Mediation in Partnership Disputes

Types of partnerships

Partnerships come in many different flavours. The most common types, frequently featuring in disputes, are:

• “Traditional” partnerships- arising out of legislation dating back to the nineteenth century and case law that has developed right up to the present day. A partnership doesn’t have a separate legal personality from its partners, instead it is particular type of commercial relationship, underpinned by strong legal duties – and with unlimited liability.

• Limited liability partnerships or “LLPs”- which are more modern and have separate legal identity, but which look and feel like traditional partnerships.

• Quasi-partnerships- a term used to describe a close-knit relationship between shareholders incorporating obligations of trust and confidence and where the corporate vehicle overlays what might otherwise be considered a partnership relationship.

Origins of a partnership disputes

 All of these types of partnership share some common features; they comprise individuals in business who work together in a way that is more directly self-interested than, say, a straightforward employer/employee relationship.  Partners and shareholders in companies which control or substantially own the business are the drivers of their businesses. They make the hard choices, benefitting directly where they get it right and suffering when things go badly – the buck stops with them.  With that proximity to control and responsibility comes pressure, personal aspiration, ego and, in many cases, less willingness to compromise than is helpful in any relationship – commercial or otherwise. Queue the next partnership dispute!

The origins of partnership disputes are diverse. However, there are a few perennials; money, control/power, business direction, personality and behaviour. As time passes and familiarity starts to breed contempt, things can begin to move out of control. In an effort to restore balance and equity, the partners reach for their lawyers. The dispute is underway.

The ride gets bumpy

Litigation in relation to these kinds of disputes in notoriously expensive and is fraught with risk. The way that the parties have conducted themselves will be subject to third party scrutiny (often uncomfortable) and, ultimately, a decision by a judge or arbitrator – which may be less predictable than might be wished.  The absence of harmony may also have a disastrous effect on the business, as bystanders at work get caught up in the crossfire and reflected fury. As legal expenditure increases the temperature inside the stress crucible can reach existentially threatening proportions; even more so in traditional partnerships, where the spectre of unlimited liability can keep partners awake at night.  Often it’s only when the parties realise how close they have brought themselves to the brink of a disaster that they start to explore the alternatives to a continuing dispute.

Mediation

Once a dispute is formally underway there are only a few ways that it can end; it can proceed to conclusion/trial, – typically with a winner and a loser (with the latter picking up an adverse costs order or award), someone can withdraw (again with a likely adverse costs order/award) or the parties can reach agreement and settle their dispute. However, by this stage the parties are in so deep, that finding a way to reach agreement can seem impossible. Enter mediation. In fact, mediation can also prove useful at earlier stages, permitting the parties to prevent differences becoming a formal dispute, although parties seldom have the foresight to use mediation in that way. Pity!

Mediation is a voluntary, confidential and legally privileged process. It involves a trained mediator who often has experience of the relevant kind of business and/or dispute and who works with the parties to find a way forward that they might not otherwise be able to see. The parties are free (and encouraged) to speak openly, without fear of that coming back to bite them, later. That can be very useful.

Using their training, experience and emotional detachment a mediator is often the best chance for an early resolution. The process can be as flexible as the parties wish. It can take place in person or virtually – although meetings in person tend to give the best results. The parties may speak directly but, more often than not, after a preliminary meeting between all those involved, the mediator shuttles between the parties in separate rooms. In that way a mediator is able to relay information without heat and to help guide the discussion towards success. If relationships are so badly damaged that a meeting, face to face, would be unhelpful, that part of the process need not take place.

The neutrality of the mediator, coupled with a different perspective based on years of dispute resolution, can be very powerful. A mediator is also able to test both sides’ positions with them and explore whether they ought to be reflecting on the weaknesses, rather than the perceived strengths of their cases. When tested by a neutral mediator, rather than an opponent, the parties’ visceral reaction to any challenge can moderate and that can be productive, permitting parties to think intelligently, rather than emotionally.

It’s for all these reasons that partnership disputes are ideally suited to mediation. Sometimes it takes something extra in the mix to make discussions productive and mediation can and does deliver that. Encouragingly, more than 80% of mediations permit the parties to reach agreement and bring their dispute to an end.