On Tuesday 20 June the Court of Appeal handed down (a remarkably swift) judgment in the case of Morton v Morton [2023] EWCA Civ 700, which involves a family farming partnership and estoppel. Thomas Dumont KC and Jonathan Edwards, instructed by Paul Barrow of Quinn Barrow Solicitors, represented the successful appellants.
The proceedings at first instance were heard in the High Court in Manchester. At the first trial, Jonathan Edwards succeeded in establishing that Simon Morton and Alison Morton were entitled to a remedy on the ground of proprietary estoppel, based on longstanding assurances from Simon’s parents that he would be able to carry on the farm. But shortly before she died, Simon’s mother Jennifer Morton (who was the surviving parent) gave notice to dissolve the partnership, and made a will which – unlike previous wills – left no part of her interest in the farm to Simon. The partnership deed included an express option that was aimed at enabling Simon and Alison to buy out Jennifer’s partnership share. However, whether they could possibly afford to do this depended on the value of that partnership share. That in turn depended on the beneficial ownership of the farmland.
Having found that the vast majority by value of the farmland in Cheshire belonged to Jennifer, but that it was unconscionable of her not to have left one-half to Simon, HHJ Halliwell effectively varied the partnership deed so as to deem the position to be much more favourable to Simon. The shift amounting to more than £980,000 on 2015 values. The judge also extended the time to exercise the option to buy out Jennifer’s partnership share so that the decision whether or not to exercise it could be made in the light of his change to the financial position. The original judgment was published as Morton v Morton [2022] EWHC 163 (Ch).
Following that first judgment, there was a second trial at the crucial issue to be decided was whether Simon and Alison – who had carried on the business of the farm for several years while the dispute was ongoing – would be liable for interest under section 42 of the Partnership Act 1890 even if they sought to exercise the extended option. Contrary to the submissions made by Jonathan Edwards on behalf of Simon and Alison, HHJ Halliwell decided that they would in any event be liable for interest in an amount well in excess of £700,000. That judgment was later published as Morton v Morton [2022] EWHC 2689 (Ch). That risked jeopardising the earlier estoppel remedy the judge had given.
The Court of Appeal gave permission to appeal that decision on interest under section 42. The main issue on the appeal was whether HHJ Halliwell had been correct to decide that the extended option resulting from his first judgment was not an option ‘by the partnership contract’ for the purposes of section 42(2), which provides that where such an option is exercised and complied with the party so doing is not liable under section 42(1).
The Respondent, Simon’s sister Julie Morton acting in her capacity as executrix of the estate of Jennifer, sought, unsuccessfully, to uphold the decision at first instance. She also advanced an alternative argument that section 42(2) cannot be relied upon to exclude a claim for interest at all and is only relevant for preventing an account of profits from being sought. That alternative argument had been raised at first instance but rejected by the judge, who instead based his decision that interest was due on the basis that the option arose as a ‘judicial award’ rather than ‘by the partnership contract’.
In addition, before the appeal was heard an application was made by Julie seeking to argue that even if the appeal on the technical issue about section 42 were to succeed, then some level of interest ought nevertheless to be ordered in favour of Jennifer’s estate. This was said to be because justice required that the remedy granted on proprietary estoppel grounds should reflect that the estate had received no benefit from the farm in the years since Jennifer’s death in 2016.
The very strong Court of Appeal (Lewison, Nugee and King LJJ) unanimously allowed the appeal, deciding that the estoppel remedy granted by the judge meant that the partnership deed had to be read as if it contained the option with an extended timeframe that was provided for in the judgment following the first trial. The option was therefore relevant for section 42(2) just as if it had been expressly set out in the partnership deed. Furthermore, at paragraph [47] of the judgment given by Lewison LJ, the court held that this was consistent with the overall purpose of proprietary estoppel; a party whose unconscionable conduct means that the court is required to impose a remedy which gives effect to assurances relied upon should not be better off than if they had consensually abided by those assurances.
The court also confirmed that where section 42(2) is engaged it excludes both of the alternative remedies provided for by section 42(1). It is not the case that exercising an option to buy out a partnership share precludes an inquiry into the profits actually made but still leaves the purchasing party exposed to a claim for interest at the statutory rate of 5% per annum since dissolution.
The application on behalf of Julie seeking to advance a fall-back position that interest, if it was not an entitlement under section 42, should nevertheless be awarded on equitable grounds was rejected. The court held that the application had been made too late, especially as Simon and Alison had earlier made a similar attempt to advance a fall-back position on equitable grounds and permission to appeal on that basis had been refused because it was out of time.
