What to Do Before Suing Your Partner

Ontario’s Partnerships Act, 1990 (the “Act”) defines a partnership as “the relation that subsists between persons carrying on a business in common with a view to profit. Partners formalize their business relationship by entering into a written or verbal partnership agreement.” Partners owe each other a duty of loyalty, good faith, and fundamental fairness, commonly referred to as a fiduciary duty. Often partnership disputes arise when a partner breaches their fiduciary duty by opening a competing business, engaging in insider trading, locking another partner out of business, or misappropriating the partnership’s funds, among other dishonest and unlawful behavior. This article will explain how a commercial litigation lawyer can help.

When your business partner breaches their fiduciary duty or contravenes the partnership agreement, you may take legal action against them.

However, before suing your business partner, you may take the following steps to protect your interests and strengthen your case :

  • Maintain proper documentary records;
  • Review the partnership agreement;
  • Evaluate the available remedies;
  • Negotiate with your business partner; and
  • Consult a commercial litigation lawyer.

 

Maintain Proper Documentary Records

Most partnerships prepare certain records in the regular course of business. Important records include the partnership agreement, operating agreement, financial statements, business contracts, sales invoices, client lists, and other documents.

These documents may form the evidentiary basis of your claim. Even communication records such as emails, memos, letters, and text messages could be useful in proving your claim.

The business records contain important information regarding your partnership and can reveal misconduct by a partner. For this reason, you should move quickly to preserve any evidence before your business partner removes all traces of their misconduct.

For example, the partnership’s financial statements may help you prove that your partner transferred the funds from the partnership’s account to their private account without authorization or legal justification.

In this digital era, most documents are stored electronically. Your partner may lock you out of your business by just changing the passwords to the company’s emails, bank accounts, bookkeeping software, or other services. A scheming partner can limit your access to the partnership’s information and records in seconds.

It is prudent to maintain your own set of business records from the beginning of the partnership. You can start maintaining a copy of the records from the point when disagreements arise.

If your business partner is preventing you from accessing the partnership’s business records, you should immediately contact a commercial litigation lawyer to determine the best next steps.

A commercial litigation lawyer can send your partner a demand letter demanding access to the documents. If they refuse, your lawyer can help you sue for access to your business records.

 

Review Your Partnership Agreement

The partnership agreement is the heart and soul of every partnership. It contains the rights and obligations of the business partners. If executed correctly, the partnership agreement helps to accomplish the partnership’s goals and avoid unwanted liability.

The partnership agreement helps to determine whether any partner violated its terms. For instance, if your partner quits the partnership prematurely, you may sue them for breach of contract.

Reviewing the partnership agreement is crucial for another reason. Most partnership agreements state the partners must adopt alternative dispute resolution (“ADR”) processes like mediation or arbitration for resolving conflicts.

If your partnership agreement contains a dispute resolution clause, you must adopt the ADR process mentioned therein. Depending on how the clause is worded, the result of the ADR process could be legally binding on the parties and may restrict the partners from seeking legal remedies in Court.

A commercial litigation lawyer can review your partnership agreement and advise you on your rights and remedies. They can prepare you, represent you and make submissions on your behalf during the ADR process.

 

Evaluate Your Legal Remedies

Depending on the partnership agreement terms, the nature of the claim and the circumstances of the case, the aggrieved partner may seek different legal remedies.

Monetary damages intend to compensate the injured party for the losses suffered due to the wrongful acts of another. In addition to monetary damages, non-monetary damages compensate a person for their pain, suffering, mental distress they suffered from the other partner’s bad faith conduct.

While damages are the most common remedies in partnership disputes, an aggrieved partner may seek other remedies, including but not limited to:

  • Dissolution of partnership;
  • Orders to allow access the partnership’s books and records;
  • Orders requiring or prohibiting specific conduct;
  • Expulsion of a partner from the partnership;
  • Orders to account and trace misappropriated funds; and
  • Specific performance of a contract.

