The number of partnership disputes heard in the UK High Court has dropped 20% in a year to 28 in 2017, down from 35 in 2016, says Fox & Partners, the partnership and employment law specialists.
Future disputes ahead?
Despite the recent drop, Fox & Partners says any economic disruption caused by Brexit could lead to tougher trading conditions for many partnerships, increasing the potential for future disputes. Researchers says that from January 2019, new lower disclosure requirements have also made it more attractive for partners to litigate. Previously, claimants had to provide ‘all relevant’ documents but under these new rules, the courts look at individual cases and decide what should be disclosed. Lower levels of disclosure should mean lower costs. Ivor Adair, Partner at Fox & Partners, comments ‘even though disputes have fallen, we can’t be complacent as future Brexit-related economic shocks could result in more litigation, particularly in relation to financial services partnerships.’ He added, ‘tightening trading conditions heighten disputes between partners about how lower profits are shared out or over any capital contributions that might be required. These conditions also lead to an increase in the number of partnerships that are dissolved.”
Disputes often arise when there is financial stress in a partnership, such as when a firm is dealing with tough trading conditions or facing a legal dispute, hence the number of partnership disputes increased rapidly in the immediate aftermath of the 2008 financial crisis. Mr Adair said, ‘disputes can be very damaging for a partnership, eating up time and resources. It often makes more commercial sense for partners to look at alternative dispute resolution (ADR) methods to solve a dispute. Flexibility of the process and costs can often be a major factor.’ He explained, ‘recent initiatives to tackle the cost of litigation for claimants may also drive up the number of disputes. Previously, the huge burden that disclosure requirements represented stopped many claimants from obtaining justice through the Courts.” Mr Adair added, ‘as we enter a period of further uncertainty, businesses may have no option but to pursue cases to protect themselves against team moves of partners and employees. The Court may offer the only real solution where not all parties have signed up to arbitration.’