Farmer granted reduction of expulsion notice from family partnership

Ian Rennie raised an action against the other members and trustees of the partnership seeking reduction of his expulsion notice and interdict to prevent it being held out that he was expelled from the partnership. Only the first defender, the pursuer’s son Mark Rennie, lodged defences.

The case was heard in the Outer House of the Court of Session by Lord Clark.

Voted by email

The court heard that from about 2016 onwards the relationship between the pursuer and the defender deteriorated. This was caused, at least in part, by a dispute over the pursuer’s entitlement to receive certain net rental income generated by rental properties at the farm.

The pursuer indicated that he wished to remove a significant portion of his capital from the partnership, which the defender resisted due to not knowing precisely how much of the partnership’s bank account consisted of capital held on behalf of the pursuer. Nonetheless, in October 2017 the pursuer withdrew about £273,000 from the partnership account.

The defender raised an action in the Commercial Court in the name of the partnership to recover the funds. As a result, the pursuer was ordered to repay the monies and was interdicted from withdrawing money from the partnership accounts. That action was sisted pending the outcome of the present action.

By email on 26 October 2017, the first defender proposed to all partners and trustees that a meeting should take place on 3 November 2017. While the first defender did not state so expressly at the time, the purpose of this proposed meeting was to discuss the potential expulsion of the pursuer. The pursuer was unable to attend a meeting on that date but indicated that he would be able to attend a meeting at a later date. The defender decided that he did not wish to wait and asked the pursuer’s sister and brother, the other partners, to vote on it by email.

Both voted in favour of expulsion, and on about 30 October 2017 the notice of expulsion was sent to the pursuer. No formal vote of the partners was held, and the pursuer was not requested to make representations to the other partners about the proposed expulsion. The trustees, who included the pursuer’s ex-wife, were not informed of the proposal or given a chance to vote.

The pursuer averred that the notice was of no effect. It proceeded on the erroneous factual basis that he was not entitled to withdraw any money from the partnership account, and no meeting of the partners had taken place before any vote. The rules of natural justice had been breached.

The defender averred that the pursuer was in breach of the partnership agreement, thus entitling the remaining partners to expel him. The terms of the partnership agreement did not require that all decisions be taken at meetings, and the consensus of the defender as well as the pursuer’s siblings was enough to allow for his expulsion.

Quasi-judicial role 

In his opinion, Lord Clark noted that the only issue in dispute was the validity of the expulsion notice. Considering the terms of the partnership agreement in detail, he said: “In my opinion, it is clear from the terms of [the expulsion clause] that a condition for expulsion must be met: ‘…in any of these events, the other partners may expel the partner concerned’. Thus, one of the listed events must be determined to have happened. That was a matter for consideration and decision. Similarly, ‘may expel’ indicates that it is an exercise of discretion.”

He continued: “This is a decision: it permits a vote by a majority inter alia ‘where any decision requires to be taken’ and indeed the first defender relies upon that in respect of the decision to expel. I therefore conclude that the provisions of the partnership agreement did confer a quasi-judicial role on the other partners when considering and deciding upon whether to expel. While actions of parties after their contract has been entered into are irrelevant to the construction of the provisions, the notice of expulsion demonstrates what was done.”

On the requirement for a unanimous vote, or a majority “in default of unanimity”, he said: “In order to identify whether or not there is a default of unanimous agreement, there must be steps taken to ascertain from all partners what their position is on the matter to be decided upon. These steps will allow determination of whether or not there is unanimity. Plainly, in at least the vast majority of situations, if not all, the person whose expulsion is being considered will not agree to or vote in favour of his own expulsion, so that unanimity will not be possible. However, that does not avoid the need to identify that person’s position. Nor does it allow those in favour of expulsion to ignore another partner (in this case, the trust) and deny it of notice or the right to vote.”

On the issue of natural justice, he said: “Having regard to the proper interpretation of the terms of the partnership agreement, a quasi-judicial function was exercised and so the rules of natural justice applied. These included the need to give the pursuer fair notice of the grounds for his proposed expulsion and the right to be heard prior to any decision being made.”

He continued: “It is true that the pursuer did not ultimately insist upon his position that the factual basis for his expulsion was not established. However, the right to be heard has as its purpose that it may result in a different decision being taken. The pursuer did send emails which set out his position on the withdrawal of funds, but this is not the same as being able to state his position on whether or not specific clauses had been breached or expulsion should follow. No fair notice of the proposed expulsion was given. The rules of natural justice were therefore breached.”

For those reasons, Lord Clark granted a reduction of the decree of expulsion. In relation to the pursuer’s crave for interdict preventing the defender from representing him as expelled from the partnership, he said: “[The conclusion for interdict] proceeds on the footing that there is a reasonable apprehension that the first defender may represent that the pursuer has been expelled, even if the court decides to reduce the notice of expulsion. The basis for that position was not established. I therefore do not grant the conclusion for interdict.”