This case concerned a challenge by a departing Designated Member in an LLP of the valuation of his interest. Questions arose in respect of the extent to which there were implied terms in the relevant agreements giving rise to an obligation on the LLP (and the continuing Members) to cooperate with and provide information to potential third party purchases of the relevant interest and whether a failure to do so amounted to a breach of contractual provisions on Members to show utmost good faith.
Mr Archer held a 20% interest in Nubuke Investments LLP. Further to a disagreement with regard to his departure from the LLP he was removed and expelled by resolution of the other Members.
This process triggered transfer provisions in the LLP agreement, which were subject to pre-emption rights. The relevant clause provided that the value of the Member's interest would be either a sum matching a bona fide offer for the interest by an unconnected third party, or an amount determined by the auditors.
The business of the LLP had suffered due to developments in the world markets in 2008 - 2009 and the LLP was loss-making. Having considered the financial position of the LLP, the auditors issued a valuation of Mr Archer's interest at GBP nil. Further to this and in accordance with the pre-emption rights in the agreement, Mr Archer's interest was transferred to one of the other Designated Members with a value of just GBP 1.
Mr Archer sought to invalidate the valuation. He also made claims against the LLP and the other Designated Members for breach of implied terms, and breach of an express obligation on the Members to show utmost good faith.
The implied terms
Significant efforts had been made by Mr Archer to find a third party purchaser for his interest. Two expressions of interest resulted from this, though neither was an unconditional offer, as they were each subject to 'due diligence' being carried out on behalf of the prospective purchaser. The second of these was in any event irrelevant in fact because it arose too late in the day.
In relation to the first expression of interest, before the LLP was prepared to provide 'due diligence' information to the potential purchaser it asked for: a copy of the offer letter; information as to the identity of the offeror; and evidence that the offeror was able to complete the purchase at the level offered. This information was not provided and so the LLP did not provide the due diligence information requested.