Informal business partnerships - Be careful!

Posted: 17th November 2017

HandshakeBusiness partnerships can be created orally or by conduct indicating that an accord has been reached.

However, as one case concerning a troubled medical practice showed, it is always wise to have such agreements professionally drafted at the outset.

The principal of a medical practice had entered into partnership with another GP under a written agreement.

Three other doctors also joined the practice soon afterwards. Although negotiations for a fresh partnership agreement between all five doctors continued for some time, no formal document was ever signed.

Following a dispute with the principal, the GP went off sick, suffering from anxiety. On his return, he was prevented from seeing patients or accessing medical records. The GP launched proceedings, alleging that the principal had breached the agreement, and obtained a temporary injunction that restrained the principal from preventing him from practising as a GP at the surgery they shared.

Following a fuller hearing of the matter, however, a judge refused to grant the GP a permanent injunction. That was on the basis that the original partnership between the GP and the principal had been dissolved when the other three doctors joined the practice. At that point, and in the absence of a written agreement, a partnership at will had come into effect that included all five doctors. That partnership had also come to an end by the service of a notice of dissolution on the GP.

In rejecting the GP’s challenge to that decision, the Court of Appeal found that the judge had made no error of law. The partnership at will had superseded the original partnership and the fact that the former had not been reduced to writing did not undermine that conclusion. All five doctors were looking forward to reaching a new agreement, the terms of which were under negotiation. There was also no evidence that the three doctors who later joined the practice intended to be bound by the agreement or that all of them had even had sight of it.