Make hay while the sun shines: Shirt v Shirt

In the early 1950s, Stanley and Marie Shirt began working at Syda Farm, a 100-acre dairy farm on the Derbyshire wolds above Chesterfield. In the mid 1960s, one of their three sons, Alan, left school and began work with his parents at Syda. By the early 1970s, Alan and his parents had formed a partnership. The farm grew substantially when, in 1974, Stanley took a protected agricultural tenancy of a nearby farm, Rufford House.

Thereafter, the partnership farmed the two farms as one unit: Stanley and Marie living at Syda and Alan living (latterly) at Rufford. The farm went through good times and bad. In the 1980s, a once-thriving retail milk business encountered difficulties and had to close. The farm, and the three partners, became burdened with debt. But, through hard work, the partners were eventually able to restore some measure of prosperity.

Harbouring hopes

As a result of what his parents (and especially Stanley) told him, over the course of many years, Alan came to harbour the very real hope that he would inherit the farm. However, following Marie’s death in 2004 the relationship between Alan and Stanley deteriorated and they finally stopped farming together in 2006, when most of the remaining livestock and machinery were sold. Although Alan continued to live and farm on a reduced scale at Rufford, Stanley defaulted on the rent.

The tenancy was lost, and Alan and his wife Virginia were evicted by the landlord. In November 2009, they moved to a caravan in a field at Syda, together with their few remaining cows and horses.

This was the catalyst for litigation. Stanley immediately brought a claim in the local county court, seeking to use the accelerated possession procedure to evict Alan and Virginia from Syda as trespassers. This was met with Alan’s counterclaim that he, as a partner, was entitled to occupy Syda, but in any event was entitled to be there since the farm was due to come to him anyway.

Gathering pace, the proceedings were transferred to the Chancery Division of the High Court, and several further claims and cross-claims emerged. These included a claim (by Stanley) that 25 years’ worth of partnership accounts ?(in showing the farm to be a partnership asset and not his personal property) should be rewritten, and (by Alan) that Stanley’s failure to pay the rent at Rufford was a breach of Stanley’s duties as a partner.

HHJ Purle QC presided over an eight-day trial in which he sought to disentangle the liability aspects of the parties’ respective claims. His task was eased somewhat insofar as, shortly before trial, Stanley abandoned his possession claim (described by the judge as ‘misconceived’), thereby formally accepting that the farm was a partnership asset, and that Alan and Virginia were not trespassers.

But, in its place, Stanley introduced a claim for damages for compensatory payment for ouster, which was dismissed, as were other claims relating to the 2006 sale.

However, Judge Purle dismissed Alan’s claim to be entitled to an interest in the farm by virtue of a proprietary estoppel or under a constructive trust, and ruled that Alan’s claim that he ?should be compensated in damages ?for the loss of the Rufford tenancy was not justiciable.

The judge also ordered that there be no order as to costs on the entire proceedings. The full judgment can be found at [2010] EWHC 3820 (Ch).

On 27 March 2012, the Court of Appeal (the Master of the Rolls, together with Lord Justices McFarlane and Lewison) upheld HHJ Purle QC’s orders on the matters of proprietary estoppel and costs, but found that the loss of the Rufford tenancy was justiciable, and could attract an award of damages. Therefore, that issue remains to be tried in a forthcoming quantum trial.

Wider application

There are three useful lessons of wider application that can be gained from the case. The first is that, despite the favourable treatment of a proprietary estoppel claim by the House of Lords in Thorner v Major [2009] 1 WLR 776, such claims cannot now be treated as a dependable vehicle for vindicating the expectations of those who, like Alan, have dedicated their working lives to a family farm, even against the background of discussions over the years as to what was to happen in the future.

In Shirt, both HHJ Purle QC and the Court of Appeal adopted an arguably more limited approach to the doctrine than that expressed in Thorner, suggesting that the evidence for the key practical elements – representation and detrimental reliance – cannot be inferred from the surrounding circumstances, however compelling, but needs to be sufficiently clear and unequivocal.

As HHJ Purle QC remarked: “It seems to me likely that the parties did not focus with a sufficient degree of precision or clarity upon what would happen in the long term after the retirement or death of Stanley and Marie... This was a set of family partners who were in it together.

“I have no doubt that a strong hope emerged over the years on Alan’s part that the farm would come to him... ?I have to be persuaded on a balance of probabilities that the discussions that took place in the 1970s and 1980s crossed the line of raising hopes and amounted to a promise, commitment or encouragement upon the basis of which Alan acted to his detriment... I am not ?so persuaded.”

