Partnership and the underperforming doctor
Authors: Malcolm Warner
Publication date: 14 Apr 2012
Sometimes partnerships break down. Malcolm Warner advises on what should happen next
As a lawyer I know that partnership bust-ups are expensive and divert the partners from their calling, and that can mean a near criminal waste of time when doctors are arguing between themselves rather than treating patients. Sadly, I have seen an increasing number of medical partnership disputes. If this article brings a little clarity, it may help a more reasoned approach to identifying the problem and a solution that is lawful and appropriate.
A deed that is fit for purpose
The first step is to make sure that the partnership deed exists and is up to date. Do not be embarrassed about going to your solicitors with some ancient scraps—in my experience, solicitors’ partnerships are often in no better state.
How do you tell whether your deed is fit for purpose? For a start it should have in it your present partners (directly or by a deed of adherence or similar). Then it should have been created or at least reviewed in the past five years.
Another useful guide is to look towards the end at the arbitration clause (if there is no such clause you need a new deed anyway) and see whether it refers to the Arbitration Act 1996. If it mentions an earlier date, either the deed is out of date or somebody did not do a particularly full redraft last time around.
Medical partnership deeds should nowadays cover a lot of detail specific to the profession, although some seem to make do with a fairly general deed for a professional partnership. The BMA website has some valuable guidance on the contents of a partnership deed for a doctors’ partnership, to which you should refer; it will help to have done so and made a checklist of what you want before you contact your solicitors. Do not draft your own deed—it is said that in former times with solicitors it was a task delegated either to the most junior partner (who would make mistakes) or to the most senior partner (who would make sure it feathered his nest).
Underperformance and expulsion
With regard to an underperforming partner, this could be anyone from the young and thrusting but too abrasive partner who is so determined to stick to targets and minimise out of hours work that complaints start to come in to the senior partner who is surrounded by thrusting youngsters but still wants to take so much time with each patient that everything is getting out of hand in the eyes of his or her partners. Whatever the cause, there may come a time when the majority believe they have to act.
All well drawn partnership deeds have a provision allowing for expulsion. This is necessary because although the Partnership Act 1890 provides a default set of rules for partnerships it does not provide machinery for expulsion. The way the 1890 act deals with this sort of problem is brutal: a dissolution, which is commonly much too disruptive for a professional partnership.
The specific grounds for expulsion commonly fall into discernible groups. Firstly, there are insolvency, immoral behaviour, mental health problems, and so on. Secondly, there are breaches of the partnership deed itself, including breaches of the fiduciary duties between partners. Thirdly, there are breaches relating to patient care. The doctor’s underperformance may involve breaches in the second or third classes; commonly there is a degree of overlap.
The courts do not like expulsion clauses because they are seen as expropriatory. Commonly, the financial effect of expulsion under the terms of partnership deeds is at best neutral to the person being expelled, and most are unfavourable, if for no other reason than payment of his or her capital may be delayed for many months. It may be difficult for doctors to obtain another partnership, especially with the lingering concern that they are “difficult.” Expelled partners lose at once their seniority payments and so on. It is a draconian step, so do not expect the court to agree without demur that the expulsion was valid. You will have to be meticulous in following the rules set out in the deed and be able to justify the expulsion within the specific criteria in your deed. If the grounds for expulsion include allegations about patient care, beware of any failure to comply with your professional reporting duties relating to the same incidents.
Changing your deed
One problem with your deed is that it may not identify the actions or inactions of a partner that cause you concern as grounds for expulsion. Think carefully before rushing off to the solicitors to obtain a new deed that does so. Remember that the solicitors will be instructed by all the partners in the normal course to draft the new deed—so they should not be a party to setting up a deliberate back stabbing exercise against one of their employers. Next there is a difference between tinkering with an existing deed and a new deed for a new partnership. Let me explain. Suppose the senior partner decides to do fewer surgeries. In that case there might be an amending deed reducing his or her surgeries and making corresponding adjustments to the partnership shares. On the other hand, the new deed may completely revamp the arrangements between the original partners; some new ones may come in and old ones go out. That will commonly dissolve the old partnership and replace it with a new one.
The reason for great care with the second scenario is that partners owe each other duties of absolute good faith not only when in partnership but also when negotiating for a new partnership. It is plain that partners do not comply with that duty if a partner is unwittingly persuaded to sign up to a new partnership with a bright new and shiny expulsion provision when the whole object of the exercise is to set up that partner for an early and enforced departure.
Avoid lengthy disputes
So what do you do with an inadequate deed and an underperforming partner? Well, firstly, try—and I mean try—to agree that he or she should retire on an amicable basis. This is against my interests as a litigator, but given the costs and so on of a partnership dispute it is worth while sometimes paying over the odds (however much it may go against the grain) just to get agreement. Trust me: a year later, with ongoing legal costs, you will regret it if you do not.
Secondly, you can try to update your deed, but you will have to send anyone who is a possible target for expulsion to other solicitors and make clear why you are doing so—then that partner cannot say that he or she was in any way tricked by an assumed duty of good faith into signing up to the new deed.
Thirdly, there are two legal routes. The first is dissolution of the partnership. This can be cumbersome and unattractive, especially in its potential effect on the personal medical services contract, disruption to staff, the premises, patients, and so on (I put them in no particular order). Get detailed legal advice before going anywhere near taking steps to dissolve the partnership.
The second legal route entails invoking a Victorian case known as Syers v Syers. In essence, it permits the court to direct some partners to buy out others at a valuation of their interest in the partnership. It sounds simple enough and the obvious remedy, but the problem is that it was said for many years that such orders were simply never made. Why? Well, valuing a person’s interest is not the same as selling it in the marketplace. This stance historically taken by the courts is all very well for a partnership trading in ferrous metals but is unrealistic for professional partnerships, which often have little in the way of saleable assets: some office furniture, IT (expensive to buy but little resale value), and maybe premises. In my 30 years in practice I can recall obtaining one Syers order and maybe another, but I suspect that few medical practitioners have ever obtained one—they remain incredibly rare. However, the courts are becoming willing to seriously consider making such an order—in the right circumstances.
In conclusion, if you have an underperforming partner it is better to try to support him or her, and if that does not work an amicable split is by far the best route. If that cannot be achieved then take legal advice before proceeding further. Do not put your practice manager in an invidious position with regard to an underperforming partner (the partner is also the manager’s employer). However frustrating such a partner may be, do not be seduced by the underhand approach, and above all do not become embroiled in a lengthy partnership dispute.
Competing interests: None declared.
Malcolm Warner barrister, Bristol, UK