Proprietary estoppel – Partnership – Option – Appellants exercising option to purchase interest of retired partner in farming partnership – Court holding appellants establishing proprietary estoppel and varying option – Respondent held entitled to interest on price payable under extended option – Appellants appealing – Whether section 42(2) of Partnership Act 1890 precluding award of interest – Whether judge wrong to draw distinction between judicial act and agreement – Appeal allowed
The appellants were in a farming partnership with their late mother at Reddish Hall Farm, in Cheshire. The respondent was the first appellant’s sister and the executrix of their late mother’s estate (J). Their late father (G) had acquired various farming assets, most of which were held by J in her sole name (as the surviving joint owner) upon G’s death. J later left those assets in her will for the benefit of the respondent.
In February 2015, J dissolved the partnership by notice expiring on 8 May when she was deemed to have retired from the partnership. The appellants gave notice to J purporting to exercise their option under clause 17 of the partnership deed to purchase her interest in the partnership.
In September 2016 J died. The respondent (as J’s executrix) began proceedings, seeking to realise J’s share in the partnership. She also claimed an order for specific performance of the contract constituted by the exercise of the option. The appellants brought a counterclaim based on proprietary estoppel arguing that an equity had arisen following assurances made by G, so that the entire partnership land should be transferred to them.
The High Court held that the appellants had established proprietary estoppel and varied the terms of the option to give effect to the first appellant’s equity: [2022] EWHC 163 (Ch).
At a second hearing, the court held that the respondent was entitled to interest on the purchase price payable under the extended option under section 42 of the Partnership Act 1890: [2022] EWHC 2689 (Ch). The appellants appealed.
Held: The appeal was allowed.
(1) Under section 42(1) of the 1890 Act, where a partner had ceased to be a partner, but the remaining partners carried on the firm’s business without any final settlement of accounts, in the absence of any contrary agreement, the outgoing partner was entitled to a share of the profits or interest. Section 42(1) might be excluded by section 42(2) which applied where, by the partnership contract, the surviving or continuing partners had an option to purchase the interest of the outgoing partner and duly exercised that option.
The issue was whether, on the particular facts, the estate of a deceased partner was entitled to interest on any amount payable pursuant to the exercise of an option created to satisfy an equity arising under the principles of proprietary estoppel.
(2) The word “proprietary” reflected the fact that the remedy was all about promises to confer interests in property, usually land. The word “estoppel” encapsulated the notion that the equitable wrong which had been threatened or done was the repudiation of the promise where it would be unconscionable for the promisor to do. So, the equitable remedy was to restrain or stop the promisor from reneging on the promise.
The true purpose of proprietary estoppel was dealing with the unconscionability constituted by the promisor repudiating his promise. The question was whether, in individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he had allowed or encouraged another to assume to his detriment.
The normal and natural remedy was to hold the promisor to his promise because that was the simplest way to prevent the unconscionability inherent in repudiating it, but it was always discretionary, and liable to be tempered by circumstances which might make strict enforcement of the promise unjust, either between the parties or because of its effect on third parties. So, the animating principle of all kinds of estoppel was the prevention of the unconscionable repudiation of promises or assurances: Guest v Guest [2022] UKSC 27; [2022] PLSCS 169; [2022] 3 WLR 911 applied.
(3) In determining how to best to protect the promisee against such conduct, the court had to take into account a variety of different factors, but the usual assumption would be that the expectations of the promisee would be satisfied. There was no principled reason why, on the facts of a particular case, a judge-made remedy should not have the same effect.
In the present case, on the judge’s findings, the first appellant had been the victim of unconscionable conduct by J (and the respondent) in repudiating the assurances made to him. They should not be any better off by reason of their unconscionable conduct than they would have been had they abided by G’s assurances. The judge was wrong, on the particular facts, to draw the rigid distinction that he did between the judicial function and the contract. In the exercise of his judicial function, he made an order which required the parties to read the partnership deed in a particular way.
(4) There was a single option under section 42(1). An option was a choice between two or more possibilities. If there was no choice, there could be no option. The concluding part of section 42(2) provided that, if any partner assuming to act in exercise of the option did not in all material respects comply with the terms thereof, he was liable to account under section 42(1). The logical corollary was that if he did comply in all material respects, then he was not liable to account under section 42(1): Sandhu v Gill [2005] EWCA Civ 1297; [2006] Ch 456 considered.
Section 42(2) provided that, where the continuing partners exercised an option to buy out an outgoing partner, the outgoing partner could not rely on section 42(1) unless the continuing partners failed to comply with the terms of the option.
The phrase “further or other share of profits” in section 42(2) was imprecise. The most likely meaning was that if the option provided for the outgoing partner to receive something under the terms of the option, then that partner was not entitled to anything more.
In addition, the judge’s order requiring the option price to be paid in two (rather than five) instalments and without providing for interest was itself to be treated as an agreement to the contrary. Therefore, the respondent was not entitled to interest under section 42.
Thomas Dumont KC and Jonathan Edwards (instructed by Quinn Barrow Solicitors, of Liverpool) appeared for the appellants; Giles Maynard-Connor KC and Alfred Weiss (instructed by Aaron & Partners LLP, of Chester) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Morton and another v Morton (as executrix of Morton deceased)
