, and a significant contribution from the Plaintiff towards their costs.
• They emphasized the complexity and expense of the litigation largely arose from the Plaintiff’s high-risk and expansive claims.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Davis v Richards & Wallington Ltd [1990] 1 WLR 1511	Principles relating to implied exercise of a power of removal from a committee.	Supported the court's construction that the power to appoint included power to remove Committee members by implication.
Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280	Principles guiding costs orders in commercial litigation.	Provided a framework for assessing costs orders, including the starting point that the successful party is entitled to costs and consideration of proportionality and conduct.
Fox v Foundation Piling Ltd [2011] EWCA Civ 790	Definition of "successful party" for costs where claimant recovers less than claimed but more than defendant offered.	Supported the conclusion that the Plaintiff was the successful party despite partial failure.
H L B Kidsons v Lloyds Underwriters [2007] EWHC 2699	Recognition that a successful claimant may lose on some issues without separate costs orders.	Informed the court’s approach to issue-based costs allocation.
Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125	Similar to H L B Kidsons on issue-based costs and partial success.	Supported the court’s discretion in costs allocation.
Travellers' Casualty v Sun Life [2006] EWHC 2885	Costs orders in relation to partial success and unreasonable conduct.	Used to justify adjustments in costs reflecting conduct and partial failure.
Islam v Ali [2003] EWCA Civ 612	Assessment of successful party in costs where judgment sum is small relative to claims.	Applied to consider whether Plaintiff or Defendant was the successful party given the relative sizes of claims and outcomes.
Summit Properties Ltd v Pitman [2001] EWCA Civ 2020	Successful party may pay more in costs than received in damages under issue-based costs orders.	Supported the court’s conclusion that the Plaintiff could be the paying party despite being the successful party.

Court's Reasoning and Analysis

The court began by addressing the validity of the third termination letter, focusing on whether the Plaintiff was still a member of the Management Committee in December 2014. It analyzed the 1 August 2013 document and related email, concluding that despite the wording "all Individual Members," the document intended to appoint only the listed members and thereby remove others, including the Plaintiff, from the Committee. The court applied principles of construction and implied exercise of power, referencing relevant case law, to resolve ambiguities and restore business efficacy to the document.

Having found the Plaintiff was no longer a Committee member in December 2014, the court held the third termination letter valid and the Plaintiff’s membership terminated on 22 June 2015.

On costs, the court applied the principles in CPR 44.2 and relevant case law to determine the successful party and appropriate costs orders. Although the Plaintiff failed on his primary claim, he recovered a substantial sum on an alternative claim and was thus treated as the successful party. Nonetheless, the court recognized the complexity added by the Plaintiff’s pursuit of unmeritorious claims and conduct that increased costs. Conversely, the Defendant’s conduct, including fabricating committee minutes, was also criticized.

The court adopted an issue-based approach to costs, dividing the litigation into three broad issues: validity of termination and exclusion (Issue A), breach of duty in marketing and selling (Issue B), and applicability of repudiatory breach doctrine (Issue C). The Plaintiff succeeded on Issue A but failed on Issues B and C, which were costly to the Defendant. Balancing these factors, the court ordered the Plaintiff to recover 50% of his costs and to pay 60% of the Defendant’s costs, reflecting the conduct and outcome on both sides. The court declined indemnity costs but acknowledged the Plaintiff’s conduct warranted some cost consequences.

The court also proposed an interim payment by the Plaintiff to the Defendant of £300,000 on account of costs, reflecting the net position after cross-payments. It declined to adjust for VAT in the absence of detailed submissions.

Regarding the form of relief, the court noted that points were discussed briefly and expected to be agreed before the judgment was handed down.

Holding and Implications

The court held that the third termination letter was valid because the Plaintiff was no longer a member of the Management Committee by December 2014, and thus his membership of the LLP terminated on 22 June 2015.

On costs, the court held the Plaintiff to be the successful party but ordered a departure from the usual rule that costs follow the event. The Plaintiff was entitled to recover 50% of his costs but was ordered to pay 60% of the Defendant’s costs, reflecting the complexity, conduct, and partial success and failure of the claims. An interim payment of £300,000 by the Plaintiff to the Defendant on account of costs was also ordered.

The decision directly affects the parties’ financial liabilities for costs but does not establish new legal precedent beyond applying established principles of contractual construction, powers of appointment and removal within LLP governance, and costs allocation in complex commercial litigation.