Neutral Citation Number: [2017] EWCA Civ 985
Case No: A3/2016/1582
and
A3/2016/1778

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION 
MR JUSTICE HENDERSON
[2015] EWHC 2171 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 13 July 2017
Before :

LORD JUSTICE PATTEN
and
LORD JUSTICE KITCHIN

Between :
- - - - - - - - - - - - - - - - - - - - -
	(1) LIONTRUST INVESTMENT PARTNERS LLP
(2) LIONTRUST INVESTMENT SERVICES LIMITED
(3)LIONTRUST ASSET MANAGEMENT PLC
and others	

  Respondents/ Appellants	
	-
and-
		
	EOGHAN FLANAGAN	Petitioner/ Respondent	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

John Machell QC and Jennifer Haywood (instructed by Macfarlanes LLP) for the Appellants
Andrew Thompson QC (instructed by Bolt Burdon Solicitors) for the Respondent

Hearing date: 13 June 2017
- - - - - - - - - - - - - - - - - - - - -
Judgment Approved
Lord Justice Patten : 
1.	This is an appeal by Liontrust Investment Partners LLP (“LIP”) and various other companies in the Liontrust group of companies (“Liontrust”) against an order of Henderson J (as he then was) dated 23 March 2016 by which he dismissed the petition of Mr Eoghan Flanagan for relief under s. 994 of the Companies Act 2006 but ordered LIP to make various payments to Mr Flanagan which the judge held were contractually due to him as a member of LIP under an agreement dated 19 July 2012 (“the LLP Agreement”). 
2.	Mr Flanagan joined LIP on 4 October 2011 as a fund manager. He had worked in the industry since 1997 and had previously been the Chief Investment Officer and the Head of Emerging Markets with Occam Asset Management (“Occam”) where he managed a hedge fund known as the Occam Emerging Markets Absolute Return Fund (“the Fund”). 
3.	In August 2011 Liontrust entered into an agreement to acquire the business of Occam which was by then experiencing financial difficulties. Occam had five funds under management of which the Fund accounted for about 50% of the relevant assets. The performance of the Fund had deteriorated and in August and September 2011 it made losses. The judge found that Mr Flanagan was not keen to move to Liontrust but eventually did so after various discussions about the future promotion of the Fund. The sale of Occam’s business was completed on 4 October 2011. 
4.	The original core business of Liontrust was UK-based retail fund management such as UK unit trusts but it also ran a number of specialist funds which after the acquisition of Occam operated as sub-funds of a company now called Liontrust Global Funds plc. (“LGF”). The Fund became one of these sub-funds under the control of the directors of LGF. The business of Liontrust was to provide the services of fund managers to the various funds and for that purpose it established LIP on 22 January 2010 as an LLP under the Limited Liability Partnerships Act 2000 (“LLPA 2000”).  
5.	The original subscribers of LIP were Liontrust Asset Management plc (“LAM”) which is the principal group company and Liontrust Investment Services Limited (“LIS”). In July 2010 they entered into an agreement with LIP under which it acquired the entire regulated business of LIS and received a further capital contribution to provide it with regulatory capital. The various fund managers then became members of LIP under the terms of the LLP Agreement which was amended and re-stated from time to time. The version dated 19 July 2012 was the one in force at the time of Mr Flanagan’s compulsory retirement from LIP which has given rise to the litigation in this case. 
6.	For the purposes of this appeal it is not necessary to examine in any detail the legal structure of an LLP. It is enough to note that under s. 1(2) LLPA 2000 an LLP is a body corporate with its own distinct legal personality. Despite its name it is not a partnership as such. But its members do not receive shares and their rights as members both as between them and the LLP and inter se are governed by an agreement such as the LLP Agreement in this case. This is spelt out in ss. 4 and 5 LLPA 2000 which so far as material provide: 
“4. Members
(1) On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than any who have died or been dissolved).
(2) Any other person may become a member of a limited liability partnership by and in accordance with an agreement with the existing members.
(3) A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members.
(4) A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.
5. Relationship of members etc
(1) Except as far as otherwise provided by this Act or any other enactment, the mutual rights and duties of the members of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its members, shall be governed –
(a) by agreement between the members, or between the limited liability partnership and its members, or
(b) in the absence of agreement as to any matter, by any provision made in relation to that matter by regulations under section 15(c).
2. … ”
7.	Subject to the terms of the LLP Agreement the members of LIP are entitled to share equally in the capital and profits of the LLP; are entitled to an indemnity from the LLP in respect of payments made and liabilities incurred in the ordinary and proper conduct of the business of the LLP; and may take part in the management of the LLP. There is also no power for a majority of the members to expel any member unless one is expressly conferred by the LLP Agreement. These are the default provisions applicable to all LLPs which are contained in Regulations 7 and 8 of the 2001 LLP Regulations made under s. 15(c) LLPA 2000. Further regulations have also given the court power to wind up an LLP under the Insolvency Act 1986 and (unless excluded by agreement) to grant relief under s. 994 of the Companies Act 2006. 