Therefore, in family contexts, and especially where conversations took ?place years previously, the decision in Shirt may have raised the bar for claimants making proprietary estoppel claims. It cannot now safely be assumed that courts will take an accommodating view of such claims.

An additional element is that the presence (as in Shirt) of siblings with competing interests may be of importance, insofar as a trial judge could need to be persuaded (as HHJ Purle QC was not in Shirt) that representations were made which, if carried into effect, stood to disinherit the other siblings.

The second notable feature of this case was the existence of an underlying partnership, and a number of wills drawn by Stanley and Marie over the years in which the ‘business’ was treated separately from the land.

Inter-solicitor negotiations during the late 1990s that the partnership be ?put on a written footing quickly foundered on the issue of the true ownership of the land.

The parties adopted the positions which later re-emerged in litigation, and matters were left unresolved. This was perhaps affected by a degree of wishful thinking. However, the issue neither disappeared, nor lost any of its potency over the course of years.

While there is much (sometimes) to be said for letting sleeping dogs lie, it is arguable that, had the issue of the ownership of the farm been addressed ?as soon as it became obvious that it ?was problematic, then the consequences of doing so (although they may have been unpleasant) may have been far ?less turbulent and expensive than those eventually encountered by Stanley ?and Alan.

A further cautionary point is the focus in the judgment of HHJ Purle QC on the nature of the claims which were being advanced by Alan in correspondence in late 1990s, and in particular the absence, at that point, of any explicit claim by him that he was in any event entitled by way of proprietary estoppel.

Although that correspondence antedated the Woolf reforms, and the emphasis which the protocol on pre-action conduct puts on comprehensively setting out the nature of one’s case in correspondence, prudent practitioners should always bear in mind that correspondence in matters of this nature – not necessarily perceived at the time as contentious – may end up, years down the line, being subjected to a degree of forensic scrutiny which it was never intended to bear.

Express agreement

Family farming partnerships of this kind are far from unusual, and many are oral. The Shirt litigation emphasises that the absence of a written agreement, and especially express agreement as to the nature and identity of the partnership assets, is undesirable, and potentially calamitous.

In general terms, there is much to commend Lord Justice Lewison’s view that formal documents detailing land ownership “exist for good reason – to prevent expensive disputes about half-remembered conversations, which took place many years before the dispute crystallised”.

Moreover, if partners are unwilling or unable to arrive at such agreements while still in partnership, then this can surely only bode ill for what may happen when the partnership does eventually come to an end, especially when (as in this case) dissolution occurs on the death of a partner.

The third lesson is the treatment of the Rufford tenancy. Stanley was the sole tenant, and the tenancy was one which was subject to the provisions of the Agricultural Holdings Act 1986. Therefore, on Stanley’s death or retirement, Alan could have applied to succeed to it. If the landlord resisted that application, the Agricultural Lands Tribunal would have had jurisdiction.

Stanley did not pay the rent, and the tenancy was lost. HHJ Purle QC found that Alan could not claim in this regard. He remarked: “Given, however, that the tenancy was held by Stanley Shirt as trustee for the partnership, it seems to me that the duties he owed as trustee... did not extend to securing Alan’s succession rights.

“That was a personal right of Alan under the agricultural holdings legislation. It was not a right which Stanley as trustee could exercise, though his cooperation in making the nomination was obviously needed.

“It seems to me that it is fallacious to regard the succession rights as in some way incidental to trust property, giving rise to a fiduciary duty. It seems to me therefore that the loss that Alan has undoubtedly suffered by reason of Stanley’s regrettable conduct of allowing the tenancy to be lost is not a loss which is justiciable in law.”

However, the Court of Appeal disagreed. Lewison LJ remarked that the Rufford tenancy had been an asset of the partnership and, provided Alan fulfilled conditions of working on the land, he had a right to succession. The judge had been wrong to treat that asset as purely Stanley’s; the right of succession was also a partnership asset.

The question of the lost opportunity to succeed to the tenancy was something to be taken into account in due course when the accounts for dissolving the partnership were drawn up.

This could have implications upon inheritance tax accounts (albeit that the value of such tenancies would presumably qualify for relief) and dissolution accounts in general. The more detailed resolution of this tricky issue may have to await the further judgment of HHJ Purle QC.

Christopher McNall is a barrister and mediator at 18 St John Street Chambers, Manchester. He was counsel for Alan and Virginia Shirt