Horsford v Horsford [2020] EWHC 584 (Ch)
On 12 March 2020, the judgment of the High Court in Horsford v Horsford [2020] EWHC 584 (Ch) was handed down. Stephen Jourdan QC and Ciara Fairley, instructed by Leeds Day, appeared for the successful Claimant.
The case concerned a family farming partnership. The Claimant, Marian Horsford, claimed sums due to her from her son Peter under a written partnership agreement entered into in 2012. The partnership agreement provided that a partner could retire by notice, after which the remaining partners had the option to purchase their interest, in which case the partnership’s land was to be revalued; the price was payable in instalments over 5 years. Marian did retire, and Peter exercised the option. Marian claimed the amounts due to her for the purchase of her interest.
There were three aspects to the claim.
First, Peter argued that he owed his mother nothing for her interest in the partnership, because of assurances he claimed had been repeatedly given to him from early childhood that he would receive the farm following his parents’ death. He said he had relied on these to his detriment, and this gave rise to a proprietary estoppel equity which existed at the time the partnership agreement was signed, and which overrode its provisions. He said he had not waived his rights by signing the agreement as he was not aware of them until after Marian retired. The Judge held that there had been no assurances, no detriment, and no equity, and even if there had been, it was overridden by the partnership agreement.
Second, there were disputes about the valuation of the land needed to ascertain the amount due under the partnership agreement. The Judge resolved these in Marian’s favour. The result was that Peter has to pay Marian just over £2.5m over 5 years.
Third, there was a dispute about the fees of the expert valuer appointed to determine the value of the partnership land. The partnership agreement was silent on who should pay these. Peter refused to pay half, so Marian paid them all. The Judge held that there was an implied term that they were to be borne equally by the retiring partner and the purchasing partner, so Marian could recover half from Peter.
The proprietary estoppel claim
On the proprietary estoppel claim, the Judge held:
(1) No assurances had been made to Peter. Statements that Peter would inherit were equivocal - they could either have been promises or statements of intention. The best evidence was not subjective recollections after many years, events and feelings, but the contemporaneous documents and conduct of the parties. Peter and his witnesses were partisan: whilst not dishonest, they were manifestly influenced by his agenda and their sympathy for him.
(2) Peter did not suffer any significant net detriment in reliance on any assurance that he would inherit the farm, or his expectation to that effect. By the time of the 2012 partnership agreement, Peter was a wealthy man, who had been running the farm business for 10 years, owning a house and a farm (together worth £2.25 million in 2017) plus one third of the partnership property, and income in addition to his salary. He had benefitted substantially from the choice he made to farm with his parents and all that followed.
(3) In the period leading up to the execution of the partnership agreement, Marian made it clear to Peter that she regarded herself as entitled to retire, and entitled to leave her interest in the farm to one or both of Peter’s sisters, together with or to the exclusion of, Peter. Peter hoped that he would be left the farm, but knew this might not happen. He specifically discussed with Marian the need for him to have an option to buy her interest and the time for payment.
(4) A proprietary estoppel equity - the right to apply to the Court for a discretionary remedy that might or might not include the transfer of Marian’s interest in the partnership property - was completely inconsistent both with the terms of the partnership agreement, and with Peter’s exercise of his option to acquire Marian’s interest on her retirement.
(5) The agreement provided that its terms were, from a specified date: “deemed to have governed the affairs and operation of the Partnership and shall supersede any earlier agreement (written or verbal) that there may have been” and “this agreement constitutes the whole of the agreement between the Partners as to the Business”. Those clauses reflected the fact that the whole point of an agreement of this nature is to act as a comprehensive record of the parties’ rights and obligations. Subject to consumer protection legislation (e.g. section.2 of the Unfair Contract Terms Act 1977, section 3 of the Misrepresentation Act 1967 and section 62 of the Consumer Rights Act 2015), the parties to a contract are bound by provisions of this kind. Those clauses bound Peter by virtue of contractual estoppel.
