Deed or no deed?

Solicitor Daniel Kirk considers the value of having a partnership deed in light of an English Court of Appeal case involving a dispute among GPs

 

A GP partnership is a formal business arrangement and the terms under which it operates should be clearly documented. A recent English Court of Appeal case has highlighted the risks that can arise when a GP partnership does not have an upto- date partnership agreement in place.

In the particular case described below, the lack of an agreement meant that there were very limited rules governing the partnership, including how it could be ended. The legal interpretation in each situation will depend on the specific facts, and specialist advice should be sought. However, the Court’s judgment provides an interesting overview of key issues and reinforces the strong recommendation to have a current partnership deed in place, reflecting any changes in the partnership.

SETTING OUT TERMS

Disputes within a GP partnership can arise for many different reasons. Common causes include conflict between property owning and non-owning partners (landlord/tenant disputes) and when partners retire or are removed from the partnership.

A signed and up-to-date partnership agreement or partnership deed is a key document to record the terms on which a GP partnership operates. It sets out the arrangements between the partners and what should happen in a range of scenarios, such as when a dispute arises or a partner leaves.

However, the reality is that many GP partnerships change and develop without having a current, or indeed any, partnership deed in place. This can arise when new incoming partners are negotiating over appropriate terms or, simply because limited available time and the demands of the ‘day job’ mean that a partnership deed was not considered or completed.

A partnership agreement should be seen as a “living document” and kept up-to-date with all changes affecting the partnership. Having a deed in place does not prevent disputes occurring but it reduces the risk by giving greater certainty about the agreed terms within the partnership.

CHEEMA V JONES: BACKGROUND

Although most partnership disputes do not end up in court, they can nevertheless be time consuming, costly and stressful for those involved. The lack of a partnership deed made this even more so in the case of Cheema v Jones. A summary of the case is interesting as it shows how things developed into a significant dispute due to a lack of clarity on partnership terms.

Dr Cheema, a salaried partner, was invited to join a partnership with Dr Jones when another partner retired. They signed a written partnership agreement on 8 April 2016. Dr Cheema and Dr Jones then discussed taking on three new partners to expand the practice. There was one formal meeting between four of the five proposed partners on 21 April 2016 and solicitors were instructed to prepare a draft partnership deed.

The GMS contract was varied to a partnership of five with effect from 1 July 2016 and the GPs started working at the practice but the draft partnership deed was not finalised. Partnership meetings were held in July and August with all five partners but in August 2016, Dr Cheema and Dr Jones fell out over allegations concerning Dr Cheema’s fitness to practise. He was refused access to patients and sought a court injunction to allow him to return to work. The relationship between Dr Cheema and the other partners broke down.

A dispute arose over the nature of the partnership in place. Either that: (i) the Dr Cheema and Dr Jones partnership of 8 April 2016 remained in place; or (ii) a new partnership between the five GPs arose as a ‘partnership at will’.

A ‘partnership at will’ can arise where the partners have not agreed other terms. Here the Partnership Act 1890 applies and incorporates very limited terms into the partnership, such as any partner can terminate the partnership on notice and all profits and liabilities are shared equally. In this case, it meant that Dr Jones could, without Dr Cheema’s agreement, terminate the partnership at will to remove Dr Cheema.

A partnership at will does not cover the wide range of provisions that a standard GP partnership deed will include. It is not a suitable basis for a GP partnership and practices are much safer having clear agreed terms in place.

The trial took place in March 2017, with judgement being given in May 2017. All five GPs gave evidence at court, including being cross-examined by the barrister representing Dr Cheema. In this case the practice manager did not give evidence although the court could have compelled testimony. The Court of Appeal confirmed the decision that the GPs had not agreed the draft partnership deed and were not bound by it. Instead a ‘partnership at will’ had replaced the 8 April 2016 partnership deed, allowing Dr Jones to terminate the partnership to remove Dr Cheema. The judge commented: “The dispute that has arisen is as a result of the failure of the parties to enter into a written partnership… or to reach agreement on all the terms…”.

Interestingly, NHS England sought to terminate the practice’s GMS contract as a result of this dispute and the dissolution of the partnership arising from these court cases. The remaining four GPs successfully challenged the attempted termination of the contract under the NHS Dispute Resolution procedure and at the high court.

NO DEED?

The exact legal interpretation of a partnership, where it is disputed, will very much depend on the factual background, such as the terms of any previous partnership deed, the content of emails, partnership meeting minutes and conversations between the parties. In the Cheema case, the court reviewed emails and minutes of meetings between the partners in determining the relevant facts on which it made its decision.

Broadly, depending on the specific situation, where there is no signed up-to-date partnership deed, the following could apply:

  • the terms of a previous partnership deed remain in place
  • there is a partnership at will with very limited terms
  • other terms apply which may be disputed.

MEDIATION

A partnership deed can contain a dispute resolution process setting out the steps that partners should take before issuing court proceedings. This can require a ‘without prejudice’ meeting to try to reach a settlement or mediation, where an independent mediator, often a lawyer, will try to facilitate an agreement. Mediation has a good success rate and lower costs and risk than pursuing a court claim. Court should be the last resort. Seeking advice early and planning a strategy can help resolve a dispute cost effectively.

WHAT TO TAKE AWAY

This case highlights some key principles in managing a GP partnership:

  • Uncertainty over the terms of the partnership can lead to significant additional cost and risk in the event of any dispute or a partner leaving.
  • The partners can protect themselves with a clear, signed partnership deed, updated to reflect changes in the partnership. The same principle applies to having a documented lease in place where required.
  • Try to resolve disputes early and amicably before they escalate.
  • Correspondence and records of meetings will be important evidence.
  • Court proceedings may be required as a last resort but other cost effective methods for dispute resolution exist.

Daniel Kirk is an associate in the litigation division and member of the dedicated GP team at Capsticks Solicitors LLP, who provide discounted business and corporate legal advice to GPs and practice managers in MDDUS (England, Wales and Channel Islands only)