8.	In the present case most of the capital of LIP was provided by LIS. The individual members contributed only £5,000 each which under clause 4.2 of the LLP Agreement was not immediately payable but left on call. The revenue (but not capital) profits for each year were allocated between members in accordance with clause 6. Each member was entitled (under clause 6.1) to a Fixed Allocation of the profits in accordance with the terms of what is referred to as the Individual Member’s Side Letter (“the side letter”) and secondly to his or her Variable Allocation again in accordance with the side letter. The amounts of these payments were to abate rateably between members in the event that the distributable profits were insufficient to make payment in full: see clause 6.3. Any remaining profits after payment of the Fixed and Variable Allocations were to be credited to LIS: see clause 6.4. 
9.	The management of LIP was vested in the Management Committee in accordance with clause 12 of the LLP Agreement. So far as material this provided: 
“12.1 Subject to and on the terms of this Agreement, the management of the general business and affairs of LIP (including, strategy development, financial planning and performance, employment and termination decisions, marketing and fund raising, facilities and technology) and all other affairs of LLP shall be vested in the Management Committee except where any decision or action requires approval by LIS as a Reserved Matter in accordance with Clause 13 or as otherwise expressly provided to the contrary in this Agreement or by the Law. 
12.2 The Management Committee shall consist of the following persons, each of whom shall be an appropriate approved person for the purposes of the FSA rules:
12.2.1.1 the representatives of LIS (being the Liontrust Management Committee Members), as appointed pursuant to Clause 12.3.1; and
12.2.1.2 Individual Members (being the Non-Liontrust Management Committee Members), as appointed pursuant to Clause 12.3.2.
12. 3 LIS, upon written notice to LIP, shall: 
12.3.1 be entitled to appoint such number of its representatives as Committee Members as it thinks appropriate and shall have the sole and exclusive right to remove and fill vacancies of the Committee Members so appointed; and
12.3.2 have the sole and exclusive right to appoint further Committee Members (not being its representatives) and to remove and fill vacancies of the Committee Members so appointed. 
…
12.5 If a Member Retires, such Member shall, if he is also a Committee Member, automatically cease, unless otherwise required by LIS, to be a Committee Member with effect from the date on which such Member gave notice of his Retirement.” 
10.	In July 2010 LIS exercised its clause12.3 power so as to appoint all the individual members of LIP as members of the Management Committee.  Under clause 12.1 the “approval” of LIS is also required for any action or decision taken in respect of what is defined as a Reserved Matter. These are listed in Schedule 3 and include the expulsion of any member of LIP. 
11.	Although clause 12.1 is drafted in terms of LIS approving the relevant decision, it is clear from clause 13 that this is implemented by the LIS appointed members of the Management Committee (defined in clause 1 as the Liontrust Management Committee Members) having a veto. Clause 13 provides:
“13. Reserved Matters
13.1  Each Liontrust Management Committee Member shall have a veto right on all resolutions on Reserved Matters proposed to be passed by the Management Committee at each meeting of the Management Committee at which they are present. 
13.2 If there is no Liontrust Management Committee Member present at any meeting of the Management Committee at which a resolution on Reserved Matters is passed that resolution shall be voidable at the option of LIS.” 
12.	There must therefore be at least one Liontrust Management Committee Member present at the relevant meeting and the decision will be approved by LIS unless vetoed by one of these members. 
13.	The other relevant provisions of the LIP Agreement are those dealing with retirement and expulsion. An individual member may retire either voluntarily under clause 19 or compulsorily under clause 18. In the case of voluntary retirement clause 19.1 provides: 
“19.1 Any Individual Member may retire as a member of LIP on giving such period of notice as set out in that Individual Member’s Side Letter to the Management Committee (or such other period of notice as may be agreed by that Member with the Management Committee).”
14.	Compulsory retirement takes effect on death or at the end of the financial year in which the member turns 65. But it can also be effected by a period of notice given by the Management Committee under clause 18.1.3: 
“18.1 an Individual Member will retire from LIP and cease to be a member:
18.1.3 on the expiry of such notice period as is set out in that Individual Member’s Side Letter following a decision of LIS (as a Reserved Matter) requiring him to retire as a Member.” 
15.	Compulsory retirement is not expressly dependent upon there being grounds for the retirement of the individual from membership of LIP. Membership is determined by the giving of the requisite period of notice in accordance with the side letter forming part of the contract. But the Management Committee may also retire an Individual Member with immediate effect by notice of expulsion on one of the grounds specified in clause 20.1. These include the commission by the member of a serious breach of the LIP Agreement or the member’s failure to maintain what in the reasonable opinion of LIS is a satisfactory standard of conduct or performance following a written warning. 
