Partnership – Dissolution – Sale of partnership assets – Parties carrying on farming business in partnership – Claimant serving notice of dissolution – Claimant seeking declaration that he was entitled to buy defendant’s share of partnership assets at price based on valuation evidence – Whether partnership assets to be sold on open market – Whether liquidation of assets through sale unfair and inequitable – Declaration granted
The claimant and the defendant were partners in a farming partnership in Somerset known as Witcombe Farm Partnership. The partnership operated the business of a dairy farm until it was dissolved by the claimant’s service of a notice of dissolution in August 2022. The next day the claimant issued a claim seeking a declaration that the partnership had been dissolved and that, the defendant having decided to cease being in partnership with the claimant, it was a term of the partnership, either express or implied, or the claimant had the benefit of an equity, whereby the defendant was required to sell his interest in the partnership to the claimant at a fair value.
The claimant’s case was that he should be entitled to buy the defendant’s share at a price based on valuation evidence (a Syers order): see Syers v Syers (1876) 1 App Cas 174. The court had before it reliable expert valuation evidence which enabled it to conclude that the defendant’s financial interest in the partnership was properly reflected in the purchase price.
The claimant relied on an alleged understanding, reached with the defendant in 2005 and 2006, that one day he would buy out the defendant from the partnership, after which the claimant had, in effect, run the farm as a sole trader with the defendant’s tacit support. The defendant denied any understanding and said that the assets should be sold on the open market.
Held: The declaration was granted.
(1) The “normal” order following a dissolution of a partnership was for the sale of the partnership property. However, the court had a discretion instead to make a Syers order, in the context of it supervising the winding up of the partnership, which was only to be made in exceptional circumstances. Section 39 of the Partnership Act 1890 did not direct a sale and the court might make a different order if the justice of the case so required. Section 46 of the 1890 Act preserved the court’s ability to invoke equitable considerations to mould the relief to meet the circumstances of the particular case: Latchan v Martin (27 June 1984) 134 NLJ 745, Toker v Agul (1995 WL 1082770, unreported, 2 November 1995) and Bahia v Sidhu [2024] EWCA Civ 605; [2024] PLSCS 105 considered.
The nature of the discretion and the purpose to be served by its exercise (of achieving justice between the partners on the facts of the particular case) meant that the categories of case suitable for Syers relief could not be exhaustively identified. However, the exceptional nature of the relief did not mean that a certain jurisdictional bar had to be met or that some strange or unusual (or already judicially recognised) circumstances had to be established. Instead, the test was whether, as an exception to the normal rule, a Syers order could be justified on the basis it would serve the interests of justice on the facts of the particular case: Bahia v Sidhu considered.
(2) A Syers order might also be justified where, unlike an order for the sale of the partnership assets, it accorded with the spirit of the parties’ agreement or was consistent with their contractual intentions even if it was not justified by the rigid analysis of the contractual position between them. The court might be persuaded that the particular circumstances surrounding the dissolution meant that a full-scale winding-up through a sale would be unjust because it was contrary to their manifest intention or understanding reached, not at the beginning of the partnership, but near the end of its life: Hammond v Brearley (unreported) [1992] 12 WLUK 18 considered.
Likewise, a Syers order might be justified by reference to wider equitable considerations, akin to those which arose under the doctrine of proprietary estoppel, if it was concluded that one partner had established an “equity” that operated to qualify what would otherwise be the means of achieving the result ordained by section 39. If the court was able to look beyond the strict terms of any partnership contract or deed in its exercise of the discretion, then it was clearly justified in approaching the exercise of its discretion by reference to such equitable considerations where there was no express contract between the parties and the dissolution of their partnership was governed by section 39 which did not dictate a particular method for achieving that result.
(3) The court was entitled to consider one partner’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 the other partner in that regard. The understanding and reliance upon it gave rise to an equity in the first partner which might 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.
The court was entitled to act upon the equity where expert valuation evidence supported the conclusion that the price payable under the Syers order was equivalent to what the other could 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 might be factored into the court’s comparison of the two. The court might act upon the equity despite any suggestion by the second partner that he would be willing to pay more for the first partner’s share than was 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.
(4) In the present case, there were exceptional circumstances justifying the making of a Syers order in favour of the claimant. On the evidence, the claimant was the driving force behind the business. The conversations in 2005/2006 provided the basis for the claimant’s expectation that, at the end of the partnership between the two brothers, he would be entitled to buy out the defendant at a fair price.
Stephen Jourdan KC and Ciara Fairley (instructed by Ebery Williams, of Congresbury) appeared for the claimant; James Pearce-Smith (instructed by Stephens Scown LLP, of Exeter) appeared for the defendant.
Eileen O’Grady, barrister
