“…if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”

It isn’t every day that I can start a reference to a recent decision (this one being THJ Systems Ltd & Anor v Sheridan ([2023] EWHC 927 (Ch)) //www.bailii.org/ew/cases/EWHC/Ch/2023/927.html) by using a famous quote from Lewis Carroll (Tweedledee for those who might not have spotted it) but it felt apt on reading the judgment. 

The title of this piece is not – to be clear – to suggest that the decision itself is somehow confused but the reference to an outcome being “absurd” made me think of that line. 

Just by way of summary, the key point that I wanted to take from the decision is that of how a member may be removed from an LLP. The starting point is that parties to an LLP should have a good members agreement drafted (and not rely on the position in the Limited Liability Partnership Act 1990 – which has its own imperfections) that should set out what circumstances a member may be removed from the LLP and how that removal will occur. In this case there were expulsion clauses drafted in to the members agreement and that the power to expel was vested in “the LLP”. The parties wishing to expel the member asserted that this provision in the members agreement should be construed as having the words “(acting for this purpose by the Members other than the Member concerned)” after the reference to “the LLP” as otherwise the construction would be that a member would have to vote for their own expulsion which would be “absurd”.

The Court in this case did decide to infer additional words in to the words of the members agreement, against the position of the defendant who claimed (perhaps not unreasonably) that the members agreement could still function and be construed without those words being added, and that the members agreement would still be effective as THJ as majority partner would have a casting vote. 

The Court however upheld the decision in  Hitchman v CBAS Services (1983) 127 SJ 441 and determined that construing the additional wording that the expulsion decision must exclude the member being expelled would be “a perfectly sensible and commercial approach interpretation which gives effect to the clauses.”

The takeaway from this is once again a reminder to have well drafted, tightly drawn agreements in the first place but also that the Courts will consider the context of an agreement as a whole when considering the construction of the agreement.

"...requiring a member to vote for his or her own expulsion would be absurd..."

https://www.bailii.org/ew/cases/EWHC/Ch/2023/927.html
Subcribe to news and views