Brotherly disputes have existed since the dawn of time – Cain and Abel, Noel and Liam, and recently in the High Court, Matthew and Daniel Cobden – two brothers who ran a farming partnership together in Somerset. This case considered whether the circumstances relating to the dissolution of the farming partnership were exceptional enough to grant a Syers order (i.e. an order as to whether one partner should be entitled to buy the other's share at a price based on valuation evidence) and depart from the usual course of a full winding up of the partnership and selling the assets on the open market.
The facts of the case were that the two Cobden brothers had equal shares in a farming partnership which operated a state of the art dairy unit in Somerset. By 2022 the brothers’ relationship had broken down to the point where Matthew served a notice of dissolution on 25 August 2022 which had the effect of dissolving the partnership. Matthew also issued proceedings, seeking a declaration that Daniel was required to sell his interest in the partnership to Matthew (as well as some other assets outside the partnership) at a fair value. Matthew’s basis for seeking the declaration was two conversations the brothers had in 2005/2006 and 2021 in which he alleged they reached an understanding that Matthew would buy Daniel out of the partnership.
Daniel denied these conversations had taken place and sought an order that unless he could buy out Matthew, the partnership should be wound up and sold at auction.
The court held that the circumstances justified granting a Syers order with the judge citing the following exceptional grounds which were found on the evidence before the court:
- The equal partners in a partnership at will shared an understanding that Matthew would himself carry on the business when the partnership eventually came to an end, by being permitted to buy out Daniel at a fair price to be determinedat that end point, and that Matthew devoted himself to the farm’s business and its development in anticipation of that event.
- The understanding was sufficiently clear on the facts and Matthew’s subsequent reliance upon it supported the conclusion that it would be unfair and inequitable for Daniel, at the partnership's end, then to insist that both partners' shares in the partnership assets should be liquidated through their sale on the open market.
- The court found they were also entitled to consider Matthew’s individual efforts in developing the partnership business and to do so with particular focus upon a comparison with the business as it was at the partnership's inception and the relative efforts of Daniel in that regard. The court found that Matthew had grown the profitable dairy side of the business, whereas Daniel’s responsibilities (the arable and contracting side of the farm) had not seen such huge growth.
- The understanding (and Matthew’s reliance upon it) gave rise to an 'equity' in Matthew’s favour which may operate to prevent the liquidation of the partnership's assets if the court concludes that, in all the circumstances, an order for sale would be unfair and unjust.
- In deciding what was fair and just the court found they must consider other factors, such as the likely adverse impact a sale may have on third parties (including employees of the business and others whose financial interests may be damaged by a sale) or upon the business's customer base.
- The court is entitled to act upon the equity where expert valuation evidence supports the conclusion that the price payable under the Syers order is equivalent to what the other can reasonably have expected to receive for his own share. The likely costs of a sale and any potential adverse tax consequences resulting from a sale may be factored into the court's comparison of the two.
- The court may act upon the equity despite any suggestion by the second partner (Daniel in this case) that he would be willing to pay more for the first partner's (Matthew’s) share than is offered in return, as the price of himself carrying on the business, and notwithstanding the prospect that such a sale might have produced a greater financial return for him than that indicated by the valuation evidence accepted by the court.
It is an interesting case as a very particular set of circumstances must exist for the court to impose a Syers order. It is a warning to any existing farming partnerships with no written partnership agreement (or one that is silent on partners’ exit arrangements and dispute resolution). Such partnerships should carefully consider the risks of a dispute arising in the future as there could be a costly and bitter conflict to resolve any disagreement. This is particularly relevant if the partnership involves family members (as is often the case with farms) as the dispute can be devastating for the wider family as well as the business.
If you would like to discuss partnership agreements or a dispute in relation to a partnership, please contact Ed Henderson or Michael Anderson in the Commercial and Corporate team.