Peter John Tribe v Elborne Mitchell LLP

Hearing dates: 18, 19 and 20 May 2021

Introduction

This is a claim brought by Mr Peter Tribe, a retired solicitor, against his former firm, Elborne Mitchell LLP (the “Firm”). Mr Tribe was a partner of the Firm and its predecessor for more than 25 years, but in his last few years at the Firm the relationship soured. The Firm had in those years made significant profits from contingent fee work, and Mr Tribe claims that he was not awarded a fair profit share in the last two years of his partnership.

The trial concerned the division of a proportion of the Firm's distributable profits for the financial years ending April 2015 (“2014/15”) and April 2016 (“2015/16”) under the terms of the Members' Agreement made on 1 September 2011 between Mr Tribe and the other four equity partners, Timothy Brentnall, Timothy Goodger, Rosalind Jones and Katharine Payne as amended in 2014 (the “Agreement”). In the relevant years Mr Brentnall was the Senior Partner.

Mr Tribe claims damages of £42,510 for 2014/15 and £93,941 for 2015/16 and declarations of his rights under the Agreement. There are other matters covered by the claim that have already been determined and some yet to be decided.

The relevant terms of the Agreement are as follows.

“Distributable Profits” means such revenue or capital profits of the LLP as are shown in the Partners' Accounts and which are to be shared between the Partners in respect of any financial accounting period and which may be the same or more or less than the revenue or capital profits of the LLP as. set out in the Statutory Accounts and “Distributable Loss” shall be construed accordingly

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“Equity Partners means [Mr Tribe and the four other partners above]

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“Fixed Share Partners” means any members of the LLP appointed as Fixed Share Partners pursuant to Clause 6;

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“Partners” means the Equity Partners

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6 FIXED SHARE PARTNERS

6.1 The Partners may from time to time decide by special resolution in accordance with Clause 17.3 to appoint one or more persons to be members of the LLP as Fixed Share Partners.

6.2 Fixed Share Partners shall not become party to this Agreement and shall have no rights or obligations under it. The rights and obligations of each Fixed Share Partner as a member of the LLP shall be governed by the terms of the deed under which he shall be appointed to membership of the LLP as the same may be varied or supplemented from time to time in accordance with its terms.

….

12 LLP SHARES OF PROFIT

12.1 Subject to Clause 12.2, for the financial accounting period ending 30 April 2012 and each financial accounting period thereafter the Distributable Profits of the LLP shall be shared by each of the Partners in the proportions calculated according to the provisions of the Third Schedule (such proportions being referred to in this Agreement as the “LLP Shares”).

12.2 the Fixed Share Partners shall have priority for the allocation of the Distributable Profits to the extent of their entitlement in each financial accounting period.

…

THE THIRD SCHEDULE referred to above (Clause 12)

Each Partner's LLP Share for each financial accounting period shall be calculated as follows:

1. Subject to there being sufficient Distributable Profit, every Partner shall receive a “fixed share” calculated as a fixed sum to be paid in priority to all other elements making up the LLP Shares, and to abate equally if there are not sufficient Distributable Profits to pay a full fixed share to every Partner. The fixed share for the financial accounting period from 1 May 2011 to 30 April 2012 shall be £75,000, and for subsequent periods it will be the same amount unless varied by special resolution in accordance with Clause 17.3.

2. From the balance if any of the profit there shall be appropriated a “discretionary fund”, comprising up to a maximum of 40% of the whole Distributable Profit of the LLP (prior to the allocation of the fixed shares). The allocation of the discretionary fund:

a. may be made to one or more individual Partners or Practice Groups, and

b. is to be settled by Ordinary Resolution (if required) of the Partners – on recommendations to be brought forward by the Senior Partner — not later than 31 January following the end of each financial accounting period. If the allocation is not settled by 31 January in any year, any discretionary fund will be distributed according to lockstep points, as set out in Para. 3 in this Schedule;

c. the basis of the Senior Partner's recommendations are a matter to be determined at his discretion, but will have substantial regard for financial performance.

