On 27 January 2022, the High Court handed down its judgment in Morton v Morton [2022] EWHC 163 (Ch), which concerned a dispute between siblings after the death of their mother (“the Deceased”) regarding what assets of a farming business, in partnership, would fall in the estate. The decision follows a general rise in inheritance disputes. This is due to changing family structures and norms; rising property and share prices; increased life expectancy and COVID-19. However, the decision also follows a rise in proprietary estoppel cases specifically relating to farmland and rural property. See for example: Windsor-Clive v Rees [2021] EWHC 3180 (Ch); Wills v Sowray [2020] EWHC 939 (Ch) and Horsford v Horsford [2020] EWHC 584 (Ch). The reason for the rise in cases is uncertain. However, it could be due to informal working arrangements; out of date or no partnership agreements being in place and/or traditional attitudes to succession (for example, an expectation or hope that the children will carry on the farming business). The high value and complex nature of farmland and other farm assets also make inheritance claims more likely.
The factual background to the decision in Morton v Morton is complex (involving multiple partnership agreements; land transfers and wills). Hence this update mentions only the most relevant facts to the decision.
Background to the case
The Claimant was the sister of the First Defendant and the executor of the estate appointed under a Will. The Second Defendant was the wife of the First Defendant.
The dispute related to two farms: Reddish Hall Farm in Cheshire and Fairoak Grange in Staffordshire. Most of Reddish Hall Farm was purchased by the late husband of the Deceased and father of the Claimant and First Defendant. However, he also purchased the neighbouring land at Reddish Hall Farm with the Deceased. In 2001, the father died and, on his death, the legal title to his joint property passed by survivorship to the Deceased and the properties held in his sole name passed through his estate to the Deceased.
In 2008, the Deceased wanted to transfer to the First Defendant her freehold title to the Farmhouse at Reddish Hall Farm. However, the Deceased was advised that she could claim agricultural relief from capital gains tax (CGT) if she also transferred an interest (not less than 10%) in the farmland/main estate at Reddish Hall Farm as well as the Farmhouse. Therefore, in addition to her entire freehold interest in the Farmhouse, the Deceased transferred 10% of the farmland/main estate to the First Defendant (the Land Transfer). The Land Transfer contained a Declaration of Trust confirming that the farmland/main estate at Reddish Hall Farm was held 90% by the Deceased and 10% by the First Defendant.
In 2012, the Defendant and the Deceased decided to purchase another farm, Fairoak Grange and they then entered into a farming partnership relating to both Reddish Hall Farm and Fairoak Grange. Under the 2012 Partnership Agreement, there was an option for the surviving partner to purchase the interest of the deceased partner (including the freehold interest in Reddish Hall Farm and Fairoak Grange). In 2013, the First Defendant and the Deceased completed their purchase of Fairoak Grange.
However, the relationship between the Deceased and the First Defendant deteriorated and in May 2016, the Deceased made a final Will leaving her entire estate to the Claimant but with the option – exercisable for six months – for the First Defendant to purchase her share of the farmland falling under the 2012 Partnership Agreement. The Deceased died in September 2016 and in 2020 the Claimant commenced proceedings in her capacity as executor.
Details of the claims
The Claimant issued a claim for a declaration concerning the terms of the 2012 Partnership Agreement and the extent of the partnership assets together with an order for the Partnership to be wound up. The Claimant also sought an order for the specific performance of a contract.
The First and Second Defendant then issued a counterclaim for an order (a) rectifying the Land Transfer in 2008 to remove reference to a trust under which the Deceased was entitled to a 90% interest and the First Defendant a 10% interest and (b) inserting a declaration that Reddish Hall Farm was held on trust for the Deceased and First Defendant in equal shares. In the alternative, the First and Second Defendant sought an order rescinding the Declaration of Trust as the First Defendant had made a mistake entering into it.
The First Defendant also claimed that because his father promised that he would inherit the entire farming business and farms and he relied on that promise to his detriment, he was entitled to the farms on grounds of proprietary estoppel.
But what is proprietary estoppel?
Proprietary estoppel is essentially a legal remedy to enforce a broken promise. To bring a successful claim for proprietary estoppel, the person seeking to rely on proprietary estoppel will need to show that:
- there was a clear and unambiguous promise made to him/her;
- he/she reasonably relied on that promise;
- he/she suffered loss as a result of that reliance (Thorner v Major [2009] UKHL 18).
Decision by the court
The Court refused to make an order rectifying or rescinding the Land Transfer in 2008. The Court was not satisfied that the First Defendant entered into the Land Transfer with a different intention. Nor did the First Defendant believe that he had already acquired an interest in the land. The parties entered into the Land Transfer to avoid CGT and it was clear from the transfer that the Deceased was the sole legal and beneficial owner of the farmland before it was transferred. If the First Defendant believed that he had already acquired an interest in the land, he should have raised that before entering into the transfer.
However, the Court found in favour of the First Defendant concerning proprietary estoppel. The Court held that the First Defendant had satisfied the three elements required for proprietary estoppel (in Thorner v Major) but that in considering his proprietary estoppel claim, it must apply the principle of proportionality. The Court referred to guidance in Davies v Davies [2016] EWCA Civ 463 and the judgments of Henry v Henry [2010] UKPC 3 and Jennings v Rice [2002] EWCA Civ 159. In Henry v Henry, the Court observed that “[p]roportionality lies at the heart of the doctrine of proprietary estoppel and permeates its every application” (at [65]). In particular, the Court must ensure that there is proportionality between the remedy and the detriment suffered (Jennings v Rice at [28] and [56]). Hence, where the expectation of the person seeking to enforce the promise is disproportionate to the detriment suffered by him/her, the Court will not give full effect to his/her expectations (Jennings v Rice at [50] and [51]).
Here the promise made to the Defendant (that he would inherit the farming business) was limited to Reddish Hall Farm. Fairoak Grange was purchased after his father had died and he could never have contemplated the purchase of an additional farm. The First and Second Defendants were therefore given another opportunity to exercise their option under the 2012 Partnership Agreement to purchase the share belonging to the Deceased.
Lessons and recommendations
It is clear from Morton v Morton that proprietary estoppel claims relating to farmland will continue. However, when dealing with such claims, the Court will ensure that the remedy is proportionate to the detriment suffered. Proprietary estoppel claims are expensive, time-consuming and stressful. To avoid such claims, we would recommend the following:
- avoid making promises or giving hints regarding who will inherit your farmland;
- start succession planning early;
- regularly review and (professionally) update your Will;
- ensure that any partnership agreement is up-to-date and compatible with your latest Will; and
- seek legal assistance from lawyers with experience in rural succession planning.
At Moore Barlow LLP, our Rural team is ranked in the top tier by legal commentators and we can assist you in avoiding such claims by advising on various matters including past and future land transactions, agricultural tenancies, estate planning, and also partnership and farming structures. Our Contentious Trusts & Estates team is also widely recognised as a market leader in the South East and we have extensive experience advising on trust and probate disputes involving rural property and farms.