Legal remedies are the judicial solution to a partnership dispute. Every partnership dispute is unique due to differences in the facts and context of each case. Remedies vary depending on the facts, and a commercial litigation lawyer can help you determine what to sue for.

A commercial litigation lawyer will review the facts.  They will also consider the nature of the dispute and your expectations to recommend the best next steps.

 

Negotiate with Your Business Partner

Starting a lawsuit immediately to address the harm your business partner caused may seem tempting. However, litigation can be a stressful, costly and time-consuming process. Aside from the legal fees, there may be other potential expenses associated with litigation, such as disbursements.

Common disbursements charged on top of legal fees include the costs of expert reports, travel expenses, and day-to-day expenses required to move your matter forward.

Further, the losing party may have to pay the winning side’s legal costs on top of the damages awarded by the Court. For this reason, it is usually best practice to keep an open mind for compromise and settlement before and after starting a lawsuit against a partner.

A demand letter can be a good starting point for negotiation. The demand letter briefly mentions the facts, states your legal position and proposes an offer to settle the matter outside of Court. They are confidential resolutions of a matter that are enforceable by the Court like any other contract.

In the best-case scenario, your partner may agree with your demands, and you may avoid the expensive and exhausting litigation process. Sometimes your partner might be open to private mediation to resolve the dispute.

In mediation, an impartial third party, called the mediator, facilitates discussion among the parties to the dispute and encourages them to settle. The settlement reached at mediation is usually formalized in a legally binding settlement agreement.

You may continue negotiating with the other side while pursuing commercial litigation as well. Whether you are negotiating with your business partner or taking part in a mediation, it is always better to have a commercial litigation lawyer by your side for the benefit of their expertise.

A commercial litigation lawyer can use their experience to help you assess the strength and weaknesses of your case. They can advise you of the risks associated with your case, and whether an offer to settle is within a reasonable range.

 

Consult a Commercial Litigation Lawyer

A partnership’s chief legal officer (“CLO”) or general counsel can help it comply with its legal and regulatory obligations. The CLO provides extensive legal services to the partnership, including:

  • contract drafting and review,
  • development of workplace policies,
  • performance reviews and
  • employee management.

A CLO also supervises the partnership’s in-house legal team and provides legal counsel on legal issues such as ongoing litigation, changes in law, and human rights and disability accommodation, among other things.

The chief legal officer reports to its managing partner, the partnership’s equivalent of a chief executive officer. As the CLO’s job description requires them to work closely with the managing partners, the CLO may be caught in a conflict of interest and cannot always help you take legal action against your business partner.

An independent commercial litigation lawyer can help you bring a claim against your business partner. They have the knowledge and expertise in navigating the legal system, negotiating settlements and advocating for you in Court.

A commercial litigation lawyer will review the facts of your case and develop a legal strategy based on those facts. They can advise you on how to file your claim, what to plead and what steps are necessary to maximize your chances of winning your lawsuit.

A typical commercial lawsuit involves different steps such as exchanging pleadings, mandatory mediation, discoveries, pre-trial conferences and trial. A commercial litigation lawyer can help you at each stage of the litigation process to ensure you hold your business partner accountable for their wrongdoing.

 

Conclusion

Nobody enters a business partnership thinking they will be suing their partner one day. However, the reality of business relationships makes it almost certain that one will be involved in a dispute with a partner at some point.

Many cases settle before a claim is even filed, which could help your business save time, costs and effort. A commercial litigation lawyer could help protect your business interests while negotiating with your business partner. If necessary, the commercial litigation lawyer can help you prepare for the lawsuit and take all the necessary steps to maximize your chance of success.

 

Contact Us

If you want to sue your business partner or have other questions regarding your rights and remedies as part of a business partnership, our skilled, knowledgeable, and experienced lawyers at Achkar Law can help. Contact us at +1 (800) 771-7882  or email us at [email protected], and we will be happy to assist.

 

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