16.	The service of a notice under clauses 18.1.3, 19 or 20.1 brings into effect the garden leave provisions contained in clause 21. Clause 21.1 states: 
“21.1 Where an Individual Member has served notice to retire as a Member under Clause 19 or has been given notice to retire from LIP in the circumstances envisaged by, or pursuant to, respectively, Clause 18.1.3 and Clause 20.1, the Management Committee may by written notice to such individual Member require him for the whole or any part of his period of notice to: 
21.1.1 perform such duties as the Management Committee may allocate to him or not to perform any of his duties as a member;
21.1.2 exclude him from any premises of LIP or any member of LIP’s Group;
21.1.3 require him to have no contact (other than purely social contact) with any other Members or with any employees of LIP or any members of LIP’s Group. 
17.	An Individual Member who is compulsorily retired under clause 18 is entitled to receive the outstanding credit balance on his current and capital account representing both his fixed and any variable allocation due to him at that date under clause 6.1: see clause 22.1. These are the payments which Henderson J ordered in Mr Flanagan’s favour. 
18.	Mr Flanagan’s side letter is dated 4 October 2011. It provided that his fixed allocation under clause 6 would be £125,000 in each financial year and that his variable allocation would be payment linked to his performance and what are described as the FM Team profits calculated in accordance with a formula under which fixed percentages of the revenue earned from performance and management fees attributable to the FM Team were used to create a pool which would be shared between the members of the FM Team at the discretion of the Team Head. The FM Team was the Emerging Markets Equities Team headed by Mr Flanagan and Mr James Mellersh. 
19.	The side letter also set out the other terms of Mr Flanagan’s appointment of which two are relevant to what we have to divide. It states that Mr Flanagan’s title was: 
“Head of Emerging Markets Equities and tasked with heading the management of the Emerging Markets Opportunities Fund, and such other Emerging Markets equity funds as agreed between you and the LLP.”
20.	It also specified the notice period in the case of compulsory retirement in these terms: 
“The notice period for the purposes of Clause 18.1.3 is 6 months. Reduces to 3 months when team assets under management first exceed £350 million, such notice to expire no earlier than the 24 month anniversary of you joining the LLP (“Compulsory Initial Term”).” 
21.	From October 2011 onwards the assets under management in the Fund continued to decrease and by the end of August 2012 they were $12.3m having fallen from a peak of $355m in the Spring of 2010. The management of Liontrust decided that the fund should be closed on the grounds that it was no longer viable and a decision to this effect was taken by the board of LGF on 20 August 2012. Under the terms of his side letter Mr Flanagan could have been moved to another fund but Liontrust decided that it wished to dispense with his services and the directors of LIS resolved to give him notice of compulsory retirement and to place him on garden leave. 
22.	There was no meeting of the Management Committee to consider these matters. Instead Mr Flanagan was handed a letter from LIP dated 20 August 2012 which stated: 
“Further to our meeting today, I regret to have to confirm that it has been decided by LIS as a Reserved Matter that your role as Head of Emerging Market Equities is no longer required and you are therefore being required to retire as a Member of [the LLP] under the provisions of Clause 18.1.3 of the LLP Agreement.
The notice period for your compulsory retirement under Clause 18.1.3 of the LLP Agreement (as amended and clarified by your Side Letter dated 4 October 2011 …) is six months, with such notice not to expire earlier than the 24 month anniversary of you becoming a Member of [ the LLP ]. Please accept this letter as such notice. You will cease to be a Member of [the LLP] with effect from 4 October 2013 (“the Retirement Date”).
In accordance with Clause 12.5 of the LLP Agreement you will automatically cease to be a Committee Member with effect from the date of this letter.
In accordance with Clause 21 of the LLP Agreement, you are hereby given written notice that with immediate effect until the Retirement Date you will:
1.	cease to carry out your normal duties;
2. 	not attend the premises of [ the LLP ] or any member of [the Liontrust Group ] unless John Ions or Vinay Abrol asks you to;
3. 	not have any contact with any clients of [the LLP] or of [the Liontrust Group]; and
4. 	not have any contact other than purely social contact with any other members of [the LLP] or with any employees of [LAM Plc] or any Member of Liontrust Fund Partners LLP.”
23.	I will refer to this as the First Notice. 
24.	Mr Flanagan challenged the validity of the First Notice on the ground that the period of notice was too long. He contended that clause 18.1.3 of the LIP Agreement read in conjunction with the side letter required him to be given a period of six months’ notice expiring no earlier than 4 October 2013 which was the 24 month anniversary of his becoming a member of LIP. The letter of 20 August 2012 had given him notice of more than a year. 
