Terminating the partnership
By Alec Samuels
The lack of clarity over rules governing the termination of partnerships is taking a particular resonance at a time when law firms' earnings are falling, says Alec Samuels
It is extraordinary that a point of law which is recognised by everybody as being of real significance can continue to remain unresolved, at least in the appellate courts, for a very long time.
If partner A is in breach of the partnership may partner B serve a notice on partner A accepting the breach as a repudiation and accepting the repudiation as the end of the partnership? The relationship between solicitor partner A and solicitor partner B completely broke down. There were disputes over staff and service and accounts and earnings and drawings, communication became almost impossible. Both alleged breaches by the other. Was there a breach? Was there a repudiation? Had there been an acceptance of breach or repudiation? Was the partnership still in operation or was it dissolved by mutual agreement? Such was the tragic situation in Golstein v Bishop [2013] EWHC 881 (Ch).
Termination and dissolution
A partnership, for example between solicitors, may take one of several forms. A partnership at will, no fixed term, may be determined at any time on giving notice under the Partnership Act 1890 s 26. A partnership governed by a partnership agreement, for a fixed or undefined time, is dissolvable by notice in accordance with its terms (s 32). Subject to the partnership agreement, a partnership is dissolvable by bankruptcy or death (s 33).
The court may dissolve a partnership under s 35:
(b) When a partner becomes incapable.
(c) When conduct of a partner is calculated prejudicially to affect the business.
(d) Wilful or persistent breach of the partnership agreement.
(e) The business can only be carried on at a loss.
(f) Circumstances have arisen which render it just and equitable for the partnership to be dissolved.
No mere contract
A partnership between solicitors is more than a mere contract, it is a personal and commercial relationship requiring the utmost good faith and mutual trust and confidence (see Conlon v Simms [2006] EWCA Civ 1749).
If for any reason, good or bad, one of the partners is unable or unwilling to continue, then the partnership should be dissolved by mutual agreement. Otherwise an application will need to be made to the court.
The better view appears to be that accepting a breach as a repudiation does not dissolve or terminate the partnership (see Lord Millett obiter in Hurst v Bryk [2002] 1 AC 185), Neuberger J (as he then was) in Mullins v Laughton [2002] EWHC 2767 (Ch), [2003] Ch 250, following Lord Millett, Christopher Nugee QC deputy High Court Judge in Golstein v Bishop [2013] EWHC 881 (Ch), following Lord Millett and Neuberger J). The brave challenge by barrister Lawrence Jacobsen to Lord Millett has not persuaded Christopher Nugee QC (see Separate Ways, Lawrence Jacobson (2011) 156 Solicitors Journal (39) 14-15).
The judicial reasoning runs as follows: a partnership is more than a contract, it is a relationship; the relationship has long been determined as an equitable matter within the jurisdiction of Chancery.
The Partnership Act 1890 is intended to be a comprehensive statutory code, governing the relationship, to which the partners submit themselves. The Act does refer to a breach of the partnership agreement, but only as a ground for applying to the court to exercise the judicial discretion.
Breach and repudiation
There may well be uncertainty as to whether the alleged breach really was a breach, and whether the acceptance of the alleged breach as a repudiation really was an acceptance, and whether the partnership really has come to an end. Until the partnership really is ended there will be continuing liabilities.
A dispute between partner A and partner B cannot affect the legal position of partner C.
The alleged repudiation doctrine has no historical basis in the history of equity, it has emerged in recent times, and without authority.
The partnership agreement document cannot be too carefully drafted. In particular, how is the partnership to end. The answer must be that in practice anything other than mutual agreement will be a matter for potential regret. Otherwise the discretion of the judge under section 35 is the remedy.
Solicitor partnerships are under strain. The recession has seen a fall in earnings, in conveyancing and litigation and in publicly funded work, and mergers which looked promising when made some years ago have not always worked out too well. Partners cannot be too carefully chosen.
Alec Samuels is a barrister and former reader at Southampton University
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