Hammonds’ litigation implosion continues with York, lease feuds

Hammonds just cannot seem to ­distance itself from partner disputes. After largely resolving a High Court ­battle with a group of former partners relating to overdrawn profits, news of Hammonds Direct going into ­administration ­prompted a number of disputes between the law firm and the partnership of the failed conveyancing business.

After Hammonds Support Services, the trading arm of Hammonds Direct, went into administration in January, Hammonds Direct’s 41 partners were forced to inject a lump sum of £2.3m into the business to take care of any future liabilities.

Earlier this year (18 May) The Lawyer revealed that Hammonds Direct partner Stephen York, who is now a litigation partner at Reed Smith, is disputing the liability and is due to face representatives of the Hammonds Direct partnership in Cambridge County Court this week (16 June).

Part of the £2.3m is being used by the Hammonds Direct partners to fund the litigation.

One Hammonds Direct partner says: “Understandably those partners that have coughed up the cash are pretty unhappy. The money we’ve chipped in is going to pay for dealing with this litigation.”

But the York litigation is just one ­complication in the collapse of ­Hammonds Direct. Earlier this month (1 June) The Lawyer reported that ­Hammonds is gearing up for possible legal action after serving the entire Hammonds Direct partnership with a pre-action letter.

The firm is claiming that the 41 ­Hammonds Direct partners, 20 of whom are still partners at Hammonds, are liable for the lease on Pennine House in Bradford, the premises the volume business sublet from the law firm. The absence of a signed sub-lease, however, means that Hammonds Direct is ­disputing the liability.

Hammonds wants to settle the issue amicably. If that is not possible then it will turn to mediation rather than ­litigation. Which is hardly surprising given that things could get a bit tricky for the 20 Hammonds partners who, as Hammonds Direct partners, would effectively be suing themselves.

One partnership expert says: “It has the potential to be complicated, but ­technically, because Hammonds is an LLP, it can sue the Hammonds Direct partnership as an independent body. Hammonds would have to make ­specific arrangements so that the litigation isn’t funded out of the profits of the firm.”
It does not look like the Hammonds Direct partners will give in that easily, however.

One former Hammonds partner says: “Clearly for Hammonds Direct partners, sharing the cost [of the Pennine House lease] between the entire partnership of Hammonds is preferable to sharing it among the Hammonds Direct ­partnership. Technically no lease was signed, so really Hammonds should be liable for the cost.”

Which must make things difficult for those people who are partners in both the law firm and the volume ­business, especially Hammonds ­managing partner Peter Crossley, who declines to comment on the specifics of either the York litigation or the Pennine House dispute.

David Armitage, who is a partner in both businesses, has already resigned from the five-strong Hammonds Direct partnership committee for the purposes of the lease dispute. Which would seem the right thing to do given the ­circumstances, only he made the ­decision after telling Hammonds Direct partners: “Partners should rest assured that our position will be explored and maintained vigorously; no liability will be admitted and no steps will be taken that knowingly prejudice the position of Hammonds Direct partners without consultation.”

Hammonds certainly has form in the long-running legal action arena. It looks as if history could be about to repeat itself.