Procter v Procter and others

Landlord and tenant – Joint tenancy – Partnership – Retirement – Respondent and appellants running family farm in partnership under annual periodic tenancy – Respondent retiring from partnership – Court holding respondent entitled to one-quarter share in value of tenancy – Appellants appealing – Whether respondent having claim against continuing partners – Whether respondent entitled to share of value where no partnership agreement about financial terms of retirement – Appeal dismissed The respondent and the appellants were siblings who inherited an estate following the death of their parents in 2013 and 2014. The estate was a family farm in Yorkshire consisting of around 600 acres of arable land, four farmhouses, agricultural buildings and a golf course. The estate was owned and managed through a series of complex family trust and partnership structures. It was alleged that in 1994 a tenancy had been created between the freeholders (the parents and the respondent) and the partnership which farmed the land (the parents plus the three siblings). There was no written tenancy agreement. The Court of Appeal held that: there was an annual periodic tenancy protected by section 2 of the Agricultural Holdings Act 1986; the respondent and the appellants were joint tenants; and together they held the tenancy on trust for a partnership, of which the appellants were the only partners. The respondent had formerly been a partner but retired from the partnership in 2010: [2021] EWCA Civ 167; [2021] EGLR 17. The respondent claimed that she was entitled to the value of her share in the partnership assets at the date she resigned (8 July 2010), limited to a one-quarter share in the then value of the 1994 tenancy. That issue, among others, was the subject of a second trial before the judge who upheld the respondent’s claim on that point: [2022] EWHC 1202 (Ch); [2022] EGLR 26. The appellants appealed. Held: The appeal was dismissed. (1) Section 20(1) of the Partnership Act 1890 defined partnership property as: “All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, which had to be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.” A partner’s share was their proportion of the partnership assets after they had all been realised and converted into money, and all the debts and liabilities paid and discharged. When a partner retired, their proprietary interest depended primarily on what the parties had agreed. If the partnership agreement made express provision for the outgoing partner to receive a payment in respect of their partnership share (or expressly provided that it should vest in the continuing partners without payment), that was what they were entitled to: Re White decd [2001] Ch 393, Drake v Harvey [2011] EWCA Civ 838; [2012] 1 All ER (Comm) 617 and Ham v Ham [2013] EWCA Civ 1301 considered. (2) In the present case, the partnership deed made no provision for a partner to retire, and so did not contain any agreement as to what a retiring partner should receive. The respondent never agreed that she would hand over her share in the partnership assets to the other partners without payment, and never agreed the terms on which she might do so. A partner who retired without any such agreement was not to be taken as agreeing to surrender or assign their interest to the continuing partners without payment. There was a difference between an agreement that nothing should be paid and no agreement as to what, if anything, should be paid: Gray v Smith (1889) 43 Ch D 208 considered. When the respondent resigned, and the other partners agreed to accept that as a retirement from the firm, nothing was agreed about her share in the partnership assets. In essence, by saying that she resigned, all that she was saying was that she wished to cease being in partnership, not that she was agreeing to give up her proprietary interest in the assets; and by accepting her retirement, all that the other partners were agreeing to was that she should cease to be a partner. No-one at the time realised that the 1994 tenancy subsisted, let alone that it was an asset of substantial value. Now that her brothers had successfully established that the partnership had a valuable asset in the shape of the 1994 tenancy (thereby also significantly reducing the value of the freehold interests), there was no reason why she should not assert that she never agreed to give up her share of it for nothing.  (3) By retiring, and thereby accepting that the other partners would be at liberty to carry on the business, an outgoing partner necessarily gave up any right to have a general dissolution and to have the firm wound up. But there was no reason that the outgoing partner, in the absence of agreement to the contrary (either in the partnership agreement or in an ad hoc agreement at the time of retirement), should be regarded as agreeing also that their share in the assets should be reduced, or quantified at any less a figure than it would have been had there been a general dissolution.  (4) It followed that, in the present case, if the other partners wished to continue the business with the outgoing partner’s share of the assets, they should account to her for the value of her share, ie what she would have received had the business been wound up. In practice, that meant that her share was to be assessed by a valuation of the assets and liabilities at the date of retirement. The right of the outgoing partner to payment for her share of the net assets was simply a recognition of the fact that her interest was measured by her right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership; and that if the other partners had taken over and used her property without payment, they should pay her for that interest.  Accordingly, the judge was right to conclude that the respondent was entitled to a one-quarter share in the value of the 1994 tenancy, to be paid by the appellants, such value to be determined by an inquiry and not based on the book value of nil, together with 5% interest from 8 July 2010: Sobell v Boston [1975] 1 WLR 1587 considered. Edward Peters KC (instructed by Ebery Williams Solicitors) appeared for the appellants; Bruce Walker (instructed by Grays Solicitors LLP) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Procter v Procter and others