Partnership Disputes

Partnership disputes generally fall into two categories:

1. Partnerships governed by a Partnership Agreement.

2. Partnerships where there is no Partnership Agreement and therefore governed by the default partnership terms set out in the Partnership Act 1980.

Where partners in a business are unable to agree a way forward, it is likely that a partnership dispute will arise.

Whenever a dispute takes place between partners, the starting point is to review the terms of the partnership agreement. A well drafted partnership agreement will set out how disputes will be dealt with including the mechanism of partner exists and the method of paying out an existing partner’s interest. When attributing blame and liability in a partnership dispute, it would be useful to review the clauses which deal with the duties and obligations of each partner. Most Partnership Agreements will incorporate restrictive covenants which will limit a former partner’s business activities and interests after exit. For example, a restrictive covenant may stop a former partner from working at a competitor for a period of time following the exit from the partnership. Generally, the mechanism to resolve disputes will be set out in the Partnership Agreement. However, there may be instances where such disputes reach the civil courts, for example, where an injunction may need to be sought to prevent a former partner breaching a post-termination restrictive covenant.

Partnerships without a written agreement are often referred to as “Partnerships at Will” and the partnership arrangement will be governed by the terms implied into the relationship pursuant to the Partnership Act 1890. The default implied terms include provisions that all partners are entitled to:

1. Participate in management.

2. An equal share of profit.

3. An indemnity in respect of liabilities assumed in the course of business. 

4. Not be expelled by other partners.

Under a Partnership at Will, there is no built in dispute resolution procedure, therefore, this risks many disputes being played out within the Civil Courts (which can be a costly and time consuming exercise).

Prior to commencing a Partnership Dispute at Court, the following should be considered:

1. Proceedings are likely to be protracted and can typically take between 12 – 24 months to conclude.

2. The starting point is that the losing party is likely going to need to pay between 60 – 75% of the legal costs for the winning party.

3. Partnership disputes will take place in the English Civil Courts which can be attended by members of the public. Therefore, partnership disputes can result in adverse or negative publicity. 

Where possible, attempts should be made to settle disputes via mediation or Alternative Dispute Resolution. This is likely to be a more cost effective, amicable and quicker method of resolution which could do away with the reputational damage of litigating in an open court.

If you are embroiled in a partnership dispute, we can assist you by working efficiently to:

1. Advise you on the legal position and merits of your case.

2. Assist you through the Alternative Dispute Resolution Process.

3. Guide and act for you through the court process should litigation prove necessary. 

https://www.legislation.gov.uk/ukpga/Vict/53-54/39