Farming families and proprietary estoppel

Proprietary estoppel cases are becoming increasingly common in the farming sector, often with one child, rightly or wrongly, believing that they will inherit the entire farm on the death of their parents. Some children would have worked on the farm their whole lives and their siblings have not, leaving them rather shocked to discover that this is not the case. The recent High Court case of Horsford v Horsford demonstrates this.

Background of the Horsford v Horsford case

The Horsford family is made up of Marian and Davis (now separated) and their children, Helen, Elizabeth and Peter. Peter was the only child to play an active role in the family farming business and joined the farming partnership with his parents in 1987 on an equal basis. Davis retired from the partnership when he was in his 90’s and accordingly, the partnership consisted of Marian and Peter. In June 2012, a written Partnership Agreement was signed by the parties, and in December 2016, Marian served notice on Peter of her intention to retire from the partnership, taking effect from the end of June 2017.

The Horsford v Horsford case: 

Marian issued proceedings against Peter in March 2018 claiming payment for her share of the partnership, calculated at over £2.52 million. Peter defended the claim and issued a counterclaim for proprietary estoppel on the grounds that he had been promised by his parents that he would inherit the entire farm on their deaths.

So what exactly is proprietary estoppel?

Estoppels operate where one party has been induced to act on the basis of a promise made by another party, and that other party has then sought to retract that promise. Where an estoppel is established, it will typically bind the second party to their original promise.

There are several different types of estoppel; proprietary estoppel involves the acquisition of an interest, often by a promisee, in the property of another person, the promisor.

There are three requirements for a claim for proprietary estoppel:

• there must be an assurance given (the promise)
• that promise must have been relied upon by the person claiming proprietary estoppel (the reliance)
• that reliance must have been to their detriment (the detriment)

The essence of proprietary estoppel is to do what is necessary and avoid an unconscionable result. This is therefore an additional factor to be considered (the unconscionability).

The Court assessed each of these factors in turn when considering Peter’s claim for Proprietary Estoppel.

The promise:

Peter claimed that his parents had promised him the farm when they died, and alleged that he had grown up with this promise, being told from an early age that the farm would be his one day and being encouraged to work on the farm and attend agricultural college. This understanding was also said to have been communicated to, and readily understood by other members of the family.

The Judge however, found that there is a crucial distinction between promises and ‘mere statements of intention’ and concluded that he was wholly unsatisfied that any promise was made to Peter of the sort claimed.

The reliance:

Peter’s case was that his reliance on the alleged promises made by his parents involved centring his life around the farming business not spending any substantial time away from the farm, save for his time at agricultural college and a short period of time travelling Australia and attending agricultural college instead of pursuing other personal interests.

The detriment:

Any detriment suffered does not necessarily have to be financial, so long as it is substantial, and, in fact, much of the alleged detriment suffered by Peter was not financial.

Peter’s case was that he had worked every summer on the farm from a young age, carrying out increasingly onerous tasks for little more than pocket money, attending agricultural college instead of pursuing other interests, and returning from Australia on the basis of his parent’s assurances that the farm would one day be his.

Peter had always worked long hours on the farm, far in excess of those that would have been expected of him had he only been an employee and for low wages. He also took the decision to have his eye removed following a golfing accident, enabling him to return to work on the farm as quickly as possible.

Peter purchased his sister’s shares in part of the farm (Whitleather Lodge) which was gifted to all the children equally and in doing so subjected himself to a great deal of financial strain. Peter and his wife also invested substantial sums of money into the Lodge over the years.

Peter also managed the business alone from mid-2001, whilst still allowing Marian and Davis to draw a 1/3 share of the partnership profits each and to use partnership funds to meet their personal expenditure. Peter’s wife had also assumed responsibility for the partnership accounts receiving no remuneration.

The effect of the written Partnership Agreement

Perhaps the most interesting point in this case is the effect of the written Partnership Agreement, and the retirement provisions contained within it. The Partnership Agreement stated that, from the commencement date, it would be ‘deemed to have governed the affairs and operation of the partnership’ and ‘superseded any earlier agreement’.

The Partnership Agreement contained provisions to be followed on the death or retirement of any of the Partners. It was under these provisions that Marian served her notice of retirement.

Peter claimed proprietary estoppel in relation to alleged assurances made prior to the written Partnership Agreement being entered into, however the Partnership Agreement stated to supersede any earlier agreement.

The unconscionability:

The Judge then considered the claim for proprietary estoppel overall and whether there would be any unconscionability which would support Peter’s claim for proprietary estoppel.

The Judge however found that Marian was fully entitled to retire under the terms of the 2012 Partnership Agreement, an agreement which had been discussed and negotiated with Peter at that time, and drawn up by the solicitor he instructed. Peter was well aware that Marian could decide to retire and therefore, there was no basis for claiming that this was unconscionable on her part.

The Judge’s ruling:

The Judge granted Marian judgment on her claim and dismissed Peter’s counterclaim. Peter was therefore ordered to pay Marian over £2.5 million over the next 5 years in respect of her share of the farming business.

What to take away from this case:

The most important thing to take away from this case is the crucial need for farming families to have full and frank discussions with each other about the position of the farming business and the succession planning moving forward. 

Whilst these discussions can sometimes feel difficult at the time, ensuring that everybody fully understands their position can prevent litigation like in the above case which can be extremely costly in more ways than one.

If you need assistance with succession planning, please contact our specialist Agriculture and Estates team. I am based in our Colchester office and can be contacted on 01206 217394 or caroline.dowding@birkettlong.co.uk.