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“Best efforts” to introduce patients

By November 21, 2013January 20th, 2022Buying a Practice, Selling A Practice

Oftentimes, when dentists are buying/selling a dental practice, the agreement will say that the selling dentist must undertake “best efforts” to introduce the purchaser to the practice’s patients after the sale. But what exactly does this mean? And can the purchaser sue if the selling dentist’s efforts don’t live up to their expectations? Well, in the case of Amonson v. Martin Goldstein Professional Corp., [1994] AJ No 970, the Alberta Court of Queen’s Bench faced this very situation.

In that case, Dr. Leslie E. Amonson decided to retire and sell his practice. Dr. Martin Goldstein was interested in purchasing, and the parties entered into a written agreement. Part of the agreement stipulated that Dr. Amonson “shall use his best efforts to facilitate the orderly transition of the vendor’s patients to the purchaser and otherwise assure to the purchaser the benefit of the vendor’s connections, custom and goodwill and the vendor shall have used his/its best efforts up to the date of cessation of practice to preserve the goodwill of the practice which existed as at the closing date”. After the sale, Dr. Amonson stayed on for three years (although he had the option of leaving after three months) before retiring.

After Dr. Amason retired, Dr. Goldstein sued, alleging (among other things) that Dr. Amonson failed to use his best efforts to introduce patients or maintain the practice as a going concern.

The Court reviewed the jurisprudence surrounding the words “best efforts” and wrote the following starting at paragraph 24:

24 The law regarding the meaning of best efforts is summarized by Mr. Justice Dorgan of the British Columbia Supreme Court in Atmospheric Diving Systems Inc. v. International Hard Suits Inc. and Can-Dive Services Ltd. (1994) 89 BCLR) 356. After reviewing the authorities at p. 373, he summarizes the principles as follows:

    1. “Best efforts” imposes a higher obligation than a “reasonable effort”.
    2. “Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.
    3. “Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.
    4. The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract’s overall purpose as reflected in its language.
    5. While the “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.
    6. Evidence of “inevitable failure” is relevant to the issue of causation of damage but not to the issue of liability. The onus to show that the failure was inevitable regardless of whether the defendant made “best efforts” rests on the defendant.
    7. Evidence that the defendant acted diligently could have satisfied the “best efforts” test is relevant evidence that the defendant did not use their best efforts.

The “no stone unturned” test has been applied to contracts relating to a wide variety of subject matter. Further, the courts routinely imply in terms and contracts that the parties will make a reasonable attempt to fulfil their respective contractual obligations. Where the parties include a “best efforts” clause in a contract, as they did in the case at bar, they must surely intend that something more than “reasonable efforts” be used.

25 He quotes from an Ontario case, Bruce v. Waterloo Swim Club (1990) 73 OR (OR709, a decision of Mr. Justice Lane at 723. Lane, J. said the following:

    • The cases cited earlier show that “best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving “no stone unturned”. The element of good faith speaks, of course, to the actual intentions and mindset of the defendant at the relevant time. The standard of reasonableness, however, is objective, not subjective. A contract requiring “best endeavour” imports a duty to do all that can reasonably be done in the circumstances, and the standard of reasonableness is that of a reasonable and prudent board of directors acting properly in the interest of their company and applying their minds to their contractual obligations.

Based on this jurisprudence, the Court held that “Best efforts must be applied in the context of the agreement and the state of the business when the agreement was signed.”  In determining whether “best efforts” had been undertaken, the Court turned to Mr. Tyson (an expert on factors involved in the flow of patients and money from a selling dentist to a purchasing dentist). Mr. Tyson listed the following factors which could have been taken over the three year period when Dr. Amonson stayed on to help ensure that 75-90% of patients would have remained with Dr. Goldstein thereafter:

