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The farm: a partnership asset?
Families who farm in partnership are always encouraged to record the terms of their arrangement in a written partnership agreement. Without this, there can be uncertainty over the nature of the partnership’s right to farm the land and in particular whether or not the land is an asset of the partnership. This issue has recently been considered by the High Court in the case of Ham v Bell [2016].
The case
From a modest beginning, Ron and Jean Ham built up a substantial dairy operation based at Lower West Barn Farm, Witham Friary, Frome, Somerset (the ’farm’), which they bought in 1986. They had been dairy farmers all their lives. The farm was originally the farmhouse, farm buildings and 220 acres. It grew to include another residential unit and a further 330 acres of freehold land, as well as 350 acres of tenanted land.
Ron and Jean had three children: Judith (45 at the date of the trial), Catherine (43) and John (37). All three originally worked on the farm. Judith married and left in the mid 1980s, as did Catherine in September 1997. At the same time that Catherine left, Ron and Jean (who at all times had farmed together as equal partners and co-owners of the farm) decided to bring John into their partnership in October 1997. Despite his youth, Ron and Jean gave John a 25% profit share, which they subsequently increased to 40% in March 2001.
The issue which came before the High Court in 2016 was whether the farm, which had been an asset of Ron and Jean’s old partnership, had become an asset of the new partnership with John because of its appearance in the accounts of the new partnership from 1998 to 2003. It was therefore removed by the partnership’s new accountant. John said that it was an asset.
Ron tragically died in a farm accident in 2015. Jean maintained her defence of John’s claim and succeeded.
Judgment
The Judgment was complicated by a number of late applications made by John’s legal advisors at the trial, but the key findings were as follows:
- The inclusion of improvements and acquisitions of other land in the new partnership’s accounts between 1998 and 2003 did not establish or corroborate any implied agreement that the farm was or had become a partnership asset: Burden v Barkus (1862) applied and Davies v H and E Ecroyd [1996] was considered.
- “The mere fact that there is a partnership in profits produced by a particular asset does not indicate that the asset itself is partnership property. It is common place that one partner may own the property in which the partnership business is carried on. If the asset is acquired with profits generated by the partnership, that is a different proposition…” Lewison LJ in Geary v Rankin [2012] applied.
- Section 20 of the Partnership Act 1890 provides that all property originally brought into the partnership stock is called ‘partnership property’ and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement (if any). The legal estate of any such partnership property is held on trust so far as necessary. However, section 20 did not assist in this case because it contains no guidance as to how to decide whether a particular asset was ‘brought into the partnership stock’.
- Any Court which infers or implies an agreement is doing so on the basis of outward and objective signs or appearances of such an implied agreement. Yet the law does not impose an agreement on parties where subjectively neither of them intended to create one, even if objectively it appears as if an agreement was made: see Miles v Clarke [1953]; Eardley v Broad [1970]; and Kleinwort v Attrill [2013].
- Accounts are no more than evidence and, if they do not reflect what was agreed, they fall to be disregarded: Miles v Clark; Barton v Morris [1985] and Powell v Powell (unreported) applied. On the facts, the accounts by themselves did not prove the agreement for which John contended.
- The intentions of Ron and Jean as regards to the farm were evidenced by their Wills which recorded their retention of the farm and their intention to leave part of it to Catherine. John’s arguments, alleging concealment and dishonourable conduct as to the removal of the farm from the accounts, were dismissed by the Judge.
Charlotte Razay acted for Ron and Jean Ham.
Proprietary estoppel in practice
In a High Court decision from the Summer (Moore v Moore [2016]), the Court applied the principles of proprietary estoppel recently set out by Lewison LJ in Davies and another v Davies [2016] to another family farming partnership dispute.
The case
Stephen Moore’s father, Roger, together with his brother, Geoffrey, inherited Manor Farm, Stapleford, Wiltshire (the ‘farm’) from their father. Roger and Geoffrey farmed in partnership together until 2008. The partnership was successful and profitable, but Roger and Geoffrey took modest drawings, ploughing most of the profit back into the business. Stephen worked on the farm from childhood. He subsequently became a salaried partner and then an equity partner. In 2008 Geoffrey retired from the business and gave his half share of the partnership to Stephen, in return for a payment from the partnership. Roger and Stephen continued in partnership together trading as R J Moore and Son, as their forebears had.
After Geoffrey’s retirement from the partnership, Roger’s health deteriorated. He suffered from Alzheimer’s Disease. After the commencement of the proceedings, he was found to lack capacity and his wife was appointed as his litigation friend. Relations between Stephen and his mother (and his sister) were not good.
There was no written Partnership Agreement between Roger and Stephen. Roger’s solicitors served notices in December 2012 purporting to dissolve the partnership immediately on the basis that it was a partnership at will. Proceedings were then commenced seeking the winding up of the partnership and the sale of the farm.
Stephen defended the proceedings on the grounds that it was not a partnership at will, but on the facts, one for joint lives, and that he had an equity over the farm business, which included all of the freehold land farmed by the partnership, as a consequence of promises made to him by Roger that he would one day have his father’s share of the farm and the farm assets.
Decision
The High Court decided:
- Stephen and his wife were reliable and convincing witnesses, in contrast to the evidence presented against Stephen.
- Stephen had established that Roger had promised him the farm and the business.
- There was also clear evidence that Roger had discussed the promises with others: Thorner v Major [2009] considered.
- Allegations of bad behaviour made against Stephen were determined to be so trivial as to be of no effect: Uglow v Uglow [2004] considered.
- Stephen established that Roger’s words were promises and not mere indications of intention: Cook v Thomas [2010] considered.
- Stephen relied on the promises made to him, and had devoted his entire working life to the farm and the business. He based his whole life on the assurances given to him which were reasonably believed by him. His commitment to the farm and the business precluded him from pursuing any alternatives: Suggitt v Suggitt [2012] applied. Stephen had suffered detriment in reliance on the promises.
- It would be unconscionable for Stephen not to receive Roger’s share of the farm and the business. His alleged bad behaviour was trivial and the receipt of Geoffrey’s share was irrelevant. The interests of Stephen’s mother and sister were not relevant to unconscionability, but might be considered when deciding how the equity should be satisfied.
- The Court should exercise its discretion, when deciding how the equity should be satisfied, by mirroring as closely as possible the arrangements which would have applied had the dispute not arisen. That meant, in this case, Roger’s share should be transferred to Stephen: Seward v Steward [2014] considered and Davies v Davies [2016] followed. Stephen had established his entitlement to an equitable interest in Roger’s share in the farm and the farm assets, which included his current and capital accounts, the share of the contracting company’s cash and profits, and Roger’s director’s loan account, all of which fell within the pleaded definition of Roger’s share in the partnership.
- Stephen would take over the farm for practical purposes, but would be subject to an obligation to pay out agreed sums to support Roger and his mother. That was just an equitable and proportionate
to the detriment. - Regarding the issue of the partnership, it was determined that the partnership was not a partnership at will, but one for the joint lives of Roger and Stephen. However, it should be dissolved, but only on the grounds that it could not continue because of Roger’s lack of capacity, not for any other reason.
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