Let’s delve into the world of partnership disputes. Partnership disputes can be categorised into two main categories: those governed by a Partnership Agreement and those governed by the default partnership terms outlined in the Partnership Act 1890. Join us as we break down these categories and shed light on some of the complexities.
Partnerships with Written Agreements
Professional partnerships rely on a comprehensive agreement that covers dispute resolution, partner exits, retirement, and calculating existing partner interests. Regularly reviewed and updated, this agreement ensures clarity and fairness.
The partnership deed includes:
- Partner duties, rights, and obligations
- Financing arrangements
- Profit sharing mechanisms
- Management structures
- Dispute resolution processes (such as arbitration or mediation)
In professional partnerships, the agreement typically covers professional standards, governance, and “Restrictive Covenants” that restrict former partners’ activities post-exit, including competition limitations, client dealings, and employee recruitment safeguards.
The partnership agreement usually states that the partnership doesn’t dissolve by a dissolution notice from a partner. Partnership disputes are primarily handled within the contractual framework of the agreement, but civil courts may intervene in specific cases, such as enforcing post-termination restrictions, resolving dismissal-related disputes, or clarifying the interpretation of the partnership agreement.
In these circumstances, the remaining partners are advised to seek legal counsel well in advance of disciplining or dismissing a partner. Incorrect interpretation of provisions or the absence of proper process and objectivity can lead to significant costs and damage to the business.
External legal advice can be invaluable, as lawyers can provide an impartial perspective on behaviours and advise on the appropriate processes. A non-partner Practice Manager can also play a significant role, working alongside the external lawyer to ensure fair procedures. Seeking advice and addressing these issues at an early stage can greatly minimise the risk of potential litigation.
Partnership at Will
Partnerships without a written agreement, called “partnerships at will,” have an implied default agreement under the Partnership Act 1890. However, relying solely on this outdated legislation may have limitations and implications, so careful consideration is advised.
The default terms under the Partnership Act 1890 include provisions that all partners are entitled to:
- Participate in management.
- Have an equal share of profit.
- Receive indemnity for liabilities assumed in the course of business.
- Be protected against expulsion by other partners.
Partnership Court Proceedings
Partnership disputes are usually taken to the High Court, with the nature of proceedings depending on the specific issues. In some cases, injunction proceedings may be sought, such as restraining a departing partner from breaching restrictive covenants.
Litigation is a time-consuming process, and the losing party often pays a significant portion of the winner’s costs. Making timely settlement offers can strengthen parties’ positions.
Always remember though, that entering into litigation should not be taken lightly. Regardless of the strength of your convictions, parties often find themselves surprised by the costs and commitment involved in legal proceedings.
Mediation and other ADR
Partnership disputes are now often resolved through mediation, an alternative to litigation. Mediation involves a neutral mediator facilitating discussions to reach a compromise, saving costs and minimising disruption compared to court proceedings.
Partnerships are embracing “early neutral intervention” as a proactive approach. This involves including an independent party to address emerging issues and promote effective communication, aiming to prevent conflicts from escalating into major disputes.