Of all the agricultural disputes we advise on, farming partnership disputes are probably the most challenging. Not only is there a wealth of complex law, ranging from tax and property issues to division of assets and income, but, upsettingly, the parties are often parents and children or brothers and sisters.
How can farm partnership disputes be avoided and what can be done when they occur?
It is, perhaps, because of those close relationships of trust that so few farming partnerships have a written agreement, setting out the basis upon which they operate, detailing who owns which of the assets, how the profits are to be shared, and what happens in the event of death, retirement, or, indeed, the partners simply falling out.
The danger of having no written partnership deed is that the terms of the Partnership Act 1890 apply to the partnership. All too often the terms of the Act do not properly reflect the wishes of the partners and, in some cases, lead to considerable unfairness. For example, the Act provides that any partner can serve notice to dissolve the partnership at any time and, in practical terms, should there be a dispute over who gets what assets or what they are worth, then the Court typically orders the assets to be sold and the net proceeds of sale be divided between the partners.
This can often create the situation where a partner who has never been involved in the day-to-day running of the business (perhaps because they inherited a share) has the power to bring the partnership to an end at any stage, even if the other partners do not want this. This is arguably the biggest risk to the existence of a partnership and clearly needs guarding against.
The terms of the Act should therefore not be relied upon but, instead (and this may avoid a dispute altogether), the partners should enter into a partnership deed to govern the partnership terms.
Farming partnership breakdown is similar to relationship breakdown in that the parties often have emotional as well as financial ties. And there is a tendency for these emotions to cloud the parties’ objective judgment. Feelings of entitlement, jealousy and anger can create deep divides between partners and lead to a more acrimonious relationship, making settlement difficult to achieve.
When one party’s behaviour is intolerable or there are other pertinent reasons, there is often little recourse but to go to Court. However, in more and more disputes, we are finding that the Courts are encouraging forms of alternative dispute resolution such as arbitration or mediation. These can be cheaper and less hostile than Court proceedings and often, with consensual resolution, we have found that substantial tax implications can be avoided.