Cobden v Cobden: the Court of Appeal revisits exceptional circumstances and “proprietary estoppel-ish” equity on dissolution of a farming partnership

Friction on the Farm

Christmas-time: not all mistletoe and wine but also a time of year in which prolonged proximity to loved ones can ferment the odd family tension. The pre-Christmas publication of the Court of Appeal’s judgment in Cobden v Cobden was therefore a timely reminder that peace on earth (especially on the family farm) can be best assured via a solidly drafted partnership agreement. Sadly for Witcombe Farm in Somerset, the Cobden brothers had no such agreement and farmed under a partnership at will. When relations broke down between the brothers and Matthew Cobden served notice of dissolution on Daniel Cobden, a long court battle over the future of the dairy farm ensued.

What happened in Cobden v Cobden

Matthew and Daniel originally acquired the farm from their parents, alongside their brother Willy, whom they later bought out. Daniel had purportedly told Matthew around that time that he expected Matthew also to buy him out one day.  Matthew had, for a considerable amount of time, seemed the more invested of the two brothers, driving a major expansion and construction of a new dairy unit between 2013-2015 that took the farm from milking around 300 cows to 1000. Matthew was similarly keen to expand their acreage but, in 2022, Daniel thwarted an attempt to purchase a neighbouring farm.  In the event, that neighbouring farm was purchased by Daniel’s wife, members of her family and an associate of her brother’s.  The dairy herd itself was not a partnership asset, but was owned by a family company in which both Matthew and Daniel had minority interests, which leased the herd back to the partnership.

Unhappy with the state of affairs and having secured sufficient bank funding, in April 2022, Matthew offered to buy out Daniel’s share in the partnership (and other related assets, including his stake in the family company). However, Daniel never responded.  In fact, from that point onwards, communication between the brothers ceased.

The “default” position

Matthew eventually served notice of dissolution in August 2022 and initiated proceedings.

The usual course is for the partnership assets to be sold on the open market, often at auction. Matthew, however, sought a “Syers order”.  This means  an order (along the lines of the order given in Syers v Syers (1876) 1 App Cas 174) which permits the partner who wishes to continue the business to acquire the share of the other partner at fair value. An expert independent valuation had been prepared, and Matthew was willing to pay the higher end of the range provided.

Syers Orders

Sales for value have long been seen as problematic, not least because they are based on valuations whose accuracy may be difficult to test. Markets on the other hand (aided by the age-old principle of supply and demand) tend to regularise their prices themselves – and a price obtained at auction “tests” what buyers are willing to pay. For that reason, Syers orders have typically only been made in the four exceptional circumstances summarised in Bahia v Sidhu, being broadly circumstances where:

• a partner has a small stake in the partnership;
• an open market sale would not maximise the value of the assets because they are worth little if sold separately from the goodwill (and it is disproportionate to sell both together);
• the partnership agreement provides for a buy-out on termination; or
• it is established that one partner will use the auction process to inflate the price to the detriment of the partner who wants to buy the asset. 

In this case, however, the High Court and Court of Appeal both emphasised that the categories given in Bahia were not exhaustive. The purpose of the Syers order is “to achieve justice between the partners on the facts of the particular case”.  This is crucial as it means that equitable considerations may equally provide the justification for making a Syers order.

Proprietary estoppel…ish

It was to proprietary estoppel – of sorts – that Matthew’s counsel turned in Cobden.

As Lewison LJ puts it, “the animating principle of all kinds of estoppel is the prevention of the unconscionable repudiation of promises or assurances”. As regards proprietary estoppel, Thorner v Major identifies three key elements:

• Representation/assurance to claimant;
• Reliance on it by the claimant; and
• Detriment to claimant in consequence of reasonable reliance, 

with the three elements coming together such that it is unconscionable for the promisor to subsequently resile from their assurance.

However, proprietary estoppel is more traditionally invoked with a view to seeking a transfer of ownership in property: for example the Court of Appeal decision in Winter v Winter in which an interest in a strawberry farming business was transferred to two brothers who had worked the farm for their father on the understanding they would one day inherit it (but did not). Cobden v Cobden is a more nuanced scenario, compelling transfer in exchange for payment.  While proprietary estoppel claims asserting that a conditional transfer has been promised are not unprecedented, they are more unusual.

The Court of Appeal observed that the High Court could usefully have set out more fully how they considered each of the Thorner v Major criteria to have been met. They also mentioned that no challenge had been made to the High Court’s reasoning (and that they would only interfere in findings of fact in very limited circumstances where those facts are shown to be rationally insupportable). It is therefore possible that, had there been such a challenge, the present case would have been decided differently.

On the facts as determined here: 

• Matthew and Daniel shared an understanding that Matthew would carry on the business alone when the partnership came to an end as he would be permitted to buy Daniel out at a fair price;
• Relying on this understanding, Matthew devoted himself to the partnership’s business and its development;
• Even allowing for the fact that the 50:50 partnership meant that both partners benefitted equally (so Matthew would receive benefit from his work) and that any capital contributions made would have been reflected in respective capital accounts, it was found to have been open to the High Court to take account of each partner’s individual efforts in developing the business;
• This meant it was open to the Court to decide (as it did) that Matthew’s individual efforts in developing the partnership sufficed to establish detrimental reliance;
• The understanding and Matthew’s reliance on it gave rise to an “equity” to Matthew’s benefit which could operate to prevent the liquidation of the partnership’s assets if the Court concluded that, in all the circumstances, an order for sale would be unfair and unjust;
• This, combined with the uncertainty an open market sale would cause for the farm’s employees (which it was found was likely to result in the business ceasing long before it was sold due to worker departures) and the high tax costs of an open market sale (estimated to be in excess of £840,000) were among the factors which led the Court to conclude that, in all the circumstances, a Syers order was justified on “proprietary estoppel-ish” grounds.

Implications for partnership disputes

Cobden v Cobden therefore brings a glimmer of new year hope for those in partnership with nothing in writing but who have long held, and acted upon, an understanding that they would take the reins of the family business. The decision confirms that a Syers order may be available to prevent the injustice of an open market sale, particularly where there is evidence that the understanding has shaped the development and financing of the business.

Nonetheless, and whilst we may all have a vision now and then of a world where every partner is a friend, if you make just one resolution for your partnership this year, we urge you to ensure you document your partnership arrangements properly.  As well as causing issues in a scenario like Cobden there are a number of unintended consequences that can follow when a partnership remains unwritten on the death of a partner, as we addressed in a previous edition of Field Notes here.

How can we help?

Our team of dispute resolution lawyers can help you review your existing arrangements and suggest measures to mitigate the risk of future disputes as well as help you resolve any disputes that may have arisen.

Please do give us a call if you’d like to discuss how we can assist.

In the meantime, we wish all our readers a very happy (and productive) new year!