In a landmark decision, Mr Justice Newey has held that a partner who breaches his fiduciary duties can be required to forfeit partnership profits.
Mr Hosking was one of the partners in Marathon, a large asset management company. Marathon's LLP Deed provided that a retiring partner would be entitled to receive half the profits to which he would have been entitled as a working partner. Following an arbitration between Marathon and Mr Hosking, the arbitrator found that Mr Hosking committed breaches of fiduciary duty in the period before he left Marathon. He went on to apply the forfeiture rule, traditionally applied to agents and other fiduciaries, to forfeit the half share of profits which he found Mr Hosking had been paid, as a working partner, in exchange for the performance of his duties.
Mr Hosking appealed against this part of the arbitration award, on the basis that partnership profits did not fall within the scope of the partnership rule. The case was "closely watched by members of investment firms, hedge funds and private equity firms around London" (Bloomberg). Newey J dismissed the appeal, holding that, if it was properly defined as remuneration, a partner's profit share could be forfeited.
Neil Kitchener QC and Gideon Cohen, together with Jane McCafferty, acted for Marathon.
You can view the full Judgment here.