This is the second in a series of two articles on recent partnership law decisions which I hope demonstrate how this area can still throw up surprising questions. 

Many businesses, especially in the farming sector, are run through traditional partnerships. Although the key legislation is nearly 135 years old, there are still new issues for the courts to consider.

Suzanne Procter, with her father and brothers, was a member of a partnership which farmed land and operated a golf course in Yorkshire, although she actually lived and worked in London. They had a written partnership agreement under which Suzanne was entitled (after the retirement of her mother in 1997) to ¼ of the income and capital profits. However, it said nothing about what would happen if a partner left the partnership.

In 2010 Suzanne wrote to the partners, stating that she was retiring as a partner. Although the partnership agreement did not allow her to unilaterally resign, the family accepted her wishes. At that time, the partnership was heavily indebted. The remaining partners treated her as owing a debt to them equal to her share of the net partnership debt at the date of her retirement. Although Suzanne never agreed that was correct, she eventually paid a sum to settle the dispute.

Suzanne's father died in 2014 and she started various court proceedings against her brothers. In one of them, the Court of Appeal decided that the partnership had a “protected” tenancy (under the Agricultural Holdings Act 1986) of most of the 562 acre family farm, a valuable asset. Suzanne then claimed that she was entitled to ¼ of the value of the tenancy as at the time of her retirement.

The brothers disputed Suzanne's claim on the basis that there was no provision in the partnership agreement (or anywhere else) that she would be entitled to anything on retirement and the matter was now closed.

The court decided that nothing had been agreed about what should happen to Suzanne's share in the partnership assets when she retired. The retirement meant only that she did not want to be in business with her family anymore. That was not the same as agreeing to sell or give away her financial interest in the partnership. If she had agreed with her family to walk away in return for no liability for partnership debts, that might be different, but in fact nothing had been agreed.

The court ordered that Suzanne was entitled to ¼ of the value of the tenancy as at the date of her retirement.

Suzanne's brothers clearly felt that Suzanne was trying to renegotiate the terms on which she had left. One can understand that they might feel aggrieved at the idea of having to find the money to pay out ¼ of the value of the tenancy to her. They could have expressly agreed the financial terms of her departure at the time. Or they could have taken the opportunity to make the terms clear when the dispute over the debt was settled. The court found that they did neither. That meant the matter was not as closed as they thought.

Advisors in this field may consider that this demonstrates yet again the need for clear agreements and communication. Within family partnerships, the partners may sometimes feel it is easier to leave things unsaid than to clarify the terms of an exit from a partnership. As this case sadly demonstrates, that only stores up problems for the future.