The High Court has dismissed an appeal brought by two former partners of a medical practice, affirming that a prior partnership agreement remained in effect, despite changes in its composition.
Facts:
Mrs. Patel, Dr. Vikram Bhat, and Mrs. Geetha Bhat were partners in a general medical practice. An initial 2014 Partnership Agreement was signed between Mrs. Patel, Dr. Bhat, and another doctor, Dr. Jagadish. The partnership's composition, however, changed when Mrs. Bhat joined in 2016 and Dr. Jagadish left in 2017.
The core of the claim was Mrs. Patel's entitlement to a fixed annual sum of £50,000, as outlined in the original 2014 Partnership Agreement. The defendants argued that this agreement was no longer in force after the partnership's makeup changed and that a new, more easily terminated "partnership at will" was created.
Mrs. Patel sued for £212,600 in arrears of her annual payment, covering the period from March 2019 to March 2023. The First Instance Court ruled in favour of Mrs. Patel, and the defendants appealed this decision.
Decision:
The High Court ruled against the defendants, ordering them to pay the claimant £212,600 plus interest. The Court's reasoning for dismissing the appeal rested on two main points, specifically the legal status of the partnership and the right to payment.
The Court found that the defendants' appeal was based on a misconception of partnership law. The core reasoning was that, when Mrs. Bhat joined the partnership in 2016 and Dr. Jagadish left in 2017, it did not merely "vary" the old partnership. Instead, a legal doctrine known as "technical dissolution" meant that the old partnership ended, and a new partnership was effectively formed. This distinction was critical because it meant that the new partners were free to agree on new terms, which the trial Judge had found they had.
The Court's reasoning on payment was based on an exception to the general rule that a partner cannot be paid until a full dissolution account is taken. The Judge applied the precedent of Mukerjee v Sen, which allows for immediate payment when one partner has been overpaid at the expense of another. The claimant's right to a £50,000 annual payment was a clear, priority entitlement under the partnership agreement. The defendants, by taking the profits for themselves without making this payment, had effectively been overpaid.
Implications:
This case is a stark reminder of the critical importance of producing a clear, comprehensive written agreement and the need to follow its terms meticulously. This case demonstrates that relying on informal arrangements or simply assuming that a new partnership structure supersedes a formal agreement can lead to significant legal and financial disputes.
Any change in the partnership's membership, whether a new partner joins or an old one leaves, legally creates a new partnership. To avoid such disputes, partners must formalise this new arrangement in writing. Failing to do so can lead to a Court finding that the terms of the old agreement still apply, as in the case of this claimant's entitlement to a fixed annual payment.