25.	Faced with this objection to the First Notice, LIS served a further notice (“the Second Notice”) on a without prejudice basis on 7 May 2014. This was expressed to expire at the end of the 6 month period specified in the side letter and, because it was served after the expiry of the 24 month minimum period, no issue arises about the length of the notice. Instead Mr Flanagan raised another ground of objection to its validity which, if correct, applies equally to the First Notice.  
26.	He contends that the notices were invalid under clause 18.1.3 because, although in each case the notice was given following a decision by the directors of LIS, in neither case was the service of the notice authorised by a decision or resolution of the Management Committee. This argument is based on the words in clause 18.1.3 “as a Reserved Matter” which Mr Flanagan contends bring into operation the provisions of clause 13 and the requirement that there should be a meeting of the Management Committee at which Liontrust Management Committee Members present would have decided whether to exercise their right of veto. 
27.	In the light of this further objection LIS served a third notice (“the Third Notice”) on Mr Flanagan on 22 December 2014. There is no issue about the length of the notice and on this occasion its service was preceded by a meeting of the Management Committee which approved the decision to require Mr Flanagan to retire as a member of LIP. But in this case Mr Flanagan objects to the validity of the notice on the ground that he remained a member of the Management Committee at the time it considered the question of his compulsory retirement but was not given notice of the meeting. Liontrust contends that he had been validly removed as a member of the Committee prior to that date. 
28.	The judge decided that the First and Second Notices were invalid on the ground alleged but that the Third Notice was valid and effective. He therefore ordered Liontrust to pay to Mr Flanagan the amounts of the fixed and variable allocations that were due to him under clause 6 of the LIP Agreement on the basis that he retired from membership of LIP on the expiry of the Third Notice. Liontrust have appealed against his determination that the First and Second Notices were invalid. Mr Flanagan appeals against the judge’s finding that the Third notice was valid. 
29.	Liontrust’s appeal raises two questions of construction relating to the provisions of the LIP Agreement and the side letter. In relation to the first of these issues (the length of the notices), the issue is whether the reference in the side letter to the notice period under clause 18.1.3 being 6 months should be read as meaning 6 months exactly or at least 6 months. 
30.	Unlike in relation to the second issue which centres on the reference in clause 18.1.3 to “Reserved Matter”, Mr Machell QC for Liontrust does not rely on other provisions of the LIP Agreement for assistance as to the meaning of the disputed phrase. He argues that clause 18 requires a notice to be served in writing on the member in question in accordance with clause 32 of the LIP Agreement and that the power to place the member on garden leave under clause 21 becomes immediately exercisable on the giving of the clause 18 notice. But he submits that the judge’s interpretation of these provisions of the contract pays inadequate regard to the commercial realities of the arrangements and the problems which would have existed if Liontrust could not have given notice to Mr Flanagan and suspended him from his post more than 6 months before 4 October 2013. 
31.	The starting point in this analysis is to consider the way in which the Fund operated. As mentioned earlier, the Fund was transferred under the control of LGF following the takeover by Liontrust of Occam’s business. Although LIP provided the management of the Fund, its operation rested with the directors of LGF who made the decision to close and liquidate the Fund. LIP was not therefore in the position of being able to guarantee that Mr Flanagan would continue to actively manage the Fund even for the minimum 24 month period provided for in his side letter. It was always open to LGF who were not a party to the LIP agreement to close down the Fund if they considered that it was necessary to do so. 
32.	The consequences of a closure of the Fund within the 24 month period were that LIP remained contractually bound to continue to pay to Mr Flanagan the amounts of his fixed and variable allocations for at least the remainder of the 24 month period even though the Fund he had been engaged to manage no longer existed. The service of a notice under clause 18.1.3 compelling him to retire could not take effect until 4 October 2013 at the earliest. But if Liontrust is right and it could have served a valid notice as early as August 2012 then it could also validly exercise the power under clause 21 to place him on garden leave. This would not have terminated his right to receive his fixed and variable allocations up to the expiry of the notice on 4 October 2013 (see clause 21.3) but it would have separated him from LIP, its members, the business and its clients. 
33.	Although there is no suggestion that Mr Flanagan would have been a disruptive presence during the period of his notice, Mr Machell submitted that in other circumstances things might have been different. A fund manager who had proved to be inadequate or difficult to work with but who could not be said to be guilty of misconduct in any of the ways indicated under clause 20.1 could be retired under clause 18 and put on garden leave so as to remove his or her adverse impact on the operation of the business. Any other arrangement would be uncommercial. Even in Mr Flanagan’s case his continued ability to remain in active contact with the other LIP members and their clients in circumstances where the Fund he had managed had failed and ceased to exist made no sense and could prove difficult. 
