REMEDIES FOR BREACH OF FIDUCIARY DUTY – FORFEITURE OF AN LLP MEMBER’S PROFIT SHARE
Individuals who hold positions of trust will generally be fiduciaries. This includes directors, senior managers within businesses and partners in professional partnerships. If such individuals breach their fiduciary duties, they risk having their remuneration (potentially including profit share) forfeited. This is in addition to having to pay damages.
The significance of this principle, confirmed by the decision in Jeremy Hosking v. Marathon Asset Management LLP, is well demonstrated by the facts of the case, where over £10m of profit share was forfeited while the compensatory damages awarded were just under £1.5m. While this decision was in the context of an LLP member, it will have ramifications in other areas too, as the remedy of forfeiture is potentially available in any case involving a fiduciary.
Who are fiduciaries?
A fiduciary is simply someone who undertakes to act on another’s behalf in circumstances giving rise to a relationship of trust and confidence. Examples of fiduciary relationships include those between trustees and the beneficiaries of a trust, and between agents and their principals. Company directors owe fiduciary duties to their companies, as can ordinary employees entrusted with a particular role of trust.
All partners in traditional partnerships owe their other partners fiduciary duties. The position is different for LLP members, however. While LLP members will not ordinarily owe any fiduciary duties to other members, they will usually owe fiduciary duties to the LLP itself. The extent of the duties in any particular case will depend upon that member’s precise rights and obligations, but any member who has assumed a position of trust and responsibility over the affairs and property of the LLP will owe extensive fiduciary obligations. Accordingly, such duties may well be relevant in any dispute involving a member holding a senior position.
Jan-Mar 2017 issue