Picture the scene; a solicitor is meeting a number of partners from another firm – an LLP, whose members prefer to use the more traditional and easily recognised honorific of “partner”. He is thinking about joining their number. The solicitor asks whether the partnership is a happy one and about the culture of the firm. The question is almost de rigueur – as is the answer; “We have our differences but we are very collegiate.”
Wind the clock forward; it is two years later and things have not worked out for our solicitor – he has just been handed a notice requiring him to retire as a partner. He is, in fact, being expelled. He never saw this coming. He had never been told that his position was at risk. He was even performing better than some of his partners who had been with the firm for much longer – but they are not being given “the chop”. Everything leading up to his expulsion took place behind closed doors. Things don’t feel very collegiate to him.
In fact our unfortunate partner may have opened the door to treatment of this kind when he signed up to the LLP’s Members’ Agreement. His partners may be able to argue that, under the Members’ Agreement, they are acting within their rights.
Everyone is familiar with the fact that LLP’s offer the opportunity to limit a partner’s personal liability, but they can also offer something else – the opportunity to exclude, in its entirety, the duty of good faith between the partners.
The duty of good faith has been a feature of “traditional” partnerships long before the advent of LLP’s. The presence of the duty means that the partners have to make decisions fairly and, to an extent, openly; in many ways it is a safety mechanism that governs precisely what kind of conduct is permissible between partners.
Of course, if you are the kind of business that prefers to make “tough” decisions and believe that when the majority of partners want another partner to “go”, that needs to happen, sooner rather than later, you might view the duty of good faith as something of an inconvenience. In those circumstances troublesome considerations such as ensuring that you arrive at a decision to expel in accordance with a duty of good faith can merely prevent or impede an early departure.
This is a “problem” that can be addressed, to some extent, within an LLP. The starting point is that an LLP is subject to a default regime not dissimilar to “old fashioned” partnerships. This is set out in part 6 of the Limited Liability Partnerships Regulations 2001. However there is little to prevent the members of an LLP from stripping-out the default provisions and replacing them with provisions that are more to their liking. Increasingly that is what is being done.
What is the result? Where the terms of an LLP’s Members’ Agreement have been properly drafted, decisions to expel a member or partner may be passed by the necessary mechanism and the scope for the outgoing partner to protest may well be reduced. That is not to say that there will not still be laws and duties to which the remaining partners may be subject and which may govern what they can or cannot do to their fellows – but excluding the duty of good faith may well be a sign that partners are seeking to loosen the constraints on how they can treat each other.
Solicitors’ practices without internal good faith? In many ways this ought to be shocking. With external investment in law firms now a fact of life and a constantly developing commercial culture, this trend may well be set to continue.