Jeremy Hosking v Marathon Asset Management LLP

JurisdictionEngland & Wales
JudgeMr Justice Newey
Judgment Date05 October 2016
Neutral Citation[2016] EWHC 2418 (Ch)
Docket NumberCase No: HC-2015004901
CourtChancery Division
Date05 October 2016

[2016] EWHC 2418 (Ch)





Rolls Building, Royal Courts of Justice

7 Rolls Buildings, Fetter Lane

London, EC4A 1NL


Mr Justice Newey

Case No: HC-2015004901

Jeremy Hosking
Marathon Asset Management LLP

Mr Pushpinder Saini QC, Mr John MachellQC, Miss Victoria WindleandMr Paul Luckhurst (instructed by Orrick, Herrington & Sutcliffe (Europe) LLP) for the Claimant

Mr Neil Kitchener QC, Miss Jane McCaffertyandMr Gideon Cohen (instructed by Herbert Smith Freehills LLP) for the Defendant

Hearing date: 21 July 2016

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Newey

It is well-established that there are circumstances in which a fiduciary (in particular, an agent) who acts in breach of his fiduciary duties can lose his right to remuneration. The question raised by this appeal from an arbitration award is whether that principle is capable of applying to profit share of a partner in a partnership or a member of a limited liability partnership ("LLP").

The context


The defendant, Marathon Asset Management LLP ("Marathon"), carries on an investment management business originally set up in 1986 by the claimant, Mr Jeremy Hosking, and a Mr Neil Ostrer. Marathon took over the business in 2004, at which stage Marathon and its members entered into a deed dated 2 September 2004 ("the LLP Deed") to "set out the basis on which the LLP is to be organised and the rights and duties of the LLP and its Members" (to quote from a recital). Mr Hosking, Mr Ostrer and the two other original members were called the "Founding Members". The three Founding Members who are individuals were also designated "Class A Members", a term defined so as to encompass as well "any other person who is admitted to membership of the LLP as a Class A Member".


The LLP Deed provides for Class A Members to be either "Executive Members" or "Non-Executive Members". A Non-Executive Member is a Founder Member who no longer works in the business of Marathon by reason of death, incapacity, "retirement from executive duties" or a resolution of other Members. All other Class A Members are Executive Members and, as such, required to "diligently employ [themselves] in the business" of Marathon and, except as otherwise agreed, to devote all their time to that business.


Under the terms of the LLP Deed, profits falling to be allocated to Class A Members are to be shared amongst them equally, save that:

"the Non-Executive Member(s) (or their personal representatives) shall … each be allocated 50 per cent. of the Income Profits for that Quarter as would have been allocated to the relevant Non-Executive Member(s) … had the relevant Non-Executive Member(s) been an Executive Member(s) during the relevant Quarter".

In other words, a Non-Executive Member is to receive half as much as an Executive Member. The entitlement of an Executive Member is referred to informally within Marathon as "full rations" and that of a Non-Executive Member as "half rations".


On 5 April 2012, Mr Hosking gave notice of his intention to retire. His retirement took effect on 11 December 2012. He then became a Non-Executive Member of Marathon.


That same month, Marathon initiated arbitration proceedings against Mr Hosking. Issues as to liability were addressed during a hearing in 2014, following which the arbitrator, Mr David Owen QC ("the Arbitrator"), made an award dated 1 October 2014 ("the Liability Award"). While rejecting quite a number of allegations against Mr Hosking, he found some to have been proved. More specifically, he held that Mr Hosking had breached contractual and fiduciary duties that he had owed to Marathon by discussing with four of its employees the possibility of starting a new business and producing a business plan outlining his thoughts. He also concluded that, as a result of Mr Hosking's breaches of duty, Marathon had lost a real or substantial chance of retaining three individuals referred to as "the Global Three", with the lost chance of retention being put at 5%.


Remedies were dealt with at a further hearing in 2015 and were the subject of an award dated 30 October 2015 ("the Remedies Award"). The Arbitrator concluded that Marathon was entitled to equitable compensation of some £1.38 million in respect of the lost chance of keeping the Global Three. He also, more importantly for present purposes, acceded to an argument that Mr Hosking should forfeit certain sums paid to him during the period of his breaches of duty. In that respect, he decided that Mr Hosking should return £10,389,957.50 to Marathon. This figure represented 50% of the "full rations" payments that Mr Hosking received in respect of the period between mid-July and mid-December 2012.


The Arbitrator took the view, as he said in paragraph 270(a) of the Remedies Award, that "50% of the relevant payments received by Executive Members was, in substance, remuneration for the performance of executive duties". In this connection, he said this in paragraph 260 of the Remedies Award:

"a. It is correct that an Executive Member receives an allocation of Income Profits which is not described in the LLP Deed as remuneration for the performance of executive duties.

b. However, one has to consider what, as a matter of substance, the allocation represents. If one asks oneself why, objectively, the Executive Member is receiving twice the allocation of profits that the retired Non-Executive Member receives, the answer is obvious. The Executive Member is carrying out, and is bound by, a range of duties, including fiduciary duties, and is correspondingly remunerated by an allocation of profit which is double the allocation which would be received by a Non-Executive Member who is not bound by the relevant duties. In short, the Executive Member receives an enhanced share of profit in return for undertaking the executive duties. The retired Non Executive Member no longer performs executive duties, and receives a lesser share, reflecting his past contribution to, and an ownership interest in, the business. No other reason was suggested for the difference in allocation of profit as between an Executive Member and a Non-Executive Member."