(6) Even if those specific clauses were ignored, the position would be the same. When a person has rights in respect of property, and then enters into a contract which is inconsistent with the continued existence of those rights, the person is estopped from asserting those rights. Those rights are extinguished by the contract. The terms of the partnership agreement replaced any previous inconsistent rights.
(7) Peter relied on the principle that a contract will not be interpreted to deprive a party of rights conferred by the law unless clear words are used. However, that principle did not apply. It is concerned with rights arising after a contract is entered into, not with the different question of whether the parties intend the rights and obligations set out in their written contract to supersede any rights and obligations in respect of the same subject matter which may have existed prior to the execution of the written contract. Peter offered no plausible analysis of how the words used in the agreement could be interpreted as preventing Marian from enforcing her rights under it because, if he had sought equitable relief prior to the agreement being entered into, he would have been able to obtain an order from the Court in respect of the partnership property more favourable to him than the terms of the agreement.
(8) Another way of putting the effect of the agreement was that if Peter did have any prior equity, the provisions of the agreement satisfied it. “The parties’ agreement is the best evidence of what was fair at the time and therefore what was needed to satisfy an equity, if one did exist.”
(9) There was nothing unconscionable in Marian retiring and then claiming the amounts due to her under the agreement.
(10) If Peter had been entitled to an equity which had survived the agreement, it was unlikely that he would have been barred by laches. Marian had argued that this was the case. She said his delay in asserting his claim had prejudiced her because Davis Horsford, her husband and Peter’s father, had developed dementia since the agreement was signed and was unable to give evidence, and would have been a key witness. The Judge said that delay in claiming an equity may make it unjust to give a remedy, because either: (a) the conduct of the claiming party might fairly be regarded as equivalent to a waiver, or (b) his delay puts the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted. The loss of evidence of a potentially important witness is in the second category. He said that laches cannot apply if the claimant to the equity is unaware of the facts which entitle them to the remedy. But there is no hard and fast rule that a right can only be lost if a person also has knowledge of their right to the remedy, although that is obviously a material consideration overall in deciding if granting the remedy would, overall, be unjust because of the delay. The Judge considered that the husband’s will gave a sufficient indication of what his evidence would have been - it would have supported Marian’s case.
(11) If Peter had been entitled to an equity which had survived the agreement, it was unlikely that he would have been barred by his own unconscionable conduct from asserting it. Although Peter had refused to pay Marian anything after she retired, the Judge said that the court “is not an arbiter of moral outrage, especially in complex family relations”.
The valuation issues
The valuation issues arose under clause 19.7 of the partnership agreement. This provided:
“Any freehold or leasehold property (including the property of the Outgoing Partner held in the Land Capital Account) shall be valued on the Cessation Date on the application of the Purchasing Partners or the Outgoing Partner. Such valuation shall be agreed between the Purchasing Partners and the Outgoing Partner or in default of agreement determined on the application of any party by a valuer appointed by the President of the Royal Institution of Chartered Surveyors on the application of any party. Such valuer shall act as an expert and not as an arbitrator and his decision shall be final and binding on the parties. Any profit or loss on such revaluation shall be credited or debited to the Partners' capital accounts in proportion to their respective shares in the profits of the Partnership immediately prior to the Cessation Date or to their Land Capital Account in respect of any profit or loss on the revaluation of property held in their Land Capital Account.”
The relevant facts were as follows.
Marian, Davis and Peter had carried on business together in partnership for 25 years prior to entering into the partnership, farming College Farm, owned equally by Marian and Davis, and Whitleather Lodge Farm, owned by Peter. The partnership agreement and associated declarations of trust made those farms partnership property. The partnership agreement provided that the property introduced by each partner was to be recorded in a Land Capital Account and that any increases or decreases in value were to be credited or debited to the Land Capital Account of the relevant partner.
After the partnership agreement was entered into, the partnership bought further land with partnership money (“the Additional Land”) which was also partnership property. Also, a lease was granted of parts of College Farm to a tenant for use as a wind farm. The lease granted easements over Whitleather Lodge Farm.
