Matthew Halstead Cobden v Daniel Halstead Cobden

Following dissolution of a partnership, an open-market sale is the normal method of winding up, but it is not mandatory. The court may make a Syers order where, on the particular facts, that course would better serve justice between the partners.

Exceptional circumstances may include a sufficiently clear shared understanding that one partner would succeed to the business, substantial reliance on that understanding, and reliable valuation evidence showing that the outgoing partner will receive fair value. The court may also consider goodwill, sale costs, tax consequences, effects on employees and customers, and other equitable circumstances. The discretion is not restricted by the size of the partner’s share.

The claimant and defendant were equal partners in a dairy farming partnership operated at Witcombe Farm. The claimant dissolved the partnership after the brothers’ relationship broke down and sought an order allowing him to buy the defendant’s share rather than requiring an open-market sale.

The claimant relied on an alleged understanding, formed when the partnership was established and reinforced later, that the defendant would eventually leave and the claimant would buy him out at a fair price. He also relied on his contribution to developing the business and the consequences of a sale. The defendant sought an open-market sale, alternatively an order allowing him to buy out the claimant.

The issues were whether the claimant had established an equity supporting a Syers order, whether such an order should be made in the court’s discretion, and how the partnership assets should be valued.

1. The partnership was dissolved on 25 August 2022. The normal order under Partnership Act 1890, sections 39 and 44, is sale of the partnership property and distribution of the surplus. Section 39 does not, however, require a sale in every case.

2. The court retained a discretion to make a Syers order where the interests of justice required a different method of winding up. The order was exceptional, but no rigid jurisdictional threshold or restriction based on the size of the selling partner’s share applied.

3. The relevant inquiry was fact-sensitive. The court could consider whether a partner had established an equity, analogous to the circumstances supporting proprietary estoppel, by showing a sufficiently clear understanding, substantial reliance, and unfairness in permitting the other partner to insist on liquidation. The court could also consider the likely effects of a sale on employees, customers and third parties, sale costs, tax consequences, goodwill, and the reliability of valuation evidence.

4. The claimant established that the brothers had understood that the defendant would eventually leave and that the claimant would buy him out at a fair price. The claimant had devoted himself to developing the partnership business in reliance on that understanding. His efforts had made him the stronger moral claimant to succeed to the Farm.

5. The valuation evidence provided a reliable indication of the defendant’s expected entitlement on a winding up. The defendant’s proposed higher bid, based on his greater financial resources and family backing, did not establish that the market value was higher. The evidence also showed substantial sale costs and potentially adverse tax, livestock and employment consequences from an open-market sale.

6. A Syers order in favour of the claimant was therefore the appropriate and fair order. The partnership assets were valued at £11,040,000 for that purpose, with a valuation date of 20 May 2024. The claimant was permitted to pay the defendant’s share and procure his release from partnership liabilities. If he failed to do so by the specified date, the assets were to be sold on the open market.

First instance decision. The judgment considered the binding Court of Appeal decision in Bahia v Sidhu [2024] EWCA Civ 605.