In previous columns, I have stressed that when family members farm together they should have an agreement setting out the rights of each.
The importance of such an agreement is illustrated by the recent Saskatchewan case of Alexander vs. Bar SP Ranches Ltd. The company was a family ranching operation in which the father owned 50 percent and each of two sons owned 25 percent of the company. In addition, both sons’ wives contributed to the ranching operation and held off-ranch jobs.
In the lawsuit, son B claimed that sale of a major part of the herd, including breeding stock, by his brother C and father A, was an “oppressive” action under company law and that the court should grant him a remedy. In law, oppressive behavior is where the majority shareholders act in a way that disregards the interest of the minority.
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The trial judge found that much of the difficulties began after the mother died and stemmed from personality conflict. Another problem was that there was a lot of work on the ranch but insufficient cash flow to pay adequate incomes to the parties. The situation deteriorated to the point that the parties resorted to physical violence against each other.
To complicate matters, the father took sides with whichever son he thought most likely to remain on the ranch. One son, C, left the ranch for three years in the late 1980s and early 1990s. However, he returned.
When C left again for a brief period in 1997, the father and B decided that the company should pay them and B’s wife back wages to the extent of some $300,000. The company did not have such money and the payments were never made. The judge commented that had this payment occurred, C could have claimed that his interest was disregarded and that this was an oppressive action. Later that year, B left and C came back. At that point, the father and C began selling the herd.
The judge found that selling off the herd represented an oppressive action. The sale was not in the normal course of business because of the number of cattle sold at one time and it involved breeding stock. B, as a shareholder, did not receive notice of this sale and did not have a chance to put forward his view.
The judge ordered that the corporation and its two shareholders buy out B’s shares at fair market value. Failing that, he ordered that the ranching operation be liquidated and B be compensated accordingly.
There were disputes over other items, including a claim by B for back wages based on the resolution made when C was away. This was denied. There was also a claim by B’s wife for back wages for 14 years. She was allowed a payment for the three years when C and his wife moved away and she undertook additional duties.
Finally, there were disputes over the ownership of a trailer in which B lived.
The trial judge said “although the ranch operation has grown substantially in size and value, the joint involvement of the parties in the operation over a period of some 17 years has destroyed their relationship as a family and has seriously jeopardized the health of (B and C). …The extent to which family relationships have deteriorated is what sets this case apart.”
The case was appealed to the Saskatchewan Court of Appeal, which upheld the trial judgment.
Families farming together should have a clear written agreement between themselves as to what is expected of each member, how income will be divided and how to deal with the interest of a member who wants to leave or has to leave for financial reasons. Such an agreement will hopefully prevent the family from going to court.