The Arbitrator considered whether forfeiture would be "proportionate and equitable" and decided that it would, noting, among other things, that "one is dealing with a series of serious breaches of fiduciary duty" (paragraph 265 of the Remedies Award). He recognised that the amount sought to be forfeited was large, but observed that it had to be placed in the context of the scale of profits generated by the Marathon business (some £146 million in the year ending March 2012) (see paragraph 271 of the Remedies Award and paragraph 49 of the Liability Award). He further explained (in paragraph 271 of the Remedies Award):

"Marathon accepts that forfeiture will not lead to Mr Hosking losing his entitlement to a half share of any relevant Income Profit by way of 'half-rations'. Therefore Mr Hosking will have the benefit of 'half-rations' equivalent to the amount forfeited in any event, reflecting his ownership interest. In so far as forfeiture increases profits available for distribution in the future, he will also receive the benefit of that distribution, by means of his ongoing 'half-rations' entitlement."


It was submitted to the Arbitrator on behalf of Mr Hosking "that forfeiture has no application to partnership profits, the distribution of which is always a matter of contractual bargain, and that the remedy which Marathon seeks is inconsistent with the provisions of the LLP Deed governing the partnership" (paragraph 244 of the Remedies Award). However, the Arbitrator stated in paragraph 260(g) of the Remedies Award that he had:

"concluded that forfeiture of a 50% share of Income Profits, distinct from the 50% share received by way of 'half rations', is not inconsistent with, or excluded by, the terms and structure of the LLP Deed".

The forfeiture principle


The law relating to forfeiture of a fiduciary's remuneration is summarised in these terms in Snell's Equity, 33 rd ed., at paragraph 7–062:

"If a fiduciary acts dishonestly he will forfeit his right to fees paid or payable by the principal (as distinct from sums paid by a third party, such as a briber). He will also forfeit his right to such fees if he takes a secret profit from a third party which is directly related to performance of the duties in respect of which the fees were payable by the principal, even if the principal has benefited from the fiduciary's performance of those duties. However, a fiduciary's fees may not be forfeit if the betrayal of trust has not been in respect of the entire subject matter of the fiduciary relationship and where forfeiture would be disproportionate and inequitable.

A fiduciary will also lose his or her right to fees payable by the principal if the fiduciary's breach of duty is so grave that there has effectively been no performance at all, on the basis of total failure of consideration."


The earliest forfeiture case to which I was referred was Andrews v Ramsay & Co [1903] 2 KB 635, which concerned an estate agent. Lord Alverstone CJ there said (at 638):

"A principal is entitled to have an honest agent, and it is only the honest agent who is entitled to commission."


In contrast, estate agents who had failed to pass on an offer to a client...

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4 cases
  • HPOR Servicos De Consultoria Ltda v Dryships Inc.
    • United Kingdom
    • Queen's Bench Division (Commercial Court)
    • 13 December 2018
    ...breach on performance, and ‘harmless collaterality’. 95 The final case is Hosking v. Marathon Asset Management LLP [2016 EWHC 2018 (Ch) [2017] Ch 157. That was a section 69 appeal (on whether executives' income share was remuneration for forfeiture purposes, which it was [44]). However, the......
  • Edwin John Prescott v Aristides George Potamianos
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 6 June 2019
    ...the principle that a fiduciary's remuneration may be forfeited for breach of fiduciary duty: Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch). Of course, such forfeiture can be refused if it is considered to be disproportionate and 107 We consider that the new argument must be......
  • Odey Asset Management LLP and Others
    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 4 February 2021
    ...were in reality rewards for the Members' work and can truly be described as remuneration (see Hosking v Marathon Asset Management LLP [2017] Ch 157, [2017] 2 WLR 746 at [43(ii)]) and, therefore, constitute income resulting from personal activities (as in Hadlee), and (b) on that basis, on t......
  • Marathon Asset Management LLP and Another v James Seddon and Others
    • United Kingdom
    • Queen's Bench Division (Commercial Court)
    • 22 February 2017
    ...Mr Hosking appealed against the latter determination to the High Court. The appeal was dismissed on 5 October 2016: see Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch). 33 Marathon commenced another arbitration against Mr Hosking in April 2015. In this further arbitration Mara......
1 firm's commentaries
  • Forfeiture of an LLP Member's Profit Share
    • United Kingdom
    • JD Supra United Kingdom
    • 28 October 2016 a potent weapon for claimants and a mind-focussing deterrent to possible breaches. Jeremy Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch) Jason ButwickMatthew Magee function JDS_LoadEvent(func) { v...
2 books & journal articles
  • Duties
    • United Kingdom
    • Wildy Simmonds & Hill Partnership and LLP Law - 2nd edition Contents
    • 29 August 2018
    ...clients or carrying on a competing business after his departure or the dissolution of the 25 Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch), [2017] 2 WLR 746. Duties 67 partnership. As with restrictive covenants in contracts of employment, or agreements to sell a business, th......
  • Table of Cases
    • United Kingdom
    • Wildy Simmonds & Hill Partnership and LLP Law - 2nd edition Contents
    • 29 August 2018
    ...(D) 275 (Feb) 151 Hopper v Hopper [2008] EWCA Civ 1417, [2008] All ER (D) 129 (Dec) 24, 105 Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch), [2017] 2 WLR 746, [2016] All ER (D) 23 (Oct) 66 Hudgell, Yeates & Co v Watson [1978] QB 451, [1978] 2 WLR 661, [1978] 2 All ER 363, CA 1......

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