Kiril Klaturov v Revetas Capital Advisors LLP

Hearing date: 27 September 2023

Approved Judgment

This judgment was handed down remotely at 10.30 am on Friday 27 October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Paul StanleyKC:

The issue

The central issue in this application to re-amend the Amended Particulars of Claim is whether some draft amendments, relating to a buy out of the claimants' interest in a limited liability partnership, make a sufficiently strong prima facie case to justify permission. That raises two case-specific questions: is it arguable that the parties agreed a valuation process that bound the defendants? And what, if any, implied terms may (at least arguably) arise out of a written agreement to pay a member who was leaving a “buyout sum” based on an accountancy firm's valuation of the LLP?

For the reasons given below, I have concluded: (a) that the draft amendments alleging that there was a binding agreement to the process for valuation have a real prospect of success at trial, and should be permitted, (b) the draft amendments alleging that the first defendant owed a duty to exercise reasonable care in providing information should be permitted (but not that the second defendant owed such a duty in relation to information provided by first defendant), but (c) the draft amendments alleging other implied terms should be refused.

Background and procedure

The first claimant, Mr Klaturov, is a lawyer. In 2012 he began working on secondment for the first defendant (“RCA”), which is a limited partnership specialising in investment management, particularly for Russian and Eastern European clients. Its managing member is the second defendant, Mr Assimakopoulos. Mr Klaturov decided to work full time with RCA. He became its general counsel. In 2016 he (or the second claimant, which is a company he controls—for present purposes it does not matter) became a member of RCA. In 2020 he became its Chief Operating Officer. He resigned in August 2021. He left on good terms. It is not in dispute that for all relevant purposes he was a “good leaver”. Then the parties fell out over the financial terms of his departure. These proceedings were issued in July 2022.

A key source of the parties' rights and obligations is the LLP Agreement as it stood on 9 December 2020.

The parties have been in dispute over three main topics. First, Mr Klaturov says that he is owed deferred remuneration and bonus, fixed before he left, but not paid. Second, Mr Klaturov says that he is entitled under the LLP Agreement to a profit share in relation to periods during which he was with RCA. Third, he says that he (or the second claimant) is entitled to a buyout payment, representing the value of his rights at his leaving date. The first two claims have been fully pleaded. They are to be tried in December. The parties agreed, and I have ordered, that the third claim will not be tried then, whatever the outcome of this application. It is free-standing and has only recently arisen (at least in its current form). It is the only claim that matters for this judgment.

The relevant provisions in the LLP Agreement are in clause 21.4, which provides:

“Save as otherwise expressly agreed between the LLP and any Member or any Former Member, in the event that the Former Member is a Good Leaver and so long as the Former Member remains a Good Leaver: …

(d) if the Former Member had been a member of the LLP for more than three years (including any period served working for the LLP as an employee, consultant or other capacity) the Former Member's Interest shall be purchased by the LLP or the Managing Member in accordance with the following:

(i) as soon as is reasonably practicable after the such Former Member's Leaving Date, the Managing Member shall appoint a recognized firm of chartered accountants to determine the value (the ‘LLP Value’) of the LLP calculated as at such Former Member's Leaving Date;

(ii) the purchase price for the Former Member's Interest shall be equal to such Former Member's proportionate share of the LLP Value based pro rata to the proportion that such Former Member's Voting Percentages bears to the aggregate Voting Percentages of all the Members, provided, however, that the Managing Member and such Former Member may agree in writing to a different purchase price;

(iii) the purchase price shall be paid to the Former Member (or his personal representatives) in three equal instalments, of which the first instalment shall be paid on or before 2 months from the Leaving Date, the second instalment shall be paid on or before 12 months from the Leaving Date and the third instalment shall be paid on or before 24 months from the Leaving Date, provided, however, that the Managing Member and such Former Member may agree in writing to a different payment schedule.”

When this case began last year, no valuation had been made. Mr Klaturov's leaving date is now disputed, but was either in mid-February or mid-March 2022. So, on the face of the LLP Agreement, accountants should have been rapidly appointed to do the valuation, and a first instalment paid in around May 2022. A claim that accountants had not been appointed in due time was made, and Mr Assimakopoulos was added as a defendant because (it was said) he had failed to make the appointment. Meanwhile the parties continued to engage with the valuation process. In circumstances that I describe below, they appeared to have reached some measure of agreement during the summer of 2022 by which chartered accountants, PKF Littlejohn LLP (“PKF”) were instructed to carry out the valuation. But there was an escalation of hostilities which led (rightly or wrongly) to Mr Klaturov being excluded from the process in early 2023.

PKF produced a report on 28 July 2023. It was provided to the claimants on 1 August 2023. PKF determined that the equity value at the valuation date was nil. If that report stands, the buyout claim has no value.

The impending trial and expected emergence of PKF's report, and then its actual delivery, led to applications and a hearing before HHJ Pelling KC in early August 2023. The upshot was that the defendants disclosed documents bearing on the process by which PKF had been instructed, and the information they had been given. The claimants then rapidly formulated the proposed amendments that are now before me. They attack the PKF report (but not PKF), alleging that it was the product of a flawed and impermissible process. That attack is made in strong terms. In their skeleton argument the claimants said that they were advancing a case that the defendants had “manipulated the valuation”. There is, however, no proposed plea of fraud or bad faith.

The claimants' complaints can broadly be placed under three headings.

First, they say that PKF were wrongly told to use a leaving date of 16 March 2022 rather than one of 16 February 2022. That matters because Russia invaded Ukraine on 24 February 2022, which may mean that RCA's value if assessed “as at” mid-March was lower than its value if assessed “as at” mid-February. That aspect of the amended claim is not (as a matter of pleading) controversial. The defendants deny that the date used was wrong, but they accept that it is fair game.

Secondly, the claimants complain that the process followed in instructing PKF was not as had been agreed. The process agreed, they say, was one in which Mr Klaturov could participate so that, if he disagreed about relevant assumptions, PKF would be able to understand and consider his objections. They also say that certain assumptions were agreed. But they complain that the defendants did not follow that protocol. They gave PKF instructions and assumptions without Mr Klaturov having an opportunity to comment on them. They gave PKF information and instructions that differed from those that had been agreed. That aspect of the claim is not one that the defendants accept can be advanced. It depends on the proposition (alleged in paragraph 18B of the proposed Re-Amended Particulars of Claim) that such an agreement was contained in or evidenced by an email of 15 July 2022 and a letter from the defendants' solicitors dated 19 August 2022. But, say the defendants, if one reads those documents one can see that they do not contain or evidence any such agreement. So, they say, permission should not be given.

The third aspect of the claimants' complaint is that, quite apart from any agreement, the defendants gave PKF instructions, assumptions, and information that were wrong. The claimants say that this has undermined the fairness and reliability of the resulting valuation. They allege a variety of implied terms which they say were breached in this process, and assert that it renders the purported valuation a nullity. Again, the defendants take issue with this way of attacking the report. They say that none of the terms that the claimants have canvassed would ever be implied, so that the case is hopeless, and permission to amend should not be given.

The court's discretion

CPR 17.1 provides that, at this stage of proceedings, a party may amend its case “only— (a) with the written permission of all the other parties or (b) with the permission of the court”. The court's permission is granted or refused in accordance with...