Summary

The court granted a declaration regarding the existence and termination of a management agreement governing the way in which a family-owned company operated its three farms.

Facts

The claimant family farming company claimed an injunction to restrain the defendant family member (R) from farming certain fields and from using a barn. R counterclaimed for declarations as to the existence and termination of various management agreements. The land controlled by the company consisted of three farms which for many years had been farmed by various members of the same family. The third party (J) had the majority control of the company; he and R were cousins and each ran one of the farms. Each farm was run independently as a separate profit centre, an arrangement which had been formalised in 1983 in a management agreement, subsequently amended in 1989 to take account of a retirement and the involvement of J's brother. After the death of J's brother, J and R each farmed half of his farm as well as his own. Relations deteriorated between the parties and in due course the company passed a resolution to give R notice to vacate his half of J's late brother's farm, consisting of the disputed fields and barn. R did not vacate and the instant proceedings were begun. J, and therefore the company, did not accept that they or R were bound by any management agreement, but without prejudice to that primary position gave R notice of termination of the management agreement. R submitted that the management agreement continued to regulate the relationship between the company and the principal shareholders, so his occupation of the disputed fields was regulated by contract and could not simply be reallocated by resolution of the board; therefore, he submitted, the management agreement needed to be terminated in accordance with its terms or at least by reasonable notice. He submitted that if the management agreement was validly terminated it would no longer be open to J to run his farm for his own benefit as a separate profit centre. J submitted that the underlying purpose of the company was to reflect the freehold interests in the land, thus once it was clear that he owned two-thirds of the freehold land there should be no obstacle to altering the farming interests to reflect the land ownership.

Held

For the farms to have been operated as separate entities as they had, agreement between the shareholders had been necessary. J's position that there was no management agreement was untenable, and he himself had prayed in aid such an agreement in correspondence some months before the proceedings. It was not suggested at that time that J was not a party to the agreement, or that R was not equally able to benefit from it. The issue was what the terms of the agreement were. An agreement, as suggested by J, that reflected the amount of land each party owned was possible, but such a term was not included in either of the written management agreements and it was not legitimate to imply such a term. The management agreement binding the company, R and J was on the terms of the 1989 agreement subject to the adjustment when J's brother died. It provided for termination on six months' written notice expiring on April 5. There was no reason to substitute a more general requirement of reasonable notice. As R was in occupation of the fields under the management agreement J could not succeed in his argument that R was acting in excess of his authority as a director of the company since its resolution to remove him from the fields. The company's notice to R was valid. Therefore the management agreement which entitled J to run the farm that he did plus half of his late brother's, and R to run his farm plus the other half of J's late brother's, had come to an end, and the land came back under the control of the board of directors of the company. A declaration to that effect would be made (see paras 30, 31, 34-43, 47 of judgment).

Judgment accordingly