Complete Care Services (Rossendale) Limited v Ryan John Godwin & Anor

A contractual power to expel a partner must be construed according to its terms and exercised in good faith, for the purposes of the partnership and without an ulterior motive. A clause referring to conduct which allows a client body to terminate its contract may be engaged by an entitlement to terminate, even where termination has not occurred. However, good faith may prevent reliance on that clause where there is no real risk of termination and reliance would misuse the power.

Facts existing when an expulsion notice was served may be relied upon later if they were then unknown, including in support of an existing ground. Facts known to the expelling partner but omitted from a notice which particularises the grounds cannot later be introduced. An expulsion was valid where a continuing, material and irremediable regulatory breach was established and the power was exercised consistently with the partnership’s interests.

Complete Care Services (Rossendale) Ltd was a partner with Ryan and Fallon Godwin, trading as Home Care Services, in a domiciliary crisis care partnership. The defendants served notice expelling the claimant under contractual provisions concerning material breach, regulatory registration, serious adverse effect and client-body termination rights.

The claimant challenged the expulsion, contending that the regulatory findings were insufficient, that additional grounds could not be relied upon after the notice, and that the defendants had acted in breach of their mutual duties of good faith. The defendants relied on continuing regulatory shortcomings, the risk to the partnership’s council contract, and facts discovered after the notice. The central issues were the construction and exercise of the expulsion power and the permissible use of subsequently discovered facts.

1. Registration ground. The defendants’ reliance on the contractual ground concerning cancellation or suspension of the claimant’s Care Quality Commission registration was invalid because the claimant’s appeal suspended the cancellation decision.
2. Material breach. The claimant was in continuing breach of the partnership agreement’s obligation to comply with the statutory and regulatory standards governing the care business. The breach was material and irremediable because sufficient improvement could not have been achieved within 14 days. The original inspection and inadequate rating were time-barred under the two-month notice provision, but the defendants could rely on the claimant’s failure to improve sufficiently by the end of April 2021. The court therefore upheld this ground.
3. Serious adverse effect. The defendants’ opinion that the claimant’s conduct created a real or appreciable risk that the council would terminate the partnership contract was unreasonable. This ground was not made out.
4. Client body. The clause was, in principle, engaged where the council was entitled to terminate, whether or not it had actually done so. But the mutual duty of good faith prevented reliance on it here. The council was not actively considering termination, and using the clause would have deployed the expulsion power for a purpose inconsistent with its rationale.
5. Subsequently discovered facts. Existing facts unknown when notice was served could later be relied upon, even after proceedings began, either as additional grounds or in support of grounds already stated. The mutual duty of good faith did not alter that rule. The defendants could not, however, rely on grounds known when the notice was given but omitted from a notice which particularised its grounds.
6. The valid material-breach ground was not defeated by bad faith. The claimant’s regulatory failures had caused a breakdown in trust and confidence and were properly relevant to the partnership. The claim for declaratory relief was dismissed.