Morton v Morton
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lady Justice King,Lord Justice Nugee |
| Judgment Date | 20 June 2023 |
| Neutral Citation | [2023] EWCA Civ 700 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-002010 |
[2023] EWCA Civ 700
Lord Justice Lewison
Lady Justice King
and
Lord Justice Nugee
Case No: CA-2022-002010
CA-2022-002026
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BUSINESS AND PROPERTY COURT IN MANCHESTER
BUSINESS LIST (ChD)
HIS HONOUR JUDGE HALLIWELL (sitting as a judge of the High Court)
[2022] EWHC 2689 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Thomas Dumont KC and Jonathan Edwards (instructed by Quinn Barrow Solicitors) for the Appellants
Giles Maynard-Connor KC and Alfred Weiss (instructed by Aaron & Partners LLP) for the Respondent
Hearing dates: 13/06/2023
Approved Judgment
This judgment was handed down remotely at 11.00am on 20/06/2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
Under section 42 (1) of the Partnership Act 1890, where a partner has ceased to be a partner, but the remaining partners carry on the firm's business, without any final settlement of accounts, then, in the absence of any contrary agreement, the outgoing partner is entitled to a share of the profits or to interest. But section 42 (1) may be excluded where section 42 (2) applies. That sub-section applies where, by the partnership contract the surviving or continuing partners have an option to purchase the interest of the outgoing partner and duly exercise that option. The issue raised by this appeal is the scope of section 42; and in particular, whether on the particular facts of this case the estate of a deceased partner is entitled to interest on any amount payable pursuant to the exercise of an option created in order to satisfy an equity arising under the principles of proprietary estoppel.
The background facts
The dispute is an unfortunate family dispute about a farming partnership. The protagonists are all members of the Morton family, and for ease of reference (and without meaning any discourtesy) it is convenient to refer to them by their given names, as the judge did below. The appellants, Simon and Alison, are husband and wife. The respondent, Julie, is Simon's younger sister and the executrix of their late mother, Jennifer. Their father was Geoffrey.
In the late 1950s Geoffrey bought Reddish Hall Farm in Cheshire. The farmhouse was the family home. In about 1975 Geoffrey and Jennifer farmed the land in partnership. Simon joined them as a partner in 1985. Julie did not, and never went into farming. Geoffrey died in 2001. Alison joined the partnership in 2012, and the three partners entered into a deed of partnership.
By the time of the deed of partnership the partners had acquired additional land and were proposing to acquire yet more. These various properties were defined in the deed as the “Partnership Freeholds”. The deed went on to set out the terms on which the partnership business would be conducted. Clause 2 provided that any of those terms could be varied “by the unanimous written agreement of the parties”. Clause 3 provided that the business would be carried on at the Partnership Freeholds. Those freeholds were declared to be assets of the partnership by clause 15; and were credited to the respective partnership shares in the proportions in which the partners owned them.
Clause 16 of the deed defined various determining events, which included the giving of three months' written notice. If a determining event occurred, the partnership was dissolved as regards the partner in question who was deemed to have retired. Clause 17 provided for the remaining partners to:
“… have the option exercisable by written notice given within six months of the Determining Event to purchase by the end of such six months the interest of an Outgoing Partner in the profits capital and assets of the Partnership immediately prior to the Determining Event the purchase price being the value of such interest under Clause 19 below.”
Clause 18 gave the option holders the right, when exercising the option, to indicate whether they wished to pay the purchase price by instalments. It went on to provide that:
“If such indication is given at the time the option holder shall be entitled to pay for the interest of the Outgoing Partner by five equal instalments … with interest on the outstanding balance from time to time … at the base lending rate … of Barclays Bank Plc.”
Clause 19 provided that:
“The price payable under Clauses 17 and 18 above shall be the amount standing to the credit of the Outgoing Partner on the date of the Determining Event after there shall have been a revaluation at that date of the Partnership's then assets.”
