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How to survive a partnership dispute

Lynne Abbess provides advice on how to avoid partnership disputes and what to do should one occur.

They can creep up on you silently like a stealth bomber or they can explode in an instant like an exocet missile - but either way you will want to escape their clutch as quickly as possible.  

As anyone with the unfortunate experience of being involved in a partnership dispute will tell you, once you are involved it will consume all your waking hours (and more), and at a time when general practice is facing so many other pressures, this is definitely one well worth avoided.

So how can you avoid a dispute from evolving – and once it has occurred, how best can you deal with it?

Communication is key

The answer to both these questions is undoubtedly communication communication communication.

If you fail to communicate properly with each other, it is hardly any wonder that misunderstandings arise – and once they begin to take hold, it becomes increasingly challenging to ‘undo’ them.  So start as you mean to go on and ensure the governance within your practice is up to scratch from the outset, reviewed regularly - and followed.   

Partnership agreement

The starting point for every partnership is to have an up to date and comprehensive partnership agreement – not least as your NHS contract is otherwise placed at risk.

A well-drawn agreement will bind you together for your ‘joint lives' – so yes, it is necessary for it to be longer than just a few pages, as otherwise there are bound to be issues over which you disagree which have not been covered.  

When a new partner joins you they must be tied into the agreement even before they set foot in the practice - and if there is any suggestion of them committing to do something, such as buying into the surgery or entering into a lease, this should take place by no later than the penultimate day of their probationary period.  

If the new partner isn’t working out, don’t be afraid to exercise your right to terminate their partnership within their probationary period – what might be a short-term embarrassment could avoid a significant dispute further down track.

Beyond this, it is essential for regular meetings to take place, which are properly convened, with an agenda and supporting papers and minuted. As all equity partners are ‘jointly and severally liable’ everyone is entitled to a vote – and to be heard.   

How can you resolve disputes?

But whilst good governance lays strong foundations – and provides the much needed evidence of what the partners have agreed – even the best governed partnerships can run into difficulty, because essentially they are made up of human beings. Pressures of work are likely to cause particular tensions, especially where they have an impact upon money.  

You should always bear in mind that what may start off as a minor scrap can, if it is left to develop into a full blown dispute, lead to the demise of the business. So how can you endeavour to resolve issues before what begins as a theoretical risk, becomes a ‘live’ one?  

Stage 1

Establish the issues. Write them down if necessary so each side can appreciate what the other side is saying (which can otherwise be lost in the heat of a discussion).

Is the dispute based on elements of misunderstanding? Do you need external professional advisers to provide some early clarification to nip issues in the bud? For example, in a recent case, one of the partners felt aggrieved he wasn't receiving a share of the notional rent as he had understood it to belong to the ‘partnership’, but once he appreciated the ‘occupiers’ had a duty to pass it on to the ‘owners’ he realised he wasn't being unfairly deprived and that he had been misjudging his partners.

Can a respected member of the partnership, or even a recently retired partner with no axe to grind, be invited to talk to both sides and assist in bringing them together? You should never involve staff members in your discussions, not least as it is unfair to them, as they are employees of all the partners.

Allow proper time for discussion, perhaps in a neutral environment off site, such as a private room in a local hotel.

If there are conduct issues involved that concern an individual partner, ensure these are explained clearly and addressed at an early stage. All too often, nothing is said until others have reached ‘explosion point’ and then aggrieved partners expect everything to be finalised within a matter of days. However, not surprisingly, this often comes as a shock to the individual concerned, who may be given very little time to address any concerns – and any exit can end up being far more traumatic and costly as a result.     

Stage 2

If matters cannot be resolved internally you should consider involving a third party to assist informally. Your LMC can often facilitate such meetings, although they would be the first to admit they are not lawyers or accountants and they cannot take sides.  

Alternatively, if the dispute is centred around legal or financial issues, your practice lawyers or accountants may be best placed to facilitate a meeting from a neutral platform.

Stage 3

If matters cannot be resolved informally you will then need to turn to your partnership agreement for guidance on what to do next. Most modern agreements will propose a referral to mediation before any more formal route is pursued, such as arbitration.  

While mediation is an informal process (it is non-legally binding unless and until a formal agreement is entered into) it would be unwise to treat it too lightly – not least because if matters cannot be resolved at this stage they are likely to become far more costly.  

On this basis, you should expect to pay for a properly qualified mediator to take you through the process. A certain amount of preparation will be called for and you can expect the mediation itself to last a full day.   

Each side to the dispute will contribute to the mediator’s costs, usually a ‘four-figure sum’ for each side. In addition it is usual for lawyers to be in attendance throughout the session. Hopefully the day will conclude with a legally binding agreement, meaning a deal has been concluded.

Mediation is all about reaching an agreement that is acceptable to both sides. This means there are no winners and losers. As such, if not too much damage has been done, it can even be possible for the parties to resume their practice together thereafter having established a way forward.

Stage 4

This is where things become really serious – and seriously expensive. The path ahead is a destructive one and ultimately there will be a ‘winner’ and a ‘loser’.

Each side will appoint solicitors, and usually counsel in addition, to draw up the pleadings (which set out your case). It is worth understanding the costs to which you would be exposed if matters reach this stage, which hopefully will also have a sobering effect when determining whether you can reach agreement at stage 3 – or even earlier.  

If a dispute follows through all the way to a hearing (although most don’t) each side could face costs of £200,000 (+VAT) or even more – with the accompanying risk that the loser can be ordered to pay a considerable proportion of their opponent’s costs in addition to this. And whilst arbitration has the advantage of being conducted in private, the costs of the arbitrator are on top of everything else.    

Whether you pursue the dispute via arbitration or through an application to the High Court, you will at this stage be exposed not only to significant costs, but also to significant amounts of your time.  

You will be required to trawl through historic documents/emails/accounts etc. to produce evidence in support of your case (this is why it is also a good idea to never write an email which would embarrass you if read out in court); you will have to attend countless meetings; and ultimately you will face cross examination in a witness box.

And after all this, as the outcome of litigation can never be guaranteed, you might find yourself on the losing side.

Nip things in the bud

Coping with a partnership dispute is undoubtedly a very stressful experience for all concerned and invariably one which could have been avoided had more strenuous efforts been made at an early stage to ‘nip it in the bud’.  

This requires a willingness to invest a certain amount of time, patience and costs to achieve. But whatever it costs you to achieve a settlement at one of the earlier stages described above, will pale into insignificance compared with the overall costs of allowing this to escalate to one of the later stages.

Communication with each other – as well as with your trusted advisers – must be a very sensible alternative to consider.

  • Lynne Abbess heads the Professional Services Group at healthcare specialist solicitors Hempsons

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