What to do in a partnership dispute

Differences of opinion in a business can be healthy. But what do you do if they lead to a break down in the relationship between you and your fellow partners?

Here, our Litigation and Regulatory Practice Group Head Jeff Lewis outlines the appropriate steps to take in the event of a partnership dispute.

1. Stay calm

Many partnership disputes can lead to a deadlock where your business can’t move forward, or even situations where a partner who is leaving has been misusing confidential information or trying to break their restrictive covenants by taking clients or staff with them. This can, of course, cause panic.

The essential first step is to pause and take stock — don’t do anything drastic. While this may be easier said than done — as emotions are heightened and you’re worried about damage to your business — it’s critical to avoid making any costly mistakes.

It’s important to note that you aren’t alone. We’ve seen almost every possible type of situation, so yours likely isn’t unique. We can help you get through this, as we have successfully helped many other firms and partners. We’ve been there and done it and understand exactly what you’re feeling.

2. Identify the main threat(s)

You then need to identify the main threat to you or your business. This might be confidential information that your partner was accessing, or particular clients or staff that they were trying to entice away.

3. Gather information and evidence

Next, you’ll need to search for any information you can find that indicates your partner’s activity. This may not solely be emails — searching computers, smartphones, hard copy files, diaries, phone bills, sim cards and more can reveal key information. Some of the most useful findings can come from IT analysis, where you should always pay attention to the dates on which documents were created and edited. This can help you to note what your partner has been looking at.

This all takes time, which is another crucial factor. If you want to take legal action, you need to move quickly. Any delay can damage your chances of success.

4. Don’t destroy documents or data

Make sure not to destroy any documents or data. If you do, you may lose important evidence and this could lead the court to draw an adverse inference against you, which would be detrimental to your position. Even if what you are destroying isn’t relevant, it won’t look good to a judge.

Engaging a legal team

If you want to engage a legal team like ours, here’s what we need to get the ball rolling.

We first need to understand the nature of your business, the market in which you operate and which parts of your business are potentially threatened by this dispute.

Secondly, we need copies of the information or evidence that you have gathered so far.

Thirdly, we need a copy of any partnership agreement, if there is one.

Once we have all of this, we will be able to advise you on the best course of action. This will depend on your specific situation, end goal and how urgent the situation is.

Letter of claim

You then have a number of options. You could first send a letter as a ‘shot across the bows’ to the other side, threatening to take legal action. This is known as a letter of claim, which sets out (in full) the basis of your claim.

For example, in a restrictive covenant situation, the letter will set out the grounds for your belief that your partner has been acting in breach of covenant. It will also ask them for details of exactly what they’ve been up to, as well as an undertaking that they will stop breaching the covenants, lists of any clients that have been approached and details of how much business they have received, as well as confirmation that they will pay you damages and an agreement that they will pay for your costs.

Court proceedings

If you fail to receive a satisfactory response to your letter of claim or decide not to send one in the first place, this is where court proceedings come into play.

While a letter of claim is the most common first legal step in any partnership dispute and the courts do tend to prefer this, some may choose to skip straight to court proceedings. This may be because the situation is so urgent that you don’t have time to wait, or because sending a letter is only likely to make the situation worse.

What you ask the court for in legal proceedings will again depend on your specific situation. You might issue an injunction for a court order, forcing your partner to do something (or to stop doing something), or sue them for the loss that your business has suffered as a result of their actions.

What are the costs involved?

It’s true that this process can be expensive. While we don’t want to shy away from this question, the honest answer is that the level of legal costs involved depends upon many factors.

If you’re going down the injunction route, your costs could be in the tens of thousands of pounds. However, if all we are talking about is that initial letter of claim, the costs would be relatively small.

Whichever lawyers you instruct will be obliged to give you the best possible advice on costs at the outset.

If you need to take legal advice in a partnership dispute, talk to us by completing our contact form below.