You have thrown off the outdated shackles of partnership and now face the future as a brand new limited liability partnership (LLP). You have prepared and signed up to an LLP agreement, combining the best provisions from your old partnership agreement with corporate-style management and additional powers. What could possibly go wrong?

The vehicle may have changed, but sadly, human nature has not. In my experience, one of the enduring vices of law firms over the years has been an inability or unwillingness on the part of partners to adhere to the terms of their agreement, particularly those in management positions. Instances of non-existent powers being assumed by management are legion. It would be naive to imagine that LLP conversion would diminish this tendency, and if anything, the more corporate ethos engendered by the LLP has encouraged management to assume that they can exercise more rather than less control over members.

If the conduct of certain members of the LLP amounts to a repudiation capable of acceptance by the other members, they could all find themselves governed not by their agreement, but by the default regime under the LLP Act 2000 and the LLP Regulations 2001. Does this matter? You bet it does.

Highlights of the default regime are: equal sharing of profits and losses; a requirement for unanimity on all but day-to-day management decisions; one member, one vote and no implied quorum requirement; no power of expulsion, irrespective of behaviour; retirement on 'reasonable' notice; application of section 459 of the Companies Act 1985 (unfair prejudice); no duty of good faith between the members; and no power to reinstate the LLP Agreement or change the default terms.

To understand why this is a very real threat, it is necessary to understand a crucial distinction between partnerships and LLPs. Partnership practitioners have had to accept that, as a matter of law, a partnership agreement cannot be repudiated, at least while the partnership is continuing; and that in the absence of an express power, a partnership can in general only be dissolved by an order under section 35 of the Partnership Act 1890. Such were the obiter views of Lord Millett in Hurst v Bryk [1999], as accepted and applied in Mullins v Laughton [2003].

However, dissolution in the partnership sense has no relevance in the case of an LLP, so the rationale underlying the above cases has no application. An LLP agreement is a contract like any other and its repudiation can have no effect on the continued existence of the LLP. Management teams who overlook this distinction may not grasp the possible consequences of repudiation in the LLP context.

That is not to say that the application of the repudiation doctrine is straightforward. It is an unresolved question whether repudiatory conduct as regards one member could result in the agreement being disapplied as between all members. In Hurst, Lord Millett suggested that, if the doctrine applies, a partnership agreement might nevertheless continue to subsist between some of the partners. Can this be right, either legally or commercially?

Take an LLP agreement which provides for members to give 12 months' notice to retire. There is repudiation against and acceptance by member X. His relationship with the other members will thereafter be governed by the default regime. Member Y decides to retire. Must he give 12 months' notice to the other members but only reasonable notice to X? Surely the agreement was intended to apply to all members in the same way, not merely to some of them?

Must the repudiation be known to and expressly or impliedly approved by all the other members before it can be accepted? Surely, in general, it should. Can one of two members facing repudiatory conduct accept the repudiation independently of or against the wishes of the other? At the least, this must be doubtful.

To sustain a repudiation argument it will be necessary to prove conduct which strikes at the heart of the LLP Agreement: minor or even major breaches of its terms are unlikely to suffice. What is ultimately required is conduct which shows an intention on the part of the relevant member(s) to ignore or bypass those terms.

Mullins exemplifies the type of conduct required, albeit in a partnership context, namely seeking to exclude a member otherwise than in a manner contemplated by the agreement. It is unlikely that anything less will do. Merely expressing the wish that a member of the LLP should retire and offering to negotiate a retirement package with him will not suffice. However, behaviour which could be construed as repudiatory is all too frequent in law firms, and management teams ignore the possibility at their peril.

The repudiation doctrine is very much alive and well in the LLP field but most firms and practitioners have yet to wake up to the very real danger that it represents. Management teams in particular should, before initiating any action, ensure that the agreement says what they think it does. If it does not, they should change either their approach or the agreement. The alternative is unthinkable.

Roderick I'Anson Banks is a barrister at 48 Bedford Row.