Disclosure rules “could encourage” partnership litigation

Adair: Lower levels of disclosure should mean lower costs

The new disclosure rules – potentially lowering the cost of the process – may encourage more partnership disputes to lead to litigation, a specialist solicitor has suggested.

It comes against the background of a decline in the number of partnership disputes heard in the High Court dropping from 35 in 2017 to 28 last year.

The low level reflected the more stable economic environment, said Ivor Adair, a partner at Fox & Partners – there was a spike after the financial crisis, with a high of 106 partnership disputes before the courts in 2009.

He added that professional partnerships in particular have increasingly chosen to subject disputes to compulsory arbitration.

But economic disruption caused by Brexit could lead to tougher trading conditions for many partnerships, increasing the potential for future disputes, Mr Adair predicted.

Further, the new disclosure regime has made it more attractive for partners to litigate – rather than having to provide all relevant documents, under the new rules, the courts look at individual cases and decide what should be disclosed.

“Previously, the huge burden that disclosure requirements represented stopped many claimants from obtaining justice through the courts… Lower levels of disclosure should mean lower costs.”

Mr Adair added: “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.

“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.”

Mr Adair also argued that “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”.

Though alternative dispute resolution made sense for various reasons, he said the court may offer the only real solution where not all parties have signed up to arbitration.

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