Profits dispute

Partner deed lies at heart of Hammonds profits dispute
Anonymous. The Lawyer. London: Dec 1, 2008. pg. 60
Abstract (Summary)

When is a former partner still a partner? This is the key question that Mr Justice Warren has the hard task of answering. The judge is stuck in the middle of a highly technical but extremely important case about law firm partnerships, which could change the shape of partnership deeds at all law firms. Warren J is the judge assigned to Hammonds' pound 3m profits dispute with eight former partners. Hammonds' lead silk Alan Steinfeld QC of XXIV Old Buildings, did his best to convince Warren J that the departing partners have no defence to the fact that Hammonds had to restate its profits in 2004 after changing its internal accounting rules.

Throughout the hearing, Steinfeld's claim against the defendants was pretty much to rubbish Hammonds' partnership deed. Whichever way it is couched, the fact remains that the drafting of the partnership deed is the key issue in the case.

When is a former partner still a partner? This is the key question that Mr Justice Warren has the hard task of answering.

The judge is stuck in the middle of a highly technical but extremely important case about law firm partnerships, which could change the shape of partnership deeds at all law firms.

Warren J is the judge assigned to Hammonds' pound 3m profits dispute with eight former partners. He heard the case for three days last week. And it did not look like he enjoyed it much.

During the second day, after a half-hour debate on where the cut-off point between former and current partners lies, the defendants' silk Charles Flint QC of Blackstone Chambers, who was instructed by Addleshaw Goddard partner Pietro Marino, said: "I accept it's a problem, it just depends on who's problem it is."

"It's my problem," said a weary Warren J, to muffled laughter and grins around the court.

The case is a lot more complex than it first appeared. Warren J had to postpone the first session of hearings to read through all the supporting documentation. Five bundles, stuffed to the gills with acts, precedents and historical quirks, would have kept the judge more than busy for the first morning.

Hammonds' lead silk Alan Steinfeld QC of XXIV Old Buildings did his best to convince Warren J that the departing partners have no defence to the fact that Hammonds had to restate its profits in 2004 after changing its internal accounting rules.

Steinfeld said: "If this claim were admissible then all the partners could claim - it would be a complete shambles. All the partners could say that if they had heard earlier [about the restated profits], they would have sought employment with another firm. The Addleshaw defendants say they've suffered as a result, but all the partners have suffered."

Throughout the hearing, Steinfeld's claim against the defendants was pretty much to rubbish Hammonds' partnership deed. On the first day, the silk told the court: "He [the draftsman of the deed] gets himself into a muddle due to the way he expresses himself." (TheLawyer.com, 25 November.) Steinfeld did backtrack slightly, however, on the final day of the hearing, after Warren J jokingly said to Ian Croxford QC of Wilberforce Chambers, representing former Hammonds partner David Jones: "I hope the [deed] was not drafted by your client."

Steinfeld interjected to say: "However well-crafted a document, a draftsman cannot foresee all issues that might arise. This is not a criticism of the draftsman. I say that for the benefit of the legal press. It sometimes happens."

Whichever way it is couched, the fact remains that the drafting of the partnership deed is the key issue in the case.

Flint and Croxford claimed there was a "temporal limitation" to being partner, as once a lawyer is no longer party to the partnership agreement, they cannot be bound by it.

Steinfeld, on the other hand, said a former partner is still party to the deed if they are looking to withdraw from or pay back to the firm.

The silk also addressed the meaning of partnership in relation to the defendants' counter-claim for damages, as they say they would have left the firm earlier had they known the state of the firm's accounts.

In a five-minute address to the court, Steinfeld said that the defendants were partners in the firm when the alleged misrepresentations took place, so to sue the partnership would in effect be to sue themselves.

Whether Warren J will strike out the counterclaim on the basis of this argument remains to be seen as his full ruling is reserved for another day.

What is clear is that his decision will have ramifications for all law firm management committees by underscoring the obligations that departing partners have to their firms.