The recent case of Cobden v Cobden [2024] explores the jurisdiction of the court in a partnership dissolution to permit one partner to buy out the other, rather than ordering a sale of partnership assets and division of the proceeds. The judgment contains a comprehensive review of the law relating to Syers orders, including in what circumstances it might be appropriate to make such an order, and sets out how the facts in Cobden can be distinguished from those in the recent Bahia v Sidhu case, in which the Court of Appeal had set aside a Syers order. The judgment principally turns upon a finding of a proprietary estoppel or equity.
Background
The parties to the dispute were two brothers, Matthew and Daniel Cobden, who were equal partners in a thriving dairy farming partnership that they had operated together for nearly two decades. The partnership business, which had its roots in a family farming tradition dating back to when their parents had owned the farm, had grown significantly under the brothers’ stewardship. However, in August 2022, after a breakdown in the brothers’ relationship, Matthew served a notice of dissolution, and on the following day he issued court proceedings.
Syers v Syers orders
The court had to decide which of two orders it should make: a Syers order, allowing Matthew to buy out Daniel’s share, or an order for full winding up, with the assets sold on the open market.
Under a Syers order, named after the 1876 case of Syers v Syers, the court deviates from the standard procedure of selling partnership assets on the open market. Instead, it permits one partner to buy out the other’s share at a fair value.
However, as the judgment emphasises, this is considered an exceptional remedy, to be used only when the circumstances of the case justify such a departure from the norm. Furthermore, the relevant case law supports a contention that a Syers order in relation to an equal partnership is rare. Indeed, as the judge in Cobden pointed out, as at the date of his judgment there was no reported decision (that had not been overturned on appeal) of a Syers order actually being made in a case of an equal or almost equal partnership.
The competing cases
Matthew’s case for a Syers order rested heavily on a claim of proprietary estoppel or equity. He asserted that during a pivotal conversation in 2005 or 2006, shortly after their third brother Willy had left the partnership, Daniel had indicated that Matthew would eventually buy him out. This conversation, Matthew argued, had occurred at a time when the brothers were consolidating their position following Willy’s departure and planning for the future of the farm.
According to Matthew’s testimony, Daniel had expressed that he might one day need to move away, closer to where his wife’s family was based. In this context, Daniel allegedly told Matthew that he would “one day have to buy me out”. Matthew contended that this understanding had formed the basis of his commitment to and investment in the farm over the subsequent years.
Matthew’s evidence described his tireless efforts to grow and modernise the farm. He described his role in driving major initiatives such as the construction of a state-of-the-art dairy unit, securing substantial bank loans, and negotiating crucial milk supply contracts. His testimony portrayed him as the primary driving force behind the farm’s development and success.
Daniel, for his part, vehemently denied the existence of any such agreement or understanding. His position was that the partnership assets should be sold on the open market to maximise their value. Daniel argued that this approach would ensure that both partners received the full financial benefit of their years of work and investment in the farm. He challenged Matthew’s characterisation of their respective roles, asserting that he had been equally committed to the farm’s success and had played a significant role in its day-to-day operations.
Expert evidence
A crucial aspect of the court’s deliberation was the assessment of the farm’s value. Expert evidence was provided by a valuer with extensive experience in valuing agricultural properties. His valuation, which the court found to be reliable, provided a value for the farm’s land and buildings as of August 2023, with a 5% margin of tolerance. This valuation, along with assessments of livestock and equipment, formed the basis for determining a fair buyout price.
The court’s decision
The judgment gives careful consideration to the potential financial implications of both a Syers order and an open market sale. It notes that an open market sale could result in substantial tax liabilities for both brothers, which would be avoided under a Syers order. The court also considered practical aspects such as the potential disruption to the farm’s operations and the uncertainty for employees that a protracted sale process might cause, as well as the potential for a fire sale of cattle, which would have substantially disadvantaged both partners.
In evaluating Matthew’s claim of proprietary estoppel, the court had to take into consideration that the alleged agreement was not documented and had arisen nearly two decades previously. Having weighed the testimony of both brothers and the supporting witnesses, the judge found Matthew’s account to be more credible and consistent with the subsequent actions of the parties.
