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Case law: Court clarifies approach in claims to shares and land based on promises by the owner to transfer them

Property owners, such as farmers, should take care not to make informal promises to a family member (or anyone else) that they will inherit land or shares in a family company, as they may one day have to deliver on that promise if the relative has relied on it to their detriment.

November 2018

This update was published in Legal Alert - November 2018

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

The father held the majority shareholding in the family farming company; the mother held just one share. One of the sons worked on the farm for decades, working long hours for very little pay. Relations with his father were often difficult and this culminated in a major row. The father then transferred all his shares and his interest in the farm land to their second son, who managed the farm from then on.

The first son started proceedings to have the shares and land transferred to him, based on the legal doctrine of proprietary estoppel. The doctrine of proprietary estoppel stops someone from backing out of a promise to do something, such as give someone shares or land or other property, or an interest in it, if:

  • they made a representation or gave an assurance (which can be oral) to that person that they would do so;
  • that person reasonably relied on it;
  • they suffered a ‘detriment’, which need not be financial, but must be substantial – as a result; and
  • it is unconscionable, in the circumstances, for the person making the promise to renege on it.

If the doctrine applies, a court can order the individual to deliver on their promise, or to compensate the other person for breaking it.

Here, the son claimed that his parents had promised him the farm, and he had worked for decades on low pay in reliance on that promise, therefore, the court should order them to deliver on their promise.

However, his parents argued that the son was not a good farmer and been negligent at his work. They also argued that he had been given rent-free accommodation, and that his lack of skills and qualifications meant he could not have got another job, even if he had wanted to.

The Court found that the father (on behalf of both himself and the mother) had made serious promises to the first son that he would inherit the majority of the farm. The fact the father had not specified exactly what proportion the son was to inherit did not mean he had not been serious, or that he did not intend the son to rely on those promises. Nor were the allegations about his competence relevant – the promises had still been made and relied upon.

The Court also found that the first son had relied on those promises – and suffered detriment. Notably, part of the detriment was that he had to work with his difficult father for all those years, which he would not have done had he not been promised the farm.

Furthermore, the argument that there was no detriment because he had been provided with rent-free accommodation had no force because his brother had also been given rent-free accommodation; and the fact he would have struggled to get another job was irrelevant to the fact he had ‘positioned his life’ on the basis of the promises made to him.

The Court therefore ordered compensation based on the son’s expectations. It split the shares as to 52% for the first son, and 24% each for the other son and their sister. Furthermore, the land was to be split 46% to the first son, and 27% each to the brother and sister.

Operative date

  • Now

Recommendation

  • Property owners, such as farmers, should take care not to make informal promises to a family member (or anyone else) that they will inherit land or shares in a family company, otherwise they may have to deliver on that promise in future because the person relied upon it to their detriment.

Case ref: Gee v Gee & Anor [2018] EWHC 1393

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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