34.	Mr Machell contends that what the side letter gave to Mr Flanagan was a guarantee of at least £125,000 per annum until 4 October 2013 regardless of how the Fund should perform. In return LIP had the benefit of restrictive covenants in the LIP Agreement which prevented him from working elsewhere during the same period. The minimum 2 year period was put in for Mr Flanagan’s protection and the restrictive covenants were the quid pro quo. What Mr Flanagan did not, however, receive was a guarantee that he should be able to continue to manage the Fund or a fund during that period and in the event that the Fund were to close it was wholly uncommercial for Liontrust not to be able to put Mr Flanagan on garden leave. 
35.	The judge recognised that in other contexts the requirement to give 3 or 6 months’ notice will be interpreted as meaning not less than the specified period of notice. An example of this can be found in the decision of Goulding J in Davstone (Holdings) Ltd v Al-Rifai (1976) 32 P&CR 18. That decision concerned the operation of a break clause in a lease which required the tenant to give the landlord “three months’ previous notice in writing expiring on” a specified date. Although the judge accepted that in that context the requirement for a three month period of notice meant one for a minimum period rather than precisely three months, Henderson J thought that this case provided only limited assistance. I think that this is right. The termination, for example, of a periodic tenancy requires the service of a notice to quit giving the tenant a minimum period of notice (dependent on the nature of the periodic tenancy) which expires on the term date. These are the two essential features of a valid notice. The length of the period of notice is immaterial provided that it is limited to expire on the correct date and is at least as long as the minimum period required to terminate the tenancy (a week, month etc). The context in the present case is very different. This is a specific contractual arrangement the terms of which must be read in the light of the relevant background circumstances and what the arrangement looked at objectively was intended to achieve. 
36.	The judge said:
“136. In applying these provisions, the first question is whether there is any ambiguity in the language of clause 18 of the LLP Agreement read with the relevant part of the Side Letter. In my opinion, there is not. The requisite period of notice is specified as “6 months”, to expire “no earlier than” 24 October 2013. Those words mean what they say. The parties did not say “at least 6 months”, as they easily could have done if that was their intention. Nor is there any practical difficulty, let alone impossibility, for Liontrust in complying with such an obligation. All that Liontrust had to do was to give Mr Flanagan a written notice, signed by or on behalf of the LLP, which was stated to expire six months after it was served on him. The expiry date could either be specified as a particular date (e.g. 24 October 2013 for a notice served on 24 April 2013), or described as the date which fell six months after the date on which the notice was served on Mr Flanagan. The rules relating to service of notices are contained in clause 32 of the LLP Agreement. Their effect, briefly stated, is that any notice delivered personally is deemed to have been received at the time of delivery, while any notice served by pre-paid recorded delivery or registered post, to the address specified for the relevant member in Schedule 1, is deemed to have been received 48 hours from the date of posting. No other method of service was permitted under the clause.
137. Since there is no ambiguity, considerations of commercial common sense do not need to be considered. In case I am wrong on the question of ambiguity, however, it seems to me that there are at least four factors which, viewed objectively and taken in combination, would have made it entirely reasonable for the parties to stipulate a fixed period of six months’ notice, no more and no less. Those factors are:
1. the express provision for a compulsory initial term of 24 months, during which the parties must be taken to have envisaged that (subject to specific provisions for termination) they would be locked into a relationship from which they both hoped to benefit, and during which Mr Flanagan would not be permitted to work for anybody else;
2. the fact that it would be open to Liontrust to serve a notice of compulsory retirement under clause 18.1.3 without cause, and having regard exclusively to Liontrust’s own commercial interests, whereas expulsion or suspension for specified causes were dealt with separately in clause 20 and could be expected to provide Liontrust with full protection against any misconduct etc by Mr Flanagan;
3. the fact that clause 19 conferred a parallel right of voluntary retirement on Mr Flanagan, likewise exercisable without the need to specify any reason, and which was subject under the Side Letter to the same requirements of notice, mutatis mutandis, as applied to service of a notice under clause 18.1.3; and
4. the fact that service of a notice of compulsory retirement on Mr Flanagan would at once entitle the Management Committee to place him on garden leave under clause 21.1, thereby potentially excluding him from any future active involvement in the affairs of the LLP and (in practice) from any opportunity to earn a Variable Allocation based on his performance as a fund manager during the period while he remained on garden leave.
138. The cumulative force of these points is illustrated if one imagines a situation where, within a month of his joining the LLP, the relationship between Mr Flanagan and Liontrust had broken down without any fault or misconduct on his part which would have justified Liontrust in expelling or suspending him under clause 20. If Liontrust’s construction of clause 18.1.3 and the Side Letter is correct, Liontrust could nevertheless then have served notice of compulsory retirement on Mr Flanagan and immediately placed him on garden leave for the remaining 23 months of his compulsory initial term. Assuming that the Fund was also wound up, and not continued or replaced, Mr Flanagan would then have been locked in for the best part of two years, unable as a matter of contract to work for anybody else, and confined to receipt of his Fixed Allocation of £125,000 per year.
