LLP status protects partners in professional negligence claim

The limited liability partnership (LLP) structure has protected the partners in a number of related financial services firms from having to take personal responsibility for a professional negligence claim.

The issues arose after the related LLPs were faced with a claim from an investment company that had engaged them to help run a new loan scheme. Their main role was to use a system known as the special purpose vehicle (SPV) to carry out due diligence on potential borrowers to ensure they could meet the required repayments.

A suite of documents, referred to as the "bible", was established, setting out the legal structure of the arrangement. The SPV was run by the LLPs.

Problems arose when the investment company agreed to provide the SPV with a facility to make loans to a borrower that had been introduced by the LLP partners, who also carried out the due diligence.

The borrower later defaulted owing a large sum of money. Its reasons for taking out the loan proved to be fictitious and the security it had provided was worthless.

The investment company took legal action against the partners individually, claiming they were personally responsible for the professional negligence that led to the loss. The company’s agent said that although he had known that they held positions in limited liability partnerships, he had dealt with them personally on the basis of their trust and expertise.

The partners pointed out that they had communicated via their partnership email accounts, and letters were sent on the partnerships' letterheads. They insisted that they had not assumed personal responsibility for locating and vetting suitable borrowers. That was partly the responsibility of the partnerships and partly the responsibility of the SPV.

The court ruled in favour of the partners, saying that it was perfectly plain that they had only assumed responsibility through the limited liability partnerships. The "bible" documents ensured that the company knew what safeguards and securities had been established. The agent could have asked for further information at the time if he had so wished.

Please contact our dispute resolution team if you would like more information about the issues raised in this article or any aspect of professional negligence claims and protecting your business.

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