Lord Phillips MR and Peter Gibson and Latham LJJ
Dissolution of medical partnership – Surgery building jointly owned by former partners – Building not partnership property for purposes of Partnership Act 1890 – Claimant applying under Trusts of Land and Appointment of Trustees Act 1996 for order for sale – Judge refusing order – Judge directing that parties should practise individually in different parts of the building – Whether circumstances such that sale would necessarily contravene statutory prohibition against dealing in goodwill of medical practices – Whether judge’s direction authorised by sections 13 to 15 of 1996 Act – Judge’s order upheld
In 1994 the claimant (AR), a doctor then aged 60, formed a medical partnership, terminable at will, with the defendant (PL), then aged about 50. PL was attracted by AR’s plan to buy an old clinic with a view to demolishing it and constructing a new, purpose-built surgery. Using mortgage funds obtained from the General Practice Finance Corporation, the parties acquired the property in their joint names and carried out the desired works. In March 1997 they began to practise from the new surgery.
Disputes having arisen, PL terminated the partnership by notice as from 1 July 1998. In October of that year, AR brought proceedings, seeking, inter alia, an order that the surgery be sold. On a preliminary issue taken before the High Court, it was held that no (mandatory) obligation to sell had arisen under the dissolution provisions of the Partnership Act 1890, as the surgery was not ‘partnership property’ within the meaning of that Act. AR thereafter based her application exclusively upon the discretionary provisions contained in sections 13 to 15 of the Trusts of Land and Appointment of Trustees Act 1996.
Dissolution of medical partnership – Surgery building jointly owned by former partners – Building not partnership property for purposes of Partnership Act 1890 – Claimant applying under Trusts of Land and Appointment of Trustees Act 1996 for order for sale – Judge refusing order – Judge directing that parties should practise individually in different parts of the building – Whether circumstances such that sale would necessarily contravene statutory prohibition against dealing in goodwill of medical practices – Whether judge’s direction authorised by sections 13 to 15 of 1996 Act – Judge’s order upheld In 1994 the claimant (AR), a doctor then aged 60, formed a medical partnership, terminable at will, with the defendant (PL), then aged about 50. PL was attracted by AR’s plan to buy an old clinic with a view to demolishing it and constructing a new, purpose-built surgery. Using mortgage funds obtained from the General Practice Finance Corporation, the parties acquired the property in their joint names and carried out the desired works. In March 1997 they began to practise from the new surgery.
Disputes having arisen, PL terminated the partnership by notice as from 1 July 1998. In October of that year, AR brought proceedings, seeking, inter alia, an order that the surgery be sold. On a preliminary issue taken before the High Court, it was held that no (mandatory) obligation to sell had arisen under the dissolution provisions of the Partnership Act 1890, as the surgery was not ‘partnership property’ within the meaning of that Act. AR thereafter based her application exclusively upon the discretionary provisions contained in sections 13 to 15 of the Trusts of Land and Appointment of Trustees Act 1996.
Her revised application was rejected by a different High Court judge, primarily on the ground that, given the bricks-and-mortar value of the surgery, the parties would be unable to sell at a price sufficient to repay the mortgage debt without committing an offence under section 54 of the National Health Service Act 1977 (as amended), which prohibits the buying and selling of the goodwill of a medical practice.
Instead of directing a sale, the judge made an order under section 13 of the 1996 Act (exclusion and restriction of right to occupy)*, directing (without ordering partition) that each party should have the use, to the exclusion of the other, of a specified part of the building for his or her individual practice. AR appealed.
Held: The appeal was dismissed.
1. The judge had correctly applied the provisions of the 1977 Act, given that the conditions of the mortgage all but dictated a sale to one of the partners at a price equal to the outstanding mortgage debt. The fact that the sale proceeds would pass immediately to the mortgagee did not mean, as argued by AR, that the consideration would be no more than nominal. That argument derived no support from certain observations of Lord Oliver in Abbey National Building Society v Cann [1991] 1 AC 56 at p93, which were directed to very different facts.
2. AR could not contend that the judge had failed to have regard, as required by section 15(1) of the 1996 Act, to the intentions of the persons who created the trust and ‘the purposes for which the property is held’. The use of the present tense indicated that the relevant purposes were those subsisting at the date of the hearing, at which time the partnership was at an end, as was the vision of creating a one-stop health centre.
3. The property was a single building that lent itself to physical partition. There was nothing in section 13 to prevent the trustees from excluding or restricting one beneficiary’s entitlement to occupy one part, while dealing similarly with the other beneficiary. Properly construed, the section provided a useful power in appropriate circumstances to be even-handed between beneficiaries.
*Editor’s note: Order in fact made under section 14, but framed in terms of the power given to trustees by section 13.
Simon Berry QC (instructed by Cripps Harries Hall, of Tunbridge Wells) appeared for the claimant; Robert Pearce (instructed by Warners, of Sevenoaks) appeared for the defendant.
Alan Cooklin, barrister