139. It is no answer to this point, in my judgment, to say that a court would in practice probably be unwilling to enforce some of these provisions by way of injunction. What matters is the position that the parties would objectively have contemplated at the time when Mr Flanagan joined the LLP, having regard to the terms of their agreement and the mutual obligations which they freely undertook. I can see no good answer to the simple point that the concept of a mutually beneficial compulsory initial term of two years would have been denuded of much of its commercial content had it been open to Liontrust to force Mr Flanagan to retire, and then place him on garden leave throughout the remainder of the period, virtually as soon as the agreements had been signed. Conversely, if the requirement of six months’ notice is interpreted as meaning that no valid notice may be given under clause 18.1.3 before 24 April 2014, the parties knew where they stood from the outset, and Mr Flanagan had a period of at least 18 months in which to prove himself and attempt to turn round the performance of the Fund.”
37.	The difficulty in this case is caused by the 24 month minimum period. The warning expressed by Mr Machell as to the situation which might occur in the event of an early closure of the Fund and the inability of LIS to give notice of compulsory retirement more than 6 months before 4 October 2013 and the judge’s concerns about LIS being able (on their argument) to compulsorily retire Mr Flanagan almost as soon as he began to work for them all stem from this provision in the side letter.  Once the parties were within 6 months of the 4 October date then Mr Flanagan could be retired on 6 months’ notice and he does not dispute the reasonableness of being able to be placed on garden leave for that period. The question therefore is what regime the parties intended to apply in the 18 month period up to 4 April 2013.
38.	The judge begins his analysis with a reference to a lack of any ambiguity in the contract. In one sense this is right if you read the reference to “6 months” in isolation. But the side letter specifies that period for the purposes of clause 18.1.3 which itself provides that a member of LIP will retire “on the expiry of” the period of notice specified in the side letter. It is therefore open to argument that what clause 18.1.3 is stipulating is the expiry of a minimum period of notice as opposed to the service of notice for a period which does not exceed 6 months at the date of service. To that extent there is an ambiguity.
39.	I also have reservations about the judge’s statement in [137] of his judgment that since there is no ambiguity considerations of commercial common sense do not need to be considered. Although Lord Neuberger recognised in Arnold v Britton [2015] UKSC 36 at [17] that the importance of the language used by the parties to the contract should not be undervalued, what is usually referred to as commercial common sense is relevant to the ascertainment of how matters would have been perceived at the time when the contract was made. In Wood v Capita Insurance Services Ltd [2017] UKSC 24 the Supreme Court re-affirmed that the construction of a contract is a unitary exercise in which each suggested interpretation is checked against the provisions of the contract and its commercial consequences: see Lord Hodge JSC at [12].
40.	In my view the judge was required to take into account the potential effect on both parties of the rival constructions of the side letter and clause 18.1.3. Although I see the force of Mr Machell’s argument that Liontrust would ideally have wanted to be able to neutralise the effect of a disruptive manager on the running of the business by putting him on garden leave prior to retirement, cases of that kind are largely provided for by clause 20.1.3 which would allow for immediate expulsion after a prior written warning. 
41.	We were not told whether the inclusion of the 2 year minimum period was common to the contractual arrangements for all members of LIP. The judge’s findings suggest that it was confined to fund managers who joined LIP from Occam and it would be consistent with Liontrust’s wish to acquire Occam’s business for it also to wish to retain the Occam managers for a minimum period. The 2 year period therefore had advantages for both parties as Mr Machell accepted. But it is clear from that context that it was designed to accommodate the needs of both Liontrust and the Occam managers in the early period of their relationship and in relation to the new business which Liontrust was keen to acquire and the managers were presumably equally keen to see prosper in Liontrust’s hands. I do not therefore consider that the parties would have regarded the inclusion of the 2 year provision in the side letter as intended to cater for the more general problems which could be created by the exercise of the compulsory retirement provisions. This was a tailor-made arrangement to cater for the merger of the two businesses. Once the 2 year period was over then a more general regime of compulsory retirement on 6 months’ notice would take over with none of the difficulties which the parties have faced in this case.  
42.	I think that against this background the judge was right to conclude that six months’ notice means just that and that it was not therefore open to Liontrust to operate the garden leave provisions more than 6 months before 4 October 2013. The parties must be assumed to have entered into these arrangements in the belief that they would be a commercial success. Consistently with that the Occam managers who joined LIP on these terms would be held to their contracts for at least two years but by the same token would be given the opportunity to promote the funds they came with or such other funds as might be agreed.  That is what the side letter says. The benefit to managers like Mr Flanagan of being tied into Liontrust for that minimum period would, as the judge said, be entirely illusory if they could be retired by LIS without cause and put on garden leave almost as soon as the 2 year period had begun. 
