May 21st 2020
Business as Usual (more or less)
Business as Usual (more or less)
The civil courts have been coping well under current conditions: both trials and hearings have been proceeding, by and large, using telephone and other remote working systems. The judges, lawyers and court staff are to be congratulated on keeping going under difficult conditions.
The story has been the same when it comes to mediation, with mediators showing a creative ability to adapt their techniques to current exigencies.
Two recent insolvency cases illustrate the determination of the courts not to be thrown off balance by the coronavirus effect.
Early last month John Kimbell QC, sitting as a deputy High Court judge, in Re One Blackfriars Ltd (in liquidation)  EWHC 845 (Ch) set the ball rolling by refusing an application to adjourn the trial of an action brought by administrators fixed for hearing this summer. He interpreted the Coronavirus Act 2020 as indicating that the legislature intended the work of the civil courts to continue with greater use of video and audio technology.
More recently in Re St Benedict’s Land Trust Ltd and Re Shorts Gardens LLP  EWHC 1001 (Ch) Snowden J rejected applications to restrain the presentation of two separate winding-up petitions against a company and a partnership by two local authorities seeking to wind them up for failing to pay non-domestic rates and costs orders.
Among a number of bad arguments run by the applicants was one attempting to rely on the recent Government announcement of possible legislation to restrict the ability to wind up certain companies, especially for unpaid rent. Dismissing the applications, which he described as “entirely opportunistic and not credible” and having nothing to do with the pandemic, the judge concluded, “I…see no reason to exercise any discretion in favour of the applicants based upon the prospect that legislative measures are to be introduced to assist more deserving companies experiencing genuine financial hardship caused by the effects of the COVID-19 pandemic.”
It has been our experience at Manolete that the High Court has responded very effectively to ensure hearings proceed by whatever means is most appropriate, and generally that is Skype.
A witness trial in a funded matter was recently conducted by Skype with parties attending from London, Newcastle and various locations in between. Whilst there have been occasions in the past when it has been necessary for a witness to give evidence by video link, the judge, counsel and other participants have been together in the same room. The difference now is that all parties attend remotely from separate locations, but the trial has proceeded as normal.
Judgment was given in favour of Manolete by ICCJ Jones in the matter of A&C Restoration LLP (Manolete Partners Plc v Riches) on 1 May following a trial conducted by Skype.
Interlocutory matters also lend themselves very well to Skype. We have been successful at an application by the Defendant for permission to appeal before Mr Justice Zacaroli by Skype in the matter of Manolete Partners Plc v Ismael Majed Siza. In a funded matter, the Respondents had failed to serve their witness statements in reply in accordance with a court order. The Respondents requested an extension of time, in part because the Respondents are engaged in the pharmaceutical industry and are busy due to the pandemic. The Applicant liquidator was prepared to agree the extension, but on the basis of a final “unless” order in view of the delay to date. At a contested Skype hearing, ICCJ Burton acknowledged the circumstances but determined the litigation needed to be progressed and made an order on “unless” terms.
Court staff have been most efficient in organising the hearings and ensuring links are circulated to those attending. Transcribers have coped with the challenge. Solicitors can no longer pass notes to counsel; but have communicated with counsel and client via WhatsApp groups.
The County Court has been slower to adapt, with matters being adjourned, but we are now starting to receive notices of hearings on interlocutory applications by telephone.
The ability to progress claims in the current circumstances is very encouraging.
Head of Legal
Duties Owed By a Member of LLP
The duties owed by the director of a company under the Companies Act 2006 and at common law are well known and have been considered in numerous cases. In contrast, there are few authorities on the position of a member of an LLP.
In McTear v Eade & Eade  EWHC 1673,  BPIR 1380, ICCJ Jones held that common law and equitable duties equivalent to those codified in the Companies Act 2006 are owed by designated members of LLPs, who are effectively its directors. The judge further applied the Court of Appeal decision in BAT Industries v Sequana SA  EWCA Civ 112,  Bus LR 2178 in the context of the duty owed by members to act in the interests of their LLPs which is equivalent to the duty owed by company directors codified in s. 172 of the Companies Act 2006.
On 1 May 2020, ICCJ Jones gave judgment in the matter of A&C Restoration LLP (in liquidation), Manolete Partners Plc v Andrew Michael Riches. Mr Riches was one of two members of the LLP. The LLP was governed by a partnership agreement dated 2 June 2008. Under the terms of the agreement, the members were entitled to draw £2,800 per month on account of profits.
Mr Riches retired from the LLP in 2017 and the terms of his retirement were set out in a retirement deed dated 10 October 2017. Immediately prior to the execution of the retirement deed, the LLP’s principal asset was a debt of £126,871 owed to it by Mr Riches. Under the retirement deed, the LLP was caused by Mr Riches and the other member to express an intention to waive the debt.
On 19 July 2019, the LLP entered into creditors’ voluntary liquidation with a deficiency to creditors of £259,940. The claims of the liquidator and of the LLP were assigned to Manolete on 20 December 2018. Manolete issued proceedings against Mr Riches claiming, inter alia, that he had acted in breach of duty.
ICCJ Jones held that:
i) The assignment to Manolete was valid, and Manolete was permitted to bring the claim in law.
ii) The duties owed by the designated members will include the same duties that directors owe to limited companies as set out in the Companies Act 2006 and also as a matter of common law and equity. Those duties involve a duty to take into account the interests of creditors at a time when the company is insolvent.
iii) At the time of the retirement deed, the LLP was hopelessly insolvent, the creditors were entitled to expect the designated members to recover the LLP’s debts, not to release them.
iv) Because the LLP was insolvent, the designated members, when deciding whether to include a waiver clause, had to consider the interests of the creditors.
v) The entering into the retirement deed with a clause of waiver was a breach of fiduciary duty.
The judge ordered Mr Riches pay damages in the sum of £126,871, together with interest @8% per annum compounded in equity with quarterly rests and costs.
This case serves as a useful reminder of the duties owed by a member to the LLP, and to the creditors of the LLP at times when the LLP is insolvent.
Head of Legal