3. The remainder of the profit after the fixed element and any discretionary element shall be distributed according to lockstep points (“the lockstep element”), as follows:

a. Each Partner will receive such proportion of the lockstep element as his lockstep points bear to the cumulative total number of points of all the Partners, as determined below (such lockstep points are referred to herein as “points”);

b. The Partners at 1 September 2011 will each be allocated 20 points and will each have fully paid up capital of £60,000;

c. A Partner's allocation of lockstep points will increase by 2 points at each 1 May, up to a maximum of 20 points PROVIDED THAT on an Ordinary Resolution of the Partners — on recommendations to be brought forward by the Senior Partner – not later than 31 January in any year, a Partner might (if he himself or she herself accepts the award) be allocated 1 additional point for that year, i.e. a maximum increase of 3 in any year, or he or she might have his or her increase restricted to point or not receive any increase or exceptionally he or she might have his or her existing allocation reduced by 1 point.

The Third Schedule sets out the agreed method for the division of profits for each year. Each Equity Partner receives a fixed share (Paragraph 1). If there is a balance, then a “discretionary fund” is created comprising up to 40% of the whole Distributable Profit. That is then allocated by Ordinary Resolution (if required) “on recommendations to be brought forward by the Senior Partner” (Paragraph 2(a)). Those recommendations are “to be determined at his discretion but will have substantial regard for financial performance” (Paragraph 2(b)). The Partners then receive an equal share of anything that remains (Paragraph 3).

The Agreement thus provides for two determinations that are the centre of this dispute. Mr Tribe says that the both the Senior Partner's recommendation and the decision that follows from that (including an ordinary resolution if required) are exercises of a discretionary power which are constrained by the fetters discussed by the Supreme Court in Braganza v BP Shipping Limited [2015] UKSC 17. There is also a dispute as to the correct construction of the Agreement.

The trial was conducted remotely due to the Covid19 pandemic. Mr James Mather appeared for Mr Tribe and George Bompas QC and Sarah Harman for the Firm. There was some dispute as to the naming of others working at the Firm and the identity of the Firm's clients. In this judgment I describe them but do not need to identify them further.

Mr Tribe's Statement of Claim alleges that his partners acted in bad faith towards him. His Fourth Witness Statement goes further, making allegations against Mr Brentnall of “wholly improper and, on occasion, dishonest, conduct” and against Mr Brentnall, Ms Jones and Ms Payne of “greed, … cronyism and… dishonesty”. Mr Tribe did not pursue these allegations at all at trial. Mr Mather's skeleton argument for the trial suggested only that Mr Tribe “did not need to go nearly so far as to establish any dishonesty”. The allegations of dishonesty were not made out in any way.

There was evidence about the approach taken to distributions in years before those in dispute. It appears that in the predecessor firm both the form of partnership agreement and the process of dividing profits were similar to that under the Agreemennt. The Senior Partner had previously made a proposal to the partners for a division of profits based on a review of certain information. The partners debated that, sometimes in writing, and there was a partners' meeting at which a final division of the profits was agreed.

Each of the Partners gave evidence and was cross-examined in detail. Mr Goodger, Ms Payne and Ms Jones were careful and helpful witnesses. Mr Brentnall did not recall some matters about his approach to preparing his recommendations in the years 2014/15 and 2015/16, but he was in my view trying to be helpful.

Mr Tribe's recollection of the events in the years in question was rather different to that of the other witnesses. He said that he was still angry about the 2015/16 distribution.

The extensive contemporaneous documents — mostly emails, notes and financial information — have been very helpful in setting out the position, and I have drawn heavily from them.

The period leading up to the disputed years

In 2009 Mr D joined the predecessor firm as a Fixed Share Partner. He specialised in claimant professional negligence. This was carried out under conditional fee agreements (“CFA”) backed by after the event insurance. Conditional fee work carries a risk for the legal adviser that in the event of losing s/he will not be entitled to some or all of their fees. The upside is that success may bring a success fee.

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