43.	As an alternative to their argument that the reference to 6 months in the side letter should be interpreted as a minimum of 6 months, Mr Machell submits that the contract can be interpreted in a way which avoids the problem of the clause 21 power being exercisable as soon as the notice is served but preserves the effectiveness of a clause 18.1.3 notice which is given for a period in excess of 6 months.
44.	He contends that the LIP agreement permits LIS to give a notice of compulsory retirement for a longer period of time which then becomes a valid and effective notice once the beginning of the 6 months’ period is reached. In terms of the language of clause 18, this construction is based on the reference in clause 18.1.3 to the expiry of the notice period. This, Mr Machell submits, shows that the focus of the notice provision is on the expiry of the notice rather than on when it is served. If the notice includes at least 6 months’ notice it will be valid for at least that period of time. 
45.	It seems to me that the argument based on the reference to the expiry of the notice period is more relevant to the first question of construction: i.e. whether a notice of more than 6 months in duration can be a valid notice. My principal difficulty with Mr Machell’s alternative argument is that the validity of a notice must be capable of being ascertained at the date of service. Either the notice is validly given in accordance with the contract or it is not. I can see a possible argument that one could serve a notice which in terms stated that it was to take effect on a date in the future for a specific period of time. I prefer to express no concluded view about this. But in general the contract will prescribe the conditions for a valid notice which must be complied with when it is served. The provisions in issue in this case are no different. As Henderson J observed at [143], the First Notice was drafted as a notice which was compliant with clause 18.1.3 and had immediate effect (“Please accept this letter as such notice”). I therefore reject this alternative ground of appeal. 
46.	This takes me to Liontrust’s other challenge to the judge’s order based on the reference in clause 18.1.3 to the decision of LIS to give notice of compulsory retirement “as a Reserved Matter”. 
47.	Mr Machell’s argument can be quite shortly stated. Clause 12.1 of the LIP Agreement places the management of the general business of LIP including termination decisions in the hands of the Management Committee. The only exceptions are where the decision requires approval by LIS as a Reserved Matter under clause 13 or where the agreement or the law otherwise expressly provides. As explained earlier, where the decision is a Reserved Matter then LIS approval is given by at least one of the Liontrust Management Committee Members being present at the meeting and not exercising his veto. 
48.	Reserved Matter is a defined term by reference to the matters set out in Schedule 3 to the LIP Agreement. Schedule 3 includes a reference to the admission of a New Member and to the expulsion of any member but does not include the compulsory retirement of a member. Moreover where a Reserved Matter is expressly referred to in one of the clauses of the LIP Agreement the draftsman has used a more or less uniform format which states that the relevant change or decision can only be effected “with the consent of LIS as a Reserved Matter”: see clauses 10.2, 16.2.3, 17.1. This recognises that the decision remains one for the Management Committee but also requires the approval of LIS. By contrast clause 18.1.3 simply adds the words “as a Reserved Matter” in parenthesis after the reference to a decision of LIS. 
49.	Mr Machell relies on the fact that clause 18.1.3 makes no reference at all to the Management Committee but instead makes the decision requiring the member to retire one by LIS. This he says is an express provision in the LIP Agreement of the kind contemplated by clause 12.1. It therefore qualifies the general provisions in clause 12 giving authority to the Management Committee to run the business. The reference to the decision of LIS being as a Reserved Matter is therefore redundant insofar as it requires the approval of LIS because under clause 18.1.3 LIS is the decision maker. 
50.	In these circumstances Mr Machell does not shrink from submitting that the reference to this being a Reserved Matter is simply a drafting error which should be ignored in construing the contract. Where the draftsman has made the decision that of the Management Committee with the consent of LIS (as a Reserved Matter) he has said so expressly as in clause 20.1, 24.3 and 27.1. The confirmation that this was an error is provided by the absence of any reference in Schedule 3 to compulsory retirement. 
51.	In terms of the drafting style and format of the LIP Agreement, these are powerful arguments but I am not persuaded that they justify the omission of the reference to the clause 18.1.3 decision being a Reserved Matter from the construction exercise which the court has to perform. As the judge pointed out, the definition of Reserved Matter in clause 1.1 applies except insofar as the context otherwise requires so that Schedule 3 cannot be treated as an exhaustive list of what can constitute a Reserved Matter under the LIP Agreement. More particularly it is difficult to treat the inclusion of the reference in clause 18.1.3 as an obvious error simply based on inconsistencies with drafting style in other parts of the agreement. One knows only too well that the final version of the document may represent changes made during the drafting process not all of which were conformed in terms of style. Nor is there any very obvious reason why a decision made by LIS in relation to compulsory retirement should not have been intended to be ratified by the Management Committee on which LIS had a majority of members. That is the process to be followed both in relation to the admission of new members and in relation to expulsion. Clause 12.1 expressly refers to the Management Committee remit extending to termination decisions. The closing words of clause 12.1 are relevant in this case in the sense that under clause 18.1.3 the decision is taken by LIS and then (as a Reserved Matter) requires consideration and verification by the Management Committee. That is a variation of the procedure which usually applies in Reserved Matter cases. To that extent the contract does otherwise provide. 