After Marian retired, a valuer, Mr Zeid, was appointed by the RICS to act as the expert under clause 19.7. The parties agreed a statement of agreed facts, which agreed a number of values and identified certain issues for Mr Zeid to decide. There was an exchange of submissions after which he issued a determination.
The issues for the Court to decide where as follows:
First, the marriage value issue - whether clause 19.7 requires valuation of each parcel of land on the basis it is sold on its own, with no prospect of being owned together with the other partnership land.
It was common ground that College Farm, Whiteleather Lodge Farm and the Additional Land were each more valuable if sold as a whole than if sold separately. The Judge held that they should be valued on the assumption they were sold together.
Peter argued that the land had to be valued at “market value” as defined in the RICS Red Book which requires the disregard of any price distortions caused by special value or synergistic value (i.e. marriage value). The Judge disagreed. He considered that the issue was not about whether the possible presence of a special purchaser should be disregarded. It was about whether the land was to be valued as if sold on the open market as a whole, or as if sold on the open market in separate parcels on the assumption that each parcel will end up being owned by somebody different. It should obviously be valued as a whole, because it would achieve a higher price and it is a general principle of open market valuations that, when different properties are being valued, and they would be worth more if sold together than separately, that is how they should be valued: see IRC v Gray [1994] STC 360, 372-3.
But in any event clause 19.7 did not refer to the Red Book or to “market value” as used in the Red Book. The Red Book definition directs that special purchasers should be disregarded because it is intended to produce not a one-off value, but a reliable and repeatable value, as required for example in mortgage valuations. Where the question is what a property would have sold for on a specified valuation date, any “special” influence actually applying to the price that would have been achieved can and should be taken into account: see RICS UKGN 3 and IRC v Clay [1914] 3 KB 466.
Second, the beneficial interest issue - whether clause 19.7 requires valuation of the Outgoing Partner’s beneficial interest in the land, or a valuation of the land with an apportionment to the Outgoing Partner’s capital and Land Capital Accounts. It was common ground that a 50% beneficial interest in land is worth less than 50% of the value of the land. The Judge held that it was the land that had to be valued not a beneficial interest in the land.
Third, the wind farm issue. Mr Zeid had determined that the value of the wind farm was to be apportioned wholly to College Farm. Peter said that was wrong and that one third of it should be apportioned to Whitleather Lodge Farm. He said this was a question of law so that Mr Zeid had no power to determine it.
In the statement of agreed facts signed by the parties, they had agreed that Mr Zeid should determine this issue. The Judge held that it was not open to Peter to depart from his agreement that Mr Zeid should decide this issue. He said that if parties agree to a statement of agreed facts on which a valuer should decide an issue, they are bound by that agreement, following Great Dunmow Estates v Crest Nicholson [2018] EWHC 1460 (Ch), [2019] EWCA Civ 1683 (in which the judge’s decision was only reversed because the statement of agreed facts in that case did not comply with a specific contractual provision governing how variations had to be documented).
In any event, the Judge held that the apportionment did not turn on a disputed construction of the partnership agreement, but was a matter for expert valuation based on the assessment of the relative contributions made by College Farm and Whitleather Lodge Farm to the value of the reversion on the Wind Farm Lease. The easements granted to the tenant over Whitleather Lodge Farm might have been valuable (if, for example, the only way of getting to the wind turbines was over a road crossing Whitleather Lodge Farm) or of little or no value (if the tenant would have paid the same rent on the same terms without the rights given in respect of Whitleather Lodge Farm).
The expert’s fees issue
A well-drafted expert determination clause will provide either that the expert’s fees are to be paid equally, or that the expert will have power to determine who is to pay their fees. Clause 19.7, however, is silent on the issue.
The Judge held that Peter was obliged to pay half of the fees. A term was to be implied that the parties were to pay the expert’s fees equally. Such a term was necessary to give the agreement, and in particular clause 19.7, business efficacy. Further, Peter had an implied duty to co-operate in securing the expert’s determination and this required him to pay half the expert’s fees.
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