Practice liability for default of member

A recent Supreme Court decision is the final act in a piece of litigation that has been rumbling through the legal system for some years and shines a spotlight on the liability of a healthcare practice and possibly other professional practices for the defaults of members.  The facts in Ryan v Health and Disability Commissioner are rather sad and hinge on an unfortunate breach of the Code of Health and Disability Services Consumers’ Rights.

In brief, one of the GP owners of the practice saw the patient of another of the GP owners while the latter was away on leave and made a prescription mistake.  Sadly, the mistake was not corrected, despite a check by a pharmacist and the patient suffered an allergic reaction and had to be admitted to hospital.  This unhappy episode resulted in a complaint to the Health and Disability Commissioner, which found that both the GP and the practice were liable for the breach of the Code.

In the case of the practice, liability was sheeted home under the Health and Disability Commissioner Act 1994 which provides for liability of an ‘employing authority’ for the acts and omissions of its employees, agents and members – typically where the employee, agent or member has been found liable.  However, the employing authority’s exposure to liability is subject to defences, where:

• Employee default:  The employing authority took reasonably practicable steps to prevent the employee from committing the act or omission.
• Agents / member default:  The act or omission occurred without the employing authority’s authority (express or implied authority).

The Supreme Court found that the practice was a partnership between the GP members and that the prescribing GP member who committed the breach of the Code was acting as an agent of the practice.  The prescribing GP member was not acting as an employee of the practice.  If had had, the practice would have had a defence – on the basis that it took reasonably practical steps (in the form of the systems and policies that it had in place) to prevent the act or omission.

The Court held that to act as an agent of an employing authority, a person must carry out, on behalf of the employing authority, the work that satisfies an obligation of the employing authority to provide the relevant service.  Additionally or alternatively, where the person said to be an agent is a partner of the employing authority, that person will be acting as an agent if he or she satisfies section 8 of the Partnership Act 1908 (now sections 17 and 18 of the Partnership Law Act 2019):

• that an agent is a partner of the partnership for the purpose of the business of the partnership; and
• that the acts of every partner in carrying on the usual business of the firm bind the firm.

The focus of the majority decision in the Supreme Court was the issue of whether the defence (for the practice) under the Health and Disability Commissioner Act was engaged – and that the act or omission could be said to have occurred without the employing authority’s express or implied authority.  Ultimately, the majority decision was that a broad brush approach was required – when considering acts or omissions of an agent or member occur are within the scope of their express or implied authority.  It found that the GP who undertook the consultation with the patient was carrying on the usual business of the partnership – and acting as an agent of the practice when they breached the Code.

A narrower interpretation was favoured by the minority – that the employing authority would only be liable only if it authorises the particular act or omission in question.

In this case, the GP practice:

• was not a company – but marketed itself as a single practice (and the GPs operated under the name of the practice);
• did not have a formal Partnership Agreement between the GP members (or any other contract between them – governing their relationship in respect of the practice);
• operated a centralised system for bookings and patient files;
• rented the premises, employed staff and owned the equipment and systems used in the practice;
• operated systems (and policies and procedures) that applied to all staff as well as the GP members;
• operated separate patient registers and bank accounts for each GP – and each GP received fees directly from their patients (and they billed each other if they saw a patient registered to the other GP).

The submissions against such a broad brush approach were that it conflicted with the medical profession’s view of the liability of such practices, and was impractical – because it did not reflect the inability of practitioners to monitor each other in day-to-day practice.  There were also submissions to the affect that a broad brush approach would have a chilling effect on collective practice by medical practitioners.

However, I observe that the alternative (narrower) interpretation favoured by the minority, of requiring the employing authority to authorise the particular act or omission that caused the breach, would likely render the liability provisions in the Health and Disability Act ineffective.  This is despite the fact that it could produce anomalous outcomes, with a practice arguably having greater exposure to liability for the actions of agents than for the actions of employees.

Takeaways

Whilst the Supreme Court decision does note that it is based on the facts of the specific case, and that the same decision may not have been reached had the GPs practiced independently from the same premises – there are learnings here that are likely to be wider than just the medical profession. 

Without undertaking a benchmarking exercise of other forms of occupational licensing against the Health and Disability Act, it is difficult to see a court warming to an argument that, just because the members of a professional practice have organised their affairs so that they are merely employees (and not partners or working shareholders, etc.), the practice should not be liable for their acts or defaults.  The reception may be especially frosty where the health and safety or possibly even the savings of members of the public are at risk.

As a result, as well as paying close attention to the terms on which they undertake their professional duties, the members of a professional practice should take care with the arrangements between themselves that tackle the issue of responsibility for acts and omissions.  In particular, some care should be taken to ensure that there is the legal equivalent of an ambulance placed at longstop – in the form of an indemnity from each practice member for all liabilities which may be sustained by the practice and its members as a result of the acts or omissions of any member – except for matters occurring with the express authority of the practice or otherwise agreed by the practice members.

For more information, please do not hesitate to contact me.