Are the old ways always the best ways?

In May 2019 the Court of Appeal determined yet another case of Proprietary Estoppel. The moral to the story … if you want to avoid the risk of litigation and destruction of family relationships … discuss, agree and document family business arrangements.

Lucy Habberfield had worked full time on the family farm since leaving school. Her enthusiasm for dairy farming prompted her father to return to this area of work; by 1983 dairy farming was the cornerstone of the business, although by 2015 the focus had shifted to beef cattle and arable.

In 1983 Lucy's father began to tell Lucy that if she continued to work on the farm, then one day he would pass the business and the land to her although title to the farm and farmhouse would not be conveyed to her whilst her parents were still alive.

In 2008 tensions within the family heightened and her parents made Lucy an offer that she, her father and mother would run the farm as partners. Lucy rejected this offer because she believed her siblings would interfere with the running of the farm via her parents. She was also unhappy that her partner (Stuart), who had also worked on the farm, was not to be brought into the partnership.

Although the dispute was not resolved, Lucy and Stuart continued to work on the farm after 2008 in the hope that she would receive what she had been promised and what she expected in the long run.

By October 2013 family relationships had broken down completely leading to Lucy and Stuart resigning. Lucy's father died in 2014 and Lucy then discovered that he had left everything including the farm and land to his wife (Lucy's mum) who now disputed Lucy's entitlement. Lucy issued her claim for proprietary estoppel in 2016 seeking transfer of the farm, land and assets to her although conceding that her mother should be able to live in the farmhouse for life.

The First Instance Judge held that Lucy had successfully established reliance on the assurances she had received, namely to receive a viable dairy farm, which her mother was aware of, and she had also established detriment, having received low pay, taken little holiday and had chosen not to set up her own independent farming business elsewhere. He considered that the offer made by her parents in 2008 was a genuine attempt to resolve the issue of succession and therefore should be taken into account as should the fact that Lucy had left the farm in 2013. He went on to conclude that the value of Lucy's expectation was the value of the land (less the farmhouse) without the cost of reinstating a working dairy unit. He also took the view that a cash payment was preferable to transfer of the farm.

The Judge ordered that Lucy should receive a cash payment equivalent to the value of the farmland and buildings (excluding the farmhouse) in the sum of £1,170,000.

Lucy's mother (Jane) appealed the Order on four grounds:

1. Lucy's refusal of the 2008 offer meant that she and her husband could resile from their earlier promises.
2. Lucy's refusal of the 2008 offer meant that Lucy's continued work on the farm was not relevant detrimental reliance.
3. The Order was disproportionate.
4. It was an error to order a cash lump sum payable during Jane's lifetime.

In turn, Lucy cross-appealed on two grounds:

1. It was an error not to take account of the detriment suffered as a result of Stuart's work on the farm.
2. The award should not have been reduced to reflect the 2008 offer or cessation of milk production in 2015.

The Court of Appeal began by emphasising that the First Instance Judge had wide discretion in deciding how equity should be satisfied and there were very limited circumstances in which the Appeal Court could interfere with the decision.

Jane's argument that the 2008 offer meant that she and Lucy's father could resile from their earlier properties was rejected and the Court of Appeal then assessed whether Lucy's refusal should impact on the Court's assessment of what was needed to satisfy a fair solution.

The Court was satisfied that it was a commercial decision to stop running the diary unit and therefore Lucy could not expect to be compensated for the financial impact that this had on her award.

The Appeal Court then addressed the detriment argument. Jane did not succeed with her argument that any post 2008 detriment Lucy suffered was as a consequence of her continuing to work on the farm and should be ignored. Nor did the Court consider that Lucy's award should be reduced because Lucy had continued to receive benefits from the business after 2008.

Lucy's ground of appeal that the detriment suffered by Stuart should be taken into account was rejected - no promises had ever been made to Stuart.

In relation to proportionality, it was held that the comparison should be between detriment and remedy and the relevant question that the Court should ask was whether the award was proportionate to the detriment suffered. Lucy's expectation should not determine the level of relief that was granted to her.

In relation to timing of the lump sum payment, although Lucy had been assured that she would receive the farm, this would not necessarily arise before her parents died. The First Instance decision provided Lucy with a lump sum to acquire a viable dairy unit and land immediately and it was arguable that the eventual lump sum award exceeded her expectation. It was acknowledged that the impact of the Order meant that Jane would have to leave the farmhouse (her home of many years).

The Court of Appeal determined that whilst the consequences of the award caused concern, the Order was within the parameters of the Judge's discretion. It was appreciated that Jane would have to sell the farmhouse to pay the lump sum however, Jane would still have sufficient monies to purchase a new home and meet any shortfall in her income. The need for Lucy to be able to begin farming immediately took precedence particularly in circumstances where family relations had broken down so completely. The original Order therefore stood.

Whilst Lucy did not seek sale of the farmhouse in order to satisfy her claim, that is now going to happen because the Court took the view that the family relationships were completely destroyed with no hope of repair and therefore a sale could not make the situation any worse than it already was. The Judge concluded that the "desperately difficult situation" that Lucy's mother found herself in, was of her own making including the ruinously expensive litigation costs that she would now face.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.