52.	In my view the correct approach is to treat the words in parenthesis as part of clause 18.1.3 in which case a resolution of the Management Committee was required in order to serve an effective notice. I would therefore dismiss Liontrust’s appeal against the judge’s order. 
53.	The cross-appeal by Mr Flanagan turns on whether he had been retired from the Management Committee prior to its confirmation of the decision to serve the Third Notice. Under clause 12.3 of the LIP Agreement LIS can (on notice to LIP) appoint and retire members of the Management Committee. As mentioned earlier, all members of LIP were made members of the Management Committee in July 2010 and Mr Flanagan was appointed a member when he joined LIP in October 2011. There were, however, no meetings of the Management Committee until after August 2013.
54.	On 1 August 2013 LIS gave written notice to LIP (sent to its registered office) that pursuant to clause 12.3.2 “we hereby consent to all Individual Members being appointed as Committee Members”. There then followed a list of the names of various individual members but the list does not include Mr Flanagan’s name. 
55.	On the basis that the First and Second Notices were invalid, Mr Flanagan remained an Individual Member of LIP up to the service of the Third Notice on 22 December 2014. The issue is whether he also remained a member of the Management Committee up to that time and should therefore have received notice of the meeting that was called to approve the service of the Third Notice. 
56.	This turns on the effect of the 1 August 2013 notice from LIS to LIP. The respondents say that the notice took effect as the removal of all existing Management Committee Members and their replacement by the Individual Members listed in the notice. Mr Thompson QC on behalf of Mr Flanagan contends that the notice was not effective to remove Mr Flanagan because the document is incoherent or at least ambiguous and would not have been read and understood by a reasonable recipient as having that effect. In particular he points to the fact that the body of the notice refers to the appointment of “all” Individual Members but the list does not include Mr Flanagan. 
57.	The judge found that the notice was sent to LIP as part of a re-organisation of the Management Committee and to resolve the ambiguity in the notice admitted extrinsic evidence in the form of an e-mail from Liontrust to the individual members of LIP dated 1 August 2013 outlining various changes that were to be made to the corporate governance of the Liontrust Group including LIP. The e-mail informed them that the board of LIS had decided that there should be smaller committees and that not all members of LIP would be members of the Management Committee under these arrangements. 
58.	Mr Thompson does not dispute the admissibility of the e-mail in order to resolve the ambiguity created by the use of the word “all” in the 1 August notice. His point is that although the other individual members would have understood what the notice was intended to achieve, this was not shared by Mr Flanagan because he was not sent the e-mail. The notice looked at without the benefit of the e-mail was ambiguous and would not have conveyed to the reasonable recipient that LIS was purporting to remove Mr Flanagan as part of the re-organisation. It should not therefore be construed as having that effect.
59.	I am unable to accept any of these submissions. Mr Thompson accepted, as he must, that the 1 August notice was the exercise by LIS of the power to remove the existing members of the Management Committee and to appoint a new committee. There is therefore no real scope for argument about Mr Flanagan’s removal. The question is whether he was re-appointed as a member. 
60.	It is correct that the use of the word “all” does create an element of ambiguity but my own view is that a reasonable recipient would have resolved it by treating the notice as the appointment of the members listed in the notice. Mr Thompson in any event accepts that the form of the notice would not have confused any recipient who had received and was aware of the contents of the e-mail. 
61.	The fact that Mr Flanagan did not receive the e-mail does not assist him. The intended contractual recipient of the notice under clause 12.3.2 was LIP not its individual members. LIP has its own legal personality and the notice was sent to its registered office as required under the LIP Agreement. LIP must be taken to have been aware of the intended changes in its governance and the notional recipient of the notice for the purpose of applying the test for the construction of unilateral notices laid down by the House of Lords in Mannai Investment Co. Ltd. V Eagle Star Life Assurance Co. Ltd [1997] AC 749 must be treated as having had all the background knowledge which the relevant contractual parties including LIP would have had. It follows that the 1 August notice was effective to exclude Mr Flanagan from membership of the Management Committee with effect from 1 August 2013. 
62.	For these reasons I would dismiss both the appeal and the cross-appeal. 
Lord Justice Kitchin:
63.	I agree. 
Crown copyright©