The judgment also explores the concept of detrimental reliance, a key element in establishing proprietary estoppel. The court considered whether Matthew’s actions in the years following the alleged conversation – his investment of time, effort, and resources into growing the farm – could be seen as reliance on the understanding that he would eventually buy out Daniel. This required careful analysis, as both brothers had benefited from the farm’s success during their partnership.
After careful consideration of all the evidence and legal principles, the court concluded that granting a Syers order in favour of Matthew was the most appropriate and just outcome. The judge found that Matthew had established an equity, based on the 2005/2006 conversation and his subsequent reliance on it. This equity, combined with the practical and financial considerations, justified departing from the usual course of ordering an open market sale.
The Syers order allows Matthew to buy out Daniel’s share based on the expert valuations. The figure includes adjustments for recent increases in land values and takes into account the 5% tolerance in the valuation. The order also includes provisions for the preparation of dissolution accounts and the mechanics of the buyout process.
Importantly, the judgment emphasises that this decision does not mean Daniel is being shortchanged. The court was satisfied, based on the expert evidence, that the valuation fairly reflected the market value of the assets. The order also includes safeguards to ensure Daniel receives full value for his share, including provisions for updated accounting and adjustments for any changes in asset values.
Lessons to be learned
The Cobden v Cobden case presents several important lessons and considerations for practitioners and partners in similar situations:
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- The importance of clear agreements: The dispute might have been avoided if the brothers had formalised their understanding in writing at the time of the conversation concerning Matthew acquiring the farm. This underscores the value of documenting important discussions and agreements, even in family businesses. Furthermore, there was no partnership agreement, so that not only was the partnership capable of being dissolved by notice, but also there was no agreed mechanism for determining how the farm assets should be dealt with and valued in the event of a partner wishing to retire or dying.
- The role of expert evidence: The court’s reliance on expert valuations highlights the importance of obtaining robust, independent assessments in partnership disputes. The credibility and thoroughness of the valuation evidence were crucial in the court’s decision-making process.
- The importance of clear analysis and presentation of the facts at an early stage, to ensure consistency throughout the case: Daniel’s evidence at trial contradicted his written evidence and pleaded case in important respects, which undermined his credibility in the eyes of the judge, which resulted in key findings of fact in favour of Matthew.
- The potential for equitable remedies: The case demonstrates that courts are willing to consider equitable principles, such as proprietary estoppel, in partnership dissolutions where appropriate. This opens up possibilities for partners who may have relied on informal understandings or promises. The decision demonstrates once again that there is a place for proprietary estoppel in the context of business.
- The breadth of factors considered: The judgment shows that courts will take an holistic view in such cases, considering not just financial valuations but also tax implications, practical business considerations, and the partners’ respective contributions and expectations over the life of the partnership.
- The exceptional nature of Syers orders: While the court ultimately granted a Syers order in this case, the judgment emphasises that this is an exceptional remedy. Partners should not assume that such orders will be readily available in all dissolution disputes.
- The importance of contemporaneous documentary evidence: The court’s assessment of the brothers’ credibility and their conduct over the years played a significant role in the outcome. This highlights the importance of retaining records and correspondence which might underpin recollections of events that may have occurred many years before. Courts make decisions based on the balance of probabilities, and place great weight on contemporaneous documents, much more so than on oral testimony based on recollections of events, recognising that people’s memories are not always reliable. In the Cobden case, third party documents produced just before trial, pursuant to an order of the court, had a significant effect on the outcome.
Conclusion
The Cobden v Cobden judgment provides a comprehensive examination of the principles governing partnership dissolutions and the application of Syers orders. It illustrates the complex balancing act courts must perform in such cases, weighing legal principles against equitable considerations and practical realities. The decision underscores the exceptional nature of Syers orders while also demonstrating their potential utility in achieving just outcomes in partnership disputes.
For business partners, particularly those in family businesses or long-term partnerships, it highlights the importance of clear communication, clear documentation of agreements, good record-keeping, and consideration of long-term plans and exit strategies.
