Many businesses, especially in the farming sector, are run through traditional partnerships. Partnerships are still governed by Victorian legislation and you might be forgiven for thinking that any uncertainty about the law in this area had been settled long ago.  This is the first of two posts on recent cases about farming partnerships which I hope demonstrate how this area can still throw up surprising questions.

Monica Lane and her son David Lane farmed in partnership. Monica had made a Will which left her “share and interest” in the partnership to David. They had a written partnership agreement which stated that the partnership would end if a partner became permanently incapacitated.

Monica died in 2019 and her Will made her daughter Susan the executor. David died in 2021 and his wife Karen was made personal representative of his estate.

Susan claimed that Monica had become incapacitated before she died. Therefore, the partnership had ended before Monica's death. Monica's partnership share could not pass to David under her Will because it no longer existed. Karen disputed this. The court therefore had to decide whether Monica still had a “share and interest” in the partnership when she died, which would fall within the terms of the gift in the Will.

Susan argued that section 43 of the Partnership Act 1890 had converted Monica's partnership share into a debt owed to her when the partnership ended. Susan said that was a different thing to a “share and interest” in the partnership and it did not come within the terms of the gift in the Will. 

The court decided that, after a partnership has ended, each partner still has a “share and interest" in that partnership until the partnership has been wound up (i.e. until the partnership debts have been paid and the remaining assets have been divided among the partners). The meaning of that phrase includes the s43 debt but also other important rights, such as the right to be part of the winding up process. The partnership would have ended on Monica's death even if she had not been incapacitated (David would have been the only remaining partner and a partnership by definition must have more than one partner). No one was suggesting the gift would have failed in those circumstances. The court said the Will did not draw a distinction between the two scenarios. It would be “surprising” if it had done.

Many farming families will take comfort in the certainty provided by this decision. Monica clearly intended that David should inherit the partnership. It is reassuring to see the court deal so robustly with the matter. However, it is also a reminder that disputes over farming Wills are, sadly, common. David's untimely death and Susan's poor relationship with Karen appear to have been factors in this case. Many advisors will reflect that strong relationships and good communication are as important to succession planning as well drafted legal documents.