LLP Agreement Primacy Upheld in Dispute Over Partner Remuneration: Kiril Klaturov & Anor v Revetas Capital Advisors LLP & Anor

Introduction

The case of Kiril Klaturov & Anor v Revetas Capital Advisors LLP & Anor presents a dispute revolving around the entitlement of a member to deferred compensation, bonuses, and profit shares after leaving a Limited Liability Partnership (LLP). The case offers a detailed application of principles governing LLP agreements, the implication of terms, and the interpretation of contractual obligations related to partner remuneration.

Key Facts

Kiril Klaturov, a former member of Revetas Capital Advisors LLP, and his controlled company KMKH (collectively, the Claimants) initiated a claim for alleged outstanding deferred compensation and bonuses totaling approximately €1 million, allegedly due for the period from January 2018 to March 2022. Additionally, the Claimants sought a share of the LLP’s profits under clause 8 of the 2020 LLPA, asserting entitlement to an unqualified right to remuneration that extends beyond the contractual conditions for profit sharing as outlined in their LLP Agreement.

Revetas Capital Advisors LLP and associated parties (the Defendants) disputed the claims, arguing that the Claimants’ remuneration was governed exclusively by the LLP Agreements (2016 and 2020), and that any distribution of profits was conditional based on the LLP’s profitability and subject to the discretion of the Managing Member.

Legal Principles

LLP Agreement as the Governing Document

The judgment reaffirms that the mutual rights and duties of the members of an LLP are governed by the LLP Agreement itself, as outlined under Section 5(1) of the LLP Act and the relevant LLP Agreements in question. Any alleged remuneration entitlement must comply with the express provisions of these agreements.

Implied Terms and Consistency with Express Terms

The Court considered the principles from Marks and Spencer Plc v BNP Paribas Securities Service Trust Co (Jersey) Ltd, reflecting on the necessity for business efficacy and the coherency of agreements without the implied term. Importantly, an implied term cannot be accepted if it stands in contradiction to the express terms of the contract.

Conditionality of Remuneration

Key to the Defendants’ argument was that partner compensation, including deferred compensation and bonuses, was contingent on the availability of distributable profits and the subsequent decision to distribute such profits, as per clause 8 of the LLP Agreements.

Taking of Account for Profit Share

The Court was inclined to order an account under CPR Rule 25.1(1)(o) due to the genuine dispute about how profits were determined, retained, and distributed, which was not fully resolved by the evidence submitted.

Outcomes

The Court dismissed the Claimants’ case for the recovery of the specific sum in deferred compensation and bonuses, upholding the Defendants’ position that all remuneration claims must adhere to the terms outlined in the LLP Agreements. However, it recognized the need for an account to determine any entitlement to share in profits per clause 8 of the LLP Agreements.

Conclusion

The judgment in Kiril Klaturov & Anor v Revetas Capital Advisors LLP & Anor serves as a critical reminder of the primacy of the LLP Agreement in defining the rights and obligations of LLP members. It underscores that extrinsic documents and perceived understandings do not override the clear stipulations of a contract. LLP members are entitled to remuneration strictly within the parameters of profitability and distribution clauses outlined in their LLP Agreements, and any departures from these norms must be explicitly agreed upon by all members and integrated into the governing documents. Additionally, the Court’s readiness to order an account to clarify outstanding financial disputes signifies a practical and balanced approach to resolving uncertainties in profit entitlements consistent with contractual obligations and the overall interests of justice.