The risk of uncertain partnership arrangements

by Dentons


The risks for partnerships operating without a written partnership agreement in place are well known. A recent Court of Appeal case is a useful reminder that these risks can arise in the period after new partners join a business but before a new formal agreement is signed.

Cheema v. Jones and others

In Cheema v. Jones and others [2017] EWCA Civ 1706, the Court of Appeal considered a dispute in relation to a medical practice. Two doctors had a written partnership agreement (the Original Agreement) and invited three further doctors to join them in the practice. The new doctors started working at the practice whilst the terms of a new partnership agreement were negotiated.

Prior to signing the new agreement a dispute arose. Cheema (the Appellant), who was one of the original partners, apparently suggested (to one of the new partners) that the other original partner, Jones, should retire. Jones was informed and "berated [the Appellant] in unflattering terms". The dispute escalated. The Appellant was ultimately prevented from seeing patients and accessing medical records. He issued proceedings, based on the Original Agreement, to enable him to return to the practice.

The crux of the claim, by the time it came in front of the Court of Appeal, was which agreement governed the relationship between the five doctors.

The Original Agreement needed the Appellant to agree to dissolve it. The Appellant argued that the Original Agreement still existed and the three new partners were not admitted as new partners. The other four doctors argued that a "partnership at will" was created between the five doctors. In the absence of an express or implied agreement as to how it will come to an end, a partnership at will exists indefinitely, but can be dissolved at any time by one partner serving notice on the other partners. As a result, the four doctors argued that the new partnership was dissolved by a notice they had served, and they were therefore free to set up another partnership without the Appellant.

The Court of Appeal agreed with the four doctors. Put simply, the new doctors had started working at the practice and on the facts in this particular dispute this created a new partnership between the five partners. As the negotiations focused on a new partnership agreement between all five doctors, and there was never a reference in those negotiations to the Original Agreement as a fallback position, the court concluded it should infer that the original partners intended to abandon the Original Agreement. The fact that the new agreement was never signed did not change this. Given that the partnership existed between the five doctors without a formal written agreement, it was deemed to be a partnership at will. Therefore, contrary to what the Appellant had presumably expected before the dispute arose, it could be easily dissolved without his consent.

What this means

In situations where someone is invited to join existing partners in a business, if the new partner is unaware of the existing agreement or claims not to be bound by it (the obvious example is that those involved started negotiating new terms), then the new partner's arrival may well create a new partnership between all of the partners and cause the existing written agreement to cease to be effective.

The terms of such a new agreement will depend on the facts. It is understandable that existing partners may assume that until a new written agreement is in place the old terms will apply, but that may well not be the case. The Cheema case is a salient reminder of the importance of formalising the partnership agreement in writing as quickly as possible. Such an agreement needs to accurately reflect the key arrangements and negotiating these can take time. If this negotiation process occurs concurrently with the new partners taking part in the business then a new unwritten partnership arrangement may well arise.

As this case shows, unintended consequences can follow. Given the assets, liabilities and goodwill involved in a medical practice, the original partners understandably wanted to ensure the partnership could not be easily brought to an end. The Original Agreement required unanimity on key decisions, including dissolving the partnership, and the original partners may well have presumed (before the dispute arose) this continued until the new agreement was in place. However, the court decided that a partnership at will applied prior to the new written agreement being in place, and this significantly lowered the threshold to dissolve the partnership.

The absence of a written partnership agreement can have other uncertain consequences. These will depend on the facts of any situation. When a partnership is dissolved its assets are pooled and after paying off the partnership's debts and liabilities anything remaining is distributed between the partners. If one partner brought substantially more assets into the partnership, yet it comes to light that the other partner had incurred significant liabilities on behalf of the partnership, the first partner may receive far less than he expected on dissolution.

In conclusion, when a partnership is formed or new partners join the business, it is in the best interests of all involved to ensure (if at all possible) the formal written agreement is in place prior to those involved carrying on the business together. Otherwise, a dispute arising whilst the new terms are negotiated could well produce unforeseen and unpleasant outcomes.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:


Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.