Unwritten promises can force farm partnership buy-outs, court rules

Family and farming partnerships operating on trust rather than paperwork have been put on notice after the Court of Appeal ruled that unwritten promises can force a compulsory buy-out.

In a decision with wide-reaching consequences, the court confirmed that long-term reliance on an informal assurance can justify blocking an open market sale where that outcome would be unfair.

The ruling arose from a dispute between brothers Matthew and Daniel Cobden, equal partners in the Witcombe Farm Partnership, a substantial dairy business in Somerset.

The partnership had operated since 2006 as a partnership at will, with no written agreement setting out exit arrangements or dispute resolution mechanisms.

Evidence showed Matthew was the “driving force” behind the business, leading major developments including the construction of a large dairy unit between 2013 and 2015. Daniel’s role focused primarily on machinery and vehicles.

At the heart of the case was an unwritten understanding formed during a “2005/2006 conversation”, under which Matthew believed Daniel would eventually leave the partnership and be bought out at a fair price.

Matthew relied on that assurance by committing himself to the long-term expansion and development of the farm, believing he would ultimately continue the business alone.

Relations deteriorated in 2021, and in August 2022 Matthew served notice dissolving the partnership. He then applied for a court order compelling Daniel to sell his share to him at a valuation determined by experts.

Daniel opposed the claim, arguing that dissolution required an open market sale of all partnership assets under the Partnership Act 1890, allowing both brothers to bid.

The High Court rejected that approach. Judge Russen KC found Matthew had established an “equity akin to proprietary estoppel” and ruled that an open market sale would be “unfair and unjust”.

He pointed to Matthew’s long-term reliance on the assurance, as well as the tax consequences of a sale, the impact on a related dairy herd company and the disruption that would be caused to farm workers.

The court granted a Syers order compelling Daniel to sell his interest to Matthew. Daniel appealed.

The Court of Appeal dismissed the appeal, confirming that Matthew was entitled to buy out his brother rather than see the business sold on the open market.

Lord Justice Newey rejected the argument that Syers orders are confined to four narrow categories identified in earlier case law, saying those examples were not exhaustive.

He confirmed that the key test remains whether an open market sale would “serve the interests of justice” or instead produce an “unfair” result.

Crucially, the court confirmed that a “proprietary estoppel-ish” equity can itself make a market sale unjust, even where the facts do not fit neatly within established categories.

The decision expands the circumstances in which courts can order a compulsory buy-out at valuation, rather than applying the default statutory remedy of selling all assets under Section 39 of the Partnership Act 1890.

It also elevates the importance of historical conduct, informal conversations and shared expectations over strict statutory mechanics when partnerships break down.

The dispute stands as a clear warning to farming and family businesses operating without formal partnership agreements.

Where exit routes are undocumented, long-term assurances may now carry decisive legal weight, exposing partners to outcomes they never expected when relationships unravel.