  1. Have a telephone system whereby the telephone is answered in both dentists’ names.
  2. Have the selling dentist introduce the purchasing dentist as joining the practice by way of personal introductions.
  3. Convey the treatment planning process for each patient to the purchasing dentist so that when he took over, he would understand the treatment planning process.
  4. Have both dentists’ names on the door.
  5. Consult with each other on patients as a way of introducing the purchasing dentist.
  6. Have the purchasing dentist do emergency work and all work while the selling dentist is on vacation.
  7. Have the selling dentist narrow his field of practice with the rest of the practice being transferred to the purchasing dentist.
  8. Have the staff all work essentially as one so there is potential for cross-referral.
  9. Have some of the recalls transferred to the purchasing dentist at the start of the three-year period. In the course of identifying this factor, the expert indicated that 75% to 90% of dental patients are on a six-month recall system.
  10. At the end of the three-year period, have the selling dentist mention to patients that the next recall would be with the purchasing dentist.
  11. Send out an appropriate letter of introduction. In identifying this factor, the expert acknowledged that at the relevant time there were restrictions by the Alberta Dental Association on what a dentist could do in terms of a recommendation of another dentist. There could not be a formal recommendation, but there were ways of making a recommendation without saying it expressly. The expert suggested a letter from the selling dentist when the purchasing vendor moves into the premises and a letter when the selling dentist moves out. This could be accompanied by another letter from the purchasing dentist.
  12. Place an appropriate ad in appropriate newspapers.
    The Court ignored some of these factors since they were not part of the agreement (e.g. having a common telephone answering system and a common staff complement) or would have resulted in an early turnover of patients (e.g. downsizing the seller’s practice, etc.).

But the Court did consider factors such as the state of the recall system, the manner in which Dr. Goldstein was introduced (whether personal or a statement by Dr. Amonson in his office), the condition of the charts, and the responsibility for sending out a letter of introduction.

With respect to these factors, the Court found that, while the recall system was not well organized or comprehensive, Dr. Goldstein had the opportunity to examine the practice BEFORE he bought the practice. So Dr. Goldstein knew the status of the recall system and accepted it before buying (hence, it wasn’t Dr. Amonson’s fault).

Furthermore, while Dr. Amonson may have told his patients in his office (or had his staff tell his patients) about Dr. Goldstein, his system of introducing Dr. Goldstein was not very organized. As a result, some patients were missing. The Court noted that “introduction” could not have meant “personal” introduction since Dr. Amonson could have left within three months after the sale (and that wasn’t enough time to personally meet all the patients). So the Court concluded that it meant something less than personal introductions. A letter of introduction was a reasonable thing to do and it was prepared by Dr. Amonson (albeit a short letter that was apparently meant to accompany a letter from Dr. Goldstein), but that letter was never sent out by Dr. Goldstein; hence, Dr. Amonson cannot be faulted for Dr. Goldstin’s failure to send out the letter.

With respect to the issue of the charts, Dr. Goldstein complained that many were old and had outdated addresses. But Dr. Goldstein had access to the charts before he signed the agreement. Hence, there was nothing that Dr. Amonson did during the three years that he practiced with Dr. Goldstein that diminished the practice as a going concern.

With respect to the issue of Dr. Amonson’s failing to make introductions to all patients in accordance with the agreement, the Court concluded that there was no satisfactory evidence that Dr. Goldstein suffered any loss. Some patients were missed in Dr. Amonson’s system of introducing Dr. Goldstein. But even some of those that were missed went to see Dr. Goldstein. And while Mr. Tyson outlined several factors which would negatively impact the flow of patients, all of those factors can be attributed to the different styles and work habits of the dentists and the lack of early integration of the practices. Those factors, which were not Dr. Amonson’s fault, contributed to any loss suffered.

Bottom line

Agreements of purchase and sale should be drafted by experienced dental lawyers to specify the “best efforts” standard and various activities that a selling dentist ought to undertake in order to help transition a practice from a vendor to a purchaser. This could include things from Mr. Tyson’s list. While dentists may have different personalities and behavioural approaches, if they can agree on what needs to be done, then their expectations will be better managed, and the transitions should hopefully go smoother.

DMC