Court of Appeal Decision in Proctor v Proctor: A Crucial Case for Farming Partnerships

In the recent case of Proctor v Proctor [2024] EWCA Civ 324, the Court of Appeal addressed a significant issue in family farming partnerships: what happens to a retiring Partner’s interest in the partnership assets when no express provision or agreement exists.

The Court had to consider whether a partner who retires without a formal agreement on financial terms retains any entitlement to their share of the partnership assets. Lord Justice Nugee encapsulated the dilemma in his judgement, stating:

A Partner resigns from a partnership, the other Partners continuing in partnership, they in effect agree to her leaving. Nothing, however, is said—let alone agreed—about the financial terms on which she does so. Is she, in those circumstances, entitled to be paid the value of her share of the partnership assets? Or is the position that, since nothing has been agreed beyond the fact that she has ceased to be a Partner, she has no claim against the continuing partners?

Background of the Case

Suzanne Proctor was a Partner in her family’s farming and property business until her resignation in 2010. Although there was a partnership deed in place, it did not contain any provision for unilateral retirement. Her decision to leave the partnership was accepted by her remaining partners, but at the time, no discussions took place regarding her share of the partnership or its financial implications.

Following the deaths of her parents, who were also Partners in the business, Suzanne brought a claim against her brothers. Her claim related to her entitlement to the partnership, trusts, and the family estate as of the date of her resignation.

The High Court Decision

The High Court ruled in Suzanne’s favour, holding that her resignation had triggered a technical dissolution of the partnership. The judge found that she was entitled to 25% of the partnership assets. Her brothers appealed this decision, arguing that the partnership had not been dissolved, and that Suzanne had no claim, as there had been no express or implied agreement entitling her to a share of the assets.

The Court of Appeal’s Ruling

The Court of Appeal unanimously upheld the High Court’s ruling. Lord Justice Nugee clarified that when Suzanne resigned, she gave up the right to a general dissolution of the partnership under the Partnership Act 1890, but she had not forfeited her right to her share of the partnership’s assets. This distinction was crucial in determining her entitlement to the 25% share.

Key Takeaways from the Decision

This ruling underscores the importance of having a comprehensive written partnership agreement in place, particularly for family farming partnerships, which are often established for tax reasons and involve close relatives. Without clear provisions for retirement, death, or other changes in the partnership, disputes like this one can arise, leaving partners at the mercy of the default rules in the Partnership Act 1890.

When establishing a farm partnership, it is essential to agree on what will happen if a Partner retires or passes away. Importantly, Partners should also consider how to reconcile potentially conflicting interests between those wishing to continue the partnership and those seeking to retire.

The Role of Mediation in Farming Partnership Disputes

Many modern partnership agreements include clauses requiring mediation in the event of a dispute, which can help avoid the costly and lengthy process of litigation. Lord Justice Peter Jackson, in his closing comments, emphasised the benefits of mediation as a way to resolve disputes amicably.

Agreeing on the terms of a new partnership is usually far simpler than renegotiating an existing one, particularly when the partnership has been in place for many years, possibly under an informal, “at-will” arrangement, and has accumulated unaddressed tensions between partners.

How Can Butcher & Barlow Help

At Butcher & Barlow, we have extensive experience in dealing with farming partnerships, from their formation to dispute resolution. Our Commercial Team can assist with setting up a robust partnership agreement tailored to your specific needs, while our Dispute Resolution Team can guide you through any disputes that may arise.

If you are dealing with a farming partnership issue, whether at the formation stage or facing a dispute, we offer an initial free consultation. Contact Mike Bracegirdle, who is happy to discuss your situation and help you find the best path forward.