Orr Litchfield

Solicitors and Business Lawyers

Partnership Disputes

1. Partners statutory, common law and contractual rights and obligations

During the course of most partnerships, there will be differences of opinion among the partners from time to time. They can arise for a variety of commercial reasons, such as, opposing views as to financial, legal, operational or sales issues or strategies or simply due to the different personalities involved. Typically, they occur when the participants in the partnership change, for example, when a partnership is seeking to expand or reduce the number of partners or when partners leave the partnership (for example, by resigning, retiring or dying). In many cases, these differences of opinion may be healthy for the partnership allowing important issues to be considered properly before decisions are made. However, if they are not resolved in a practical, efficient and effective way, they can develop into disputes which may be highly damaging for a partnership, its partners, and staff.

There are several different types of partnership under English law - General partnerships, Limited partnerships and Limited liability partnerships (‘LLPs’). Whilst there are some rights and obligations that are applicable to each form of partnership, there are also significant differences between them. In particular, the primary legislation applicable to each form of partnership is different with the Partnership Act 1890 applying to general partnerships, the Limited Partnership Act 1907 applying to limited partnerships and the Limited Liability Partnership Act 2000 (as amended) applying to LLPs. In many cases, the contractual rights and obligations of partners will be set out in a formal contract (whether it is a partnership agreement, limited partnership agreement or LLP agreement).

It is important for partners to consider the need for a partnership agreement in order to assist with the proper running, development and management of the partnership.

You can read more information about each form of partnership and partners’ agreements in our Corporate Law section.

Most partnerships will come across partner issues and disputes at some point. When they arise, it is usually important to be able to manage and resolve the relevant issues as efficiently and effectively as possible in order to minimise disruption, save time and costs and avoid causing any damage to the reputation of the partnership business. Where circumstances permit, the pro-active management of such issues and disputes may enable the parties to maintain or even strengthen their business relationship for the overall benefit of the partnership.

2. Advising and assisting you on partnership disputes

Whether you are a claimant or a defendant in relation to a partnership dispute, we are able to provide efficient and effective legal advice and support in relation to your dispute using our legal knowledge, experience and commercially focussed approach to resolve the dispute in a way that is right for you.

3. Resolving partnership disputes

There are several key stages in assessing and resolving partnership issues and disputes. These include:

(a) Step 1 - Identifying the relevant statutory, common law and contractual rights and obligations of the partners.

At the outset, it is vital to identify the relevant statutory, common law and contractual obligations of the partners. This is not always a simple task.

The main sources for identifying partner rights and obligations are likely to be the relevant applicable legislation (Partnership Act 1890 for general partnerships, the Limited Partnership Act 1907 for Limited partnerships and the Limited Liability Partnership Act 2000 (as amended) for LLPs) and any partnership agreement. Partners should have a written partnership agreement. However, such agreements may not have been prepared or maintained adequately or may have been supplemented over time by other contractual arrangements (for example, deeds of adherence).

We can advise as to the relevant statutory, common law and contractual obligations of the partners.

(b) Step 2 - Determining whether partners have breached their obligations and what remedies may be available

Once the relevant statutory, common law and contractual obligations of the partners whose actions are in question have been identified, it is necessary to determine whether a breach has occurred and, if so, what remedies may be available.

Where a breach is of a contractual nature, the contractual terms may include provisions relating to the rectification of contractual failures, the resolution of contractual disputes and the grounds on which parties may terminate the contract, suspend or remove a partner, wind-up or dissolve the partnership and other similar matters. The nature and extent of any breach of contract is often important.

Where a partner is found to be in breach of his or her obligations, the other partners may be able to seek remedies such as an injunction, the restitution of profits, the return of property, the rescission of a contract and/or damages against a recalcitrant partner.

We can advise as to whether a breach has occurred and, if so, what remedies may be available and consequently help determine whether it is likely to be in your interest or the interests of your business to pursue the breach.

(c) Step 3 - Seeking an early resolution for partnership disputes

Normally, it is in the interests of the parties to identify and resolve any partnership issues and disputes efficiently and effectively so that they can continue to progress the partnership arrangements in an acceptable manner.

A partnership agreement (together with any related documents) may include provisions relating to the resolution of certain issues and disputes relating to partners. Where this is not the case, it is often sensible to try to take steps to resolve any issues or disputes. By way of example, the parties may agree to try to achieve resolution through direct discussions or some form of alternative dispute resolution.

(d) Step 4 - Letter before action

Where it has not been possible to resolve any partnership issue or dispute, it may be that it is necessary to formally notify the other party (or parties) that legal action will be taken unless the relevant issue or dispute is resolved satisfactorily. This notification is usually sent in the form of a ‘letter before action’. It will, amongst other matters, set out the complaining party’s legal position, the outcome the complaining party wishes to achieve and the steps it proposes to take if a suitable agreement is not concluded.

We can prepare appropriate and effective letters before action and advise you on subsequent communications with a view to helping resolve any issues and disputes relating to partners.

(e) Step 5 - Alternatives to litigation for partnership disputes

It has become more and more common for parties which are in dispute to use alternative methods of resolving disputes prior to issuing legal proceedings or during the litigation process (typically at an early stage). The 4 main alternative methods of resolving disputes (commonly called ‘Alternative Dispute Resolution’ or ‘ADR’) in the UK other than court proceedings are negotiation, mediation, arbitration and conciliation.

Whilst ADR is not suitable for every dispute, courts often expect disputing parties to take steps to resolve disputes prior to commencing legal proceedings or at an early stage of the litigation process. An unreasonable refusal to do so may result in the court imposing sanctions (typically in the form of costs penalties) on the relevant party.

We can advise on the relevant form of ADR and assist you in relation to the ADR process with a view to helping resolve any partnership disputes.

(f) Step 6 - Court proceedings for partnership disputes

If it has not been possible to resolve a dispute, it may be that the only way forward is to commence formal legal proceedings. Where that is the case, we can help prepare your claim and provide clear advice on legal, procedural and tactical issues in order to assist you through the litigation process efficiently and effectively.

4. Contact us

If you would like more information about partnership disputes or would like to discuss a potential or existing dispute, please email us at enquiries@orrlitchfield.com, complete an Enquiry Form or call us.