The importance of clarity in partnership arrangements
Are you considering inviting new partners to join your practice or are you about to become a partner yourself? Gemma Pearmain of law firm Cripps Pemberton Greenish explains why it’s important you agree clear partnership terms from the start.
The recent Court of Appeal decision in Cheema v. Jones and others is a reminder of the risks of doctors proceeding to work together before terms have been formally agreed.
Dr Cheema and his partner were operating under a written partnership agreement that required both partners to agree on key decisions. They decided to expand the practice and form a partnership with three further doctors.
Practice minutes recorded that the new partnership would start on 1 July 2016. Solicitors were instructed to draft a new partnership agreement and the three new doctors started work. They attended weekly practice meetings but discussions regarding the terms of the partnership agreement were deferred.
A dispute then arose between the original two partners. This culminated in Dr Cheema being prevented from seeing patients and accessing medical records. Dr Cheema issued proceedings and obtained an injunction to enable him to return to the practice.
The dispute went to trial and, by that time, a notice purporting to dissolve the new five doctor partnership had been served on Dr Cheema. He argued that the original agreement applied and the three new doctors were not partners as they had not signed any agreement.
The High Court found that the original arrangement was dissolved on 1 July 2016 and that a new partnership had been created and was a partnership at will, meaning it could be dissolved at any time by any one partner serving notice on the others. It found the served notice was effective.
Dr Cheema appealed but the decision was again against him. It was confirmed there was no evidence the five doctors had intended to be bound by the original agreement: the five partner partnership at will could be dissolved without Dr Cheema’s consent.
Where new partners are invited to join a practice, the existing partners should not assume their partnership agreement will continue to apply unless expressly agreed by any new partners. If doctors begin working together and negotiating a new partnership agreement, this will point towards the formation of a new partnership at will between all partners, pending the finalisation of any written agreement. The effect of this is likely to be very different from what might usually be agreed in a written partnership agreement.
The Cheema case is another reminder of the importance of formalising written terms as quickly as possible and before partners start work.
Further, it would be wise for partners to obtain independent legal advice to ensure they are fully aware of their partnership rights and obligations.
For more information contact the commercial dispute resolution team.
This article first appeared in Practice Management.