A recent case in which the Court of Appeal confirmed that a farmer was entitled to buy out his brother's interest in a family farming partnership illustrates the wisdom of having a partnership agreement in place which specifically details the rights and responsibilities of outgoing partners.
The farming partnership had passed from the farmer's parents to their three sons in 1998. In 2005 or 2006, at around the same time that the farmer and his brother bought out their other brother, the brother had said that the farmer would also have to buy him out one day. In 2021 the brother informed the farmer that he did not want to buy a nearby farm, and another discussion took place about the farmer buying his brother out. Relations between the brothers broke down, to the extent that the partnership could not continue. The farmer brought proceedings seeking a declaration that the partnership had been dissolved, or alternatively an order for dissolution, and a declaration that his brother was required to sell his interest in the partnership to him at a fair value.
The High Court concluded that the farmer was entitled to a Syers order (named after the case of Syers v Syers) allowing him to buy out his brother's interest. The Court found that, through almost the entire life of the partnership, the expectation was that the farmer would at some point become the sole successor to the farm on the implicit understanding that he would pay his brother a fair price to become so. An equity similar to proprietary estoppel had therefore arisen.
The brother appealed to the Court of Appeal, contending that the High Court ought to have ordered that the partnership's assets be sold on the open market. He argued that the case did not fall within any of the categories of exceptional circumstances identified in Bahia v Sidhu which would allow a Syers order to be made. He also claimed that an equity akin to proprietary estoppel was not established on the facts, and that the Court had been wrong to make a Syers order on the basis of the expert valuation evidence.
The Court of Appeal agreed with the High Court that an equity akin to proprietary estoppel was capable of justifying a Syers order. Noting that success in a proprietary estoppel claim can result in the claimant acquiring title to property, the Court of Appeal could not see why establishing the elements of proprietary estoppel could not have the lesser effect of determining how property in which the claimant has an interest should be disposed of. The Court also agreed with the High Court that Bahia v Sidhu does not preclude that conclusion, and that an equity akin to proprietary estoppel was capable of making an open market sale unfair.
In the Court of Appeal's view, the High Court could be seen to have found that there was a shared understanding stemming from the conversation in 2005 or 2006, and enduring through to April 2022, that the farmer would be able to buy his brother out at a fair price when the partnership came to an end. The farmer had relied on that understanding to his detriment. Those conclusions had a sufficient basis in the evidence, and the Court had been entitled to find that an equity akin to proprietary estoppel had arisen and it would therefore be unfair and unjust to order a sale.
The Court had also been entitled to consider that the possibility that the farm might sell for more than anticipated should not deter it from making a Syers order. Were such a possibility an absolute bar to a Syers order, it is hard to see how such an order, which inherently involves a sale on the basis of a valuation, could ever be made. The appeal was dismissed.
