Court can impose fair and practical settlement on partners

The court can impose a fair settlement when a partner suffers due to a commercial failing, as seen in a recent case, where a partner, misled about a 2013 agreement reducing her share in a family business, was awarded compensation despite the original partnership's dissolution. The Sheriff Appeal Court upheld the decision.

When a person suffers a detriment because of a commercial failing that cannot be corrected, the courts can impose a remedy that restores the injured party to the position that would have prevailed had no injury been sustained. 

The procedure is known as restitutio in integrum and was highlighted in the recent case of Challo and Challo. It involved a family business formed in 1998 by oral agreement with six partners. By 2013, only three of the original partners were alive. With the consent of the other partners, Partner A undertook the principal role of management. From 2000, his son also became involved. Neither of the two remaining partners had any substantial involvement in running the business. They were accustomed to receiving routine administrative documentation from Partner A, including tax and accounting documents, and signing it without question or explanation. 
 
Between 2012 and 2013, the partnership re-financed its borrowing. Partner A engaged his son to help obtain further lending. The third-party lender required a formal partnership agreement identifying all the partners, and confirmation that the son was the managing partner. Partner A and his son drafted a partnership agreement in 2013. The effect was to alter the constitution of the partnership by (i) making the son a partner and being awarded a 25% share of the profit; (ii) making the son the managing partner. That reduced each of the remaining partners' shares from one third to one quarter.
 
One of the remaining partners, Partner B, only spoke Punjabi and was unable to read English. Prior to signing the 2013 agreement she was not advised by the son, or his father, to obtain separate legal advice. She had no understanding of the true nature, meaning or import of the document. She was induced to believe she was being asked to sign a routine document relating to the day-to-day administration of the partnership. She received no consideration or capital for the diminution of her share of the partnership. She did not consent to it or the appellant's assumption as partner.
 
Partner A died in 2020. Partner B became concerned over the partnership's management. The son failed to respond to her request for details of the partnership's assets. She subsequently became aware of the true import of the 2013 agreement and the 2014 conveyance and took legal action. Following a preliminary hearing, the sheriff found in favour of Partner B and ordered that although the original partnership could not be restored, the case should be remitted to a full hearing so that Partner B could be compensated fully for her detriment, while recognising the son’s contribution to the successful management of the business. 
 
The Sheriff Appeal Court upheld that decision.

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