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Carpet quarrel

Though Gilbert and Sullivan's working relationship was mostly cordial and even friendly, it sometimes became strained, especially during their later operas, partly because each man saw himself as allowing his work to be subjugated to the other's, and partly caused by the opposing personalities of the two: Gilbert was often confrontational and notoriously thin-skinned (though prone to acts of extraordinary kindness), while Sullivan eschewed conflict. Gilbert imbued his libretti with absurdist "topsy-turvy" situations in which the social order was turned upside down. After a time, these subjects were often at odds with Sullivan's desire for realism and emotional content. Gilbert's political satire often poked fun at the wealthy and powerful whom Sullivan sought out for friendship and patronage.

Gilbert and Sullivan disagreed several times over the choice of a subject. After each of Princess Ida and Ruddigore, which were less successful than their seven other operas from H.M.S. Pinafore to The Gondoliers, Sullivan asked to leave the partnership, saying that he found Gilbert's plots repetitive and that the operas were not artistically satisfying to him. While the two artists worked out their differences in those cases, Carte kept the Savoy open with revivals of their earlier works. On each occasion, after a few months' pause, Gilbert responded with a libretto that met Sullivan's objections, and the partnership was able to continue.

In April 1890, during the run of The Gondoliers, Gilbert challenged Carte over the expenses of the production. Among other items to which Gilbert objected, Carte had charged the cost of a new carpet for the Savoy Theatre lobby to the partnership. Gilbert believed that this was a maintenance expense that should be charged to Carte alone. Gilbert confronted Carte, who refused to reconsider the accounts. Gilbert stormed out and wrote to Sullivan that "I left him with the remark that it was a mistake to kick down the ladder by which he had risen". Helen Carte wrote that Gilbert had addressed Carte "in a way that I should not have thought you would have used to an offending menial". On 5 May 1890, Gilbert wrote to Sullivan: "The time for putting an end to our collaboration has at last arrived. … I am writing a letter to Carte... giving him notice that he is not to produce or perform any of my libretti after Christmas 1890." As biographer Andrew Crowther has explained:

After all, the carpet was only one of a number of disputed items, and the real issue lay not in the mere money value of these things, but in whether Carte could be trusted with the financial affairs of Gilbert and Sullivan. Gilbert contended that Carte had at best made a series of serious blunders in the accounts, and at worst deliberately attempted to swindle the others. It is not easy to settle the rights and wrongs of the issue at this distance, but it does seem fairly clear that there was something very wrong with the accounts at this time. Gilbert wrote to Sullivan on 28 May 1891, a year after the end of the "Quarrel", that Carte had admitted "an unintentional overcharge of nearly £1,000 in the electric lighting accounts alone.

Things soon degraded, Gilbert lost his temper with his partners and brought a lawsuit against Carte. Sullivan supported Carte by making an affidavit erroneously stating that there were minor legal expenses outstanding from a battle Gilbert had in 1884 with Lillian Russell when, in fact, those expenses had already been paid. When Gilbert discovered this, he asked for a retraction of the affidavit; Sullivan refused. Gilbert felt it was a moral issue and could not look past it. Sullivan felt that Gilbert was questioning his good faith, and in any event Sullivan had other reasons to stay in Carte's good graces: Carte was building a new theatre, the Royal English Opera House (now the Palace Theatre), to produce Sullivan's only grand opera, Ivanhoe. After The Gondoliers closed in 1891, Gilbert withdrew the performance rights to his libretti, vowing to write no more operas for the Savoy.

Gilbert next wrote The Mountebanks with Alfred Cellier and the flop Haste to the Wedding with George Grossmith, and Sullivan wrote Haddon Hall with Sydney Grundy. Gilbert eventually won the lawsuit, but his actions and statements had been hurtful to his partners. Nevertheless, the partnership had been so profitable that, after the financial failure of the Royal English Opera House, Carte and his wife sought to reunite the author and composer. In late 1891, after many failed attempts at reconciliation, Gilbert and Sullivan's music publisher, Tom Chappell, stepped in to mediate between two of his most profitable artists, and within two weeks he had succeeded, eventually leading to two further collaborations between Gilbert and Sullivan.