Clause 23 provided that if the option in clause 17 had not been duly exercised, the partnership would be dissolved; and the partnership assets sold by public auction. Clause 26 provided for any valuation to be made, in default of agreement, by a surveyor appointed by the President of the RICS on the application of any of the partners.
In February 2015 Jennifer dissolved the partnership by notice expiring on 8 May 2015. On the expiry of that notice, she was deemed to have retired from the partnership. On 26 October 2015 Simon and Alison gave notice to Jennifer exercising their option under clause 17 of the deed. They did not opt to pay by instalments. But any contract constituted by the exercise of the option, which ought to have been completed by 8 November 2015, was not completed. One reason was that Simon and Alison became aware that they would be unable to raise the funds to buy Jennifer's share on the terms as stipulated by the partnership deed as drawn. But, in addition, no revaluation of the partnership assets had taken place, which would have been required before the purchase price could have been ascertained. Neither Jennifer on the one hand nor Simon and Alison on the other had taken any steps towards procuring a revaluation.
In September 2016 Jennifer died, and Julie became the executrix of her estate. There was a dispute about what was payable under the option, and Simon also put forward a claim in proprietary estoppel. Julie began proceedings in 2020, seeking to realise Jennifer's share in the partnership. She also claimed an order for specific performance of the contract constituted by the exercise of the option. But there had still been no revaluation of the partnership assets. Simon and Alison put forward a wide-ranging counterclaim. Among their claims was one based on proprietary estoppel claiming that in order to satisfy an equity that had arisen as a result of assurances made by Geoffrey, the entirety of the land farmed under the 2012 partnership should be transferred to them.
The first trial
HHJ Halliwell, sitting as a judge of the Business and Property Courts, conducted an 8 day trial in June 2021. His careful and meticulous judgment is at [2022] EWHC 163 (Ch). Many of Simon and Alison's counterclaims failed, but the claim based on proprietary estoppel succeeded in part. The judge discussed the scope of relief to give effect to an equity raised by proprietary estoppel. At [183] he said:
“In my judgment, it is sufficiently wide to include an order varying the rights of a [promisor] and [promisee] under a partnership agreement or, more specifically, their share of the partnership assets and capital and setting aside or varying an executory agreement for the disposition of an interest in land so as to satisfy the [promisee's] equity in a way that is consistent with the [promisor's] assurances. I am not satisfied that, by entering into the 2012 Partnership Deed or serving the Option Notice, Simon has somehow given up his right to rely on the relevant assurances or, more specifically, his rights to relief under the doctrine of proprietary estoppel.”
The judge then considered the facts in detail and found that Simon had established an equity, largely on the basis of assurances given by Geoffrey on which Simon had relied to his detriment. The relevant assurances, which the judge summarised at [198] and [199], were that Simon would inherit the farming business, but that Simon and Julie would ultimately become equally entitled to the farmland. Simon had relied on those assurances by working on the farms for decades, as the judge explained at [201]. Alison had also relied on them by giving up her career in banking to administer the farms. He went on to find at [202] that, given the length of the period over which Simon had acted to his detriment and its bearing on every aspect of his life, it was unconscionable for Jennifer to have gone back on those assurances by making a will in the terms that Julie had persuaded her to make without alerting Simon or Alison. Simon and Alison had therefore raised an equity binding on Julie as executrix of Jennifer's estate. The judge then considered how that equity should be satisfied. At [204] he said:
“… the decision of Simon and Alison to serve the Option Notice was made in a state of panic as the deadline for service approached without properly appreciating the potential consequences. They did so in the hope they could thus ensure survival of their farming business consistently with Geoffrey's assurances. However, they now appreciate that they do not have sufficient funds to complete the purchase of Jennifer's share of the assets of the Fourth Partnership under the Option if calculated in the way the 2012 Partnership Deed requires. If the Option Notice and the Final Will dictate Simon's rights of succession to the farms, they have no realistic prospect of saving the business. The farms will thus have to be sold and the family connection with the farms will be lost. Whilst contrary to Geoffrey's assurances and the expectations on which Simon and his...
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