22 November, 2017
A recent Court of Appeal decision has highlighted the importance of ensuring that a partnership arrangement is properly documented.
In Cheema v Jones, two GP's (A and B) entered into a partnership to provide medical services, the terms of which were set out in an agreement dated April 2016.
Shortly thereafter, it was agreed to expand the partnership and form a new partnership with C, D and E. The practice meeting minutes recorded that the new partnership would commence on 1 July 2016. Solicitors were subsequently instructed to prepare a new partnership agreement to regulate the terms of this relationship.
Before such terms could be finalised, a dispute arose between A and B. When B was prevented from seeing patients and refused access to the computerized medical records, he issued proceedings against A for an injunction to enable him to return to the practice.
Whilst an injunction was granted, matters were not resolved and the case proceeded to trial. By that time however, a notice purportedly dissolving the new partnership with immediate effect was served on B. A contended that the old partnership with B had been dissolved on 1 July 2016 and that a new partnership at will, with all 5 partners, had been created. The notice to dissolve was therefore valid as unanimity is not required to dissolve a partnership at will. B however contended that he was only a partner with A as the agreement in respect of the new partnership had not been concluded.
A succeeded in the High Court, and the decision of the High Court was upheld by the Court of Appeal.
The Court of Appeal held that the new partnership was a partnership at will which commenced on 1 July 2016 and superseded the agreement entered into between A and B. There was clear evidence that from 1 July 2016 the doctors acted as and treated each other as partners and intended to create a contractual relationship between themselves, the terms of which were under negotiation at the time of the breakdown in relationships. The Court held that there was no evidence that the new partners intended to be bound by the earlier agreement. The new partnership was therefore validly brought to an end by the service of the notice.
Whilst the rapid deterioration in relationships here was somewhat unique and surprising the case highlights the importance of having clarity about the basis on which a partnership is proceeding. The differences between the terms set out in a partnership agreement and those which apply to a partnership at will may be of great significance (as this case demonstrates).
Those considering entering into a partnership are advised to obtain independent legal advice. If you require any advice or assistance on entering into a partnership, or any other corporate matter, please do not hesitate to contact Nick Pickup via Nick Pickup or 0333 207 1132.