Huge rise in partnership actions ‘tip of the iceberg’

Government statistics that show that the number of partnership disputes reaching the High Court almost doubled in 2009 could reveal just a small proportion of the true figure.

The Ministry of Justice’s (MoJ) ’Judicial and Court Statistics 2009’ report shows that the High Court heard 106 partnership dispute cases in 2009 compared with 54 a year earlier.

While that represents a 96 per cent increase, Serle Court barrister John Machell warns that the figure is “only the tip of the iceberg”.

Winckworth Sherwood partner Jo Keddie, who has built a career out of representing both claimants and defendants in partnership disputes, agrees, adding: “The majority of partnership agreements have an arbitration clause. A firm would prefer to arbitrate because it means confidentiality. What we’re seeing here isn’t the full picture.”

Keddie says she had seen a particular rise in age and race discrimination cases as firms look to usher out more senior lawyers. Lawyers who have been made redundant as a result of their performances, she adds, are more likely to bring discrimination claims.

Russell Jones & Walker partner John Marshall comments: “This isn’t evidence of redundancy programmes taking hold, but rather the knock-on effect of PEP [average ­profit per equity partner] figures being squeezed in a tough economic climate and individuals being given the proverbial ’tap on the shoulder’ to leave.

“Disputes arise around the lawfulness of the partners’ enforced retirement, the valuation of the capital the individual gets out of the business, how it will be paid and over what period.”

Keddie says the failed resurgence in the real estate, finance and corporate practices means “firms are taking an increasingly robust approach towards fixed-share and full-profit partners whose performance has been lacklustre for the past two years and continuing”.

The figures also reveal that professional negligence claims against firms have rocketed by 163 per cent to 210 in 2009 compared with 80 in 2008. That compares with just 28 professional negligence claims brought against accountants in 2009.

Professional negligence lawyers say the property crash had resulted in a spike in the number of proceedings being launched against lawyers.

Plexus Law professional indemnity partner Peter Court reveals that there has also been a significant increase in the number of fraud allegations.

“There are more allegations of fraud this time around compared with the property crash of the early 1990s,” he says. “This time there seems to be more evidence of organised fraud, and for this to have occurred dishonest solicitors and valuers needed to be involved.”

While the number of claims being issued in the High Court is in decline, with clients looking to ­arbitrate rather than ­litigate, the recession has undoubtedly had an impact on the type of claims being issued.