In what is a significant case in the resolution of partner disputes, Stephens Scown’s Dispute Resolution team took a matter to the Court of Appeal to deal with a point of law on the dissolution of partnerships, with reference to a precedent set 150 years ago.
As the case of Cobden v Cobden is back in the news and recently at the Court of Appeal, it’s a matter that impacts any business partnership that has no agreed process for dissolution and the outcome has widened the scope for the dissolution of partnerships. It also acts as a reminder to ensure any agreements are written, and that verbal arrangements are more difficult to enforce.
The case considered whether the circumstances relating to the dissolution of the farming partnership were exceptional enough to grant a Syers order (an order as to whether one partner should be entitled to buy the other’s share at a price based on valuation evidence) and depart from the usual course of a full winding up of the partnership and selling the assets on the open market.
Syers v Syers
The Syers case from 1876 allows a partner to buy out the others on dissolution of the business, rather than an open market sale of the assets. In an equal partnership, the use of Syers is an exception rather than a rule and had previously been limited to specific circumstances.
In the Cobden case, two brothers Matthew and Daniel, had an equal partnership in a Somerset farm given to them by their parents. Following a break down in the brothers’ relationship, Matthew offered to buy Daniel’s share for £3m, which was rejected. Daniel made a counteroffer of almost £4m. This too was rejected. Matthew served a notice to dissolve the partnership in the summer of 2022 and issued a claim in the High Court at Bristol. Matthew’s claim initially relied on an alleged verbal arrangement whereby he believed his brother would sell his interest to him following previous conversations in the early 2000s, something denied by Daniel.
Matthew later amended his claim to rely on a “proprietary estoppel-ish” claim, that the conversation between the brothers in the 2000’s amounted to a promise by Daniel to sell his share to Matthew at a later date.
It was Daniel’s case that there was no such agreement or promise and the dissolution of the partnership should be the usual order i.e. a winding up and sale of assets on the open market with both brothers being free to bid on those assets.
The first instance Judge considered that the ‘usual’ order would result in an unfair or unjust outcome, exercising his discretion to award Matthew a Syers order to buy out his brother, at a price of £2.8m, stating that “…any equity which one partner may have acquired against the other, during the course of the Partnership, which has no clear monetary value but which is sufficient to provide grounds for concluding that a liquidation of the assets would work an injustice.”
Representing Daniel, Stephen Wray and Helen Prince from Stephens Scown’s Dispute Resolution team appealed on the grounds that the facts of the case did not fulfil the exceptional circumstances criteria for a Syers order and that relying on the valuation evidence as opposed to allowing a sale on the open market would be unfair financially to both partners. The pair highlighted that allowing the outcome to stand would reduce the certainty of the law in this area which has been very clear since the Partnership Act 1890 was enacted. Stephen and Helen’s expertise in this area and familiarity with similar cases places them at the forefront of such matters and makes Stephens Scown a leading firm in the sector.
Court of Appeal
While the Court of Appeal ruled against Daniel, it is a matter that has created a new precedent.
While Syers set out some initial guidelines, and a handful of subsequent cases reiterated or further defined the law in this area, the ruling opens up matters as to when discretion should be applied. Judges will now be able to widen the scope of the Syers ruling when deciding on comparable cases.
Despite the outcome, thanks to Stephen and Helen’s efforts, it reaffirms Stephens Scown’s reputation as legal experts and the go-to firm in high-profile dispute resolution matters.
If you have a similar issue then please reach out to our Dispute Resolution team.