DAVID HOFFMAN SUCCESSFUL IN CHANCERY TRIAL CONCERNING FAMILY FARMING PARTNERSHIP


Wild v Wild [2018] EWHC 2197 (Ch), [2018] All ER (D) 04 (Sep)

 

David Hoffman successfully appeared for the Defendants at this recent Chancery trial. It concerned a family farming partnership. The Claimant argued that the farm itself was an asset of the partnership (as opposed to just the farming business). The Court held that the farm was not an asset of the partnership and so not to be brought into account on dissolution of the partnership.

Partnership issue

The claimant and the first defendant were brothers and partners in a family farming partnership. Previously the parties’ father had been a partner until his death, as had their mother (the second defendant) until her retirement. The partnership was in dissolution by agreement.

The issue which arose was whether the farm property itself was a partnership asset. The farm property had been registered in the father’s name and was then transferred to the mother on the father’s death. It consisted of the farm itself and farmhouse, which remained the mother’s home, and a bungalow which was the home of the first defendant and his wife, the third defendant. The claimant maintained that the farm was a partnership asset. His case was that it was mentioned in the accounts each year, and that this was evidence of an intention or agreement for it to have been brought into the partnership. His case was also that these were settled accounts, having been agreed over many years.

There was other evidence on which the claimant relied, but the accounts were the main evidence to support his case. There was no direct evidence of an agreement between the original partners, the father and the first defendant, to bring the farm into the partnership and the first defendant’s evidence was that there was no such agreement. The defendants’ case was that the farm was not mentioned in the accounts but, even if it was, such mention did not by itself raise an inference of an agreement to bring the farm into the partnership and that the evidence showed rather that there was no such agreement.

The court decided that there had been no agreement that the farm was a partnership asset.

 

The court also held that a unilateral intention by the father was not enough to bring the farm into the partnership. There had to be an agreement between the partners, i.e. the father and the first defendant.

Further, although an agreement could be inferred, this should not be done unless the evidence required, following Miles v Clarke [1953] 1 All ER 779 and Ham v Bell [2016] EWHC 1791 (Ch), [2016] All ER (D) 222 (Apr). Such an inference follows the general rules for implying a term into a contract.

The court accepted previous authority, as summarised in Ham v Bell, that it was not normally necessary for business efficacy to imply a term that the farm land was a partnership asset. There was no evidence of such an agreement and the evidence of the father’s later view suggested rather that he did not consider that the farm was part of the partnership. The court did hold that the farm appeared consistently in the accounts, but that this by itself was not evidence from which it could properly be inferred that there was an agreement to bring the farm into the partnership. An asset appearing in the accounts was not conclusive, nor was it a course of dealing.

On the facts, the court held that the farm was not partnership property. The fact that it appeared in the accounts did not mean that the accounts were settled such that it bound the parties on dissolution. In particular, various items of correspondence relating to possible testamentary dispositions showed that the father had treated the farm as remaining his to dispose of. There was other evidence which the court accepted showed that this was the father’s understanding of the position. The court found that the father did not cede control of the farm, nor did he intend or represent that he was doing so.

The key principle which the court applied was that bringing assets into a partnership does require an agreement between the parties. This can be inferred, but care must be taken in this exercise. The courts should not infer such an agreement unless it is absolutely necessary to do so. The partnership accounts are only one piece of evidence in this regard, they are not conclusive, and if they do not reflect what was actually agreed between the partners, they should be disregarded.

The case is a useful reminder of the importance of having a written partnership agreement. Had there been a written agreement, that would have avoided most of the arguments. The case also underlines the importance of clarity about which assets are partnership assets and which not, and again this should ideally be evidenced in writing.

Estoppel issue

There was also an issue about proprietary estoppel. Part of the property was a bungalow in which two of the Defendants lived. They argued that there was a proprietary estoppel or constructive trust because the father and mother had promised that the bungalow would be the first and third defendants’ and, in reliance on that promise, they had done substantial works on it.  The court held that there was a proprietary estoppel. The defendants acted to their detriment in incurring substantial expenditure in respect of the refurbishment, renovation, and extension of the bungalow and did so in reliance on representations and assurances from the father and mother that the bungalow was to be theirs and was being regarded as their property such that it would now be unconscionable for the mother to rely on their absence of legal title to it.

The court followed Thorner v Major [2009] UKHL 18, [2009] 3 All ER 945 and Gillett v Holt [1998] All ER (D) 278 for the general principles which applied. The court’s approach was that the case was to be decided in the round, depending on all the facts. In particular, there does not have to be a strict chronological sequence of clear assurance then reliance—if there is a common understanding which is acted on, which is then confirmed by what is said (even if that is after the action in reliance), that can suffice because reliance is to be determined in the round.

The minimum equity necessary was to find that the beneficial interest in the bungalow should be transferred to the first and third defendants. The court did not consider in detail whether there was a constructive trust as well but did indicate that the particular circumstances should more naturally be regarded as giving rise to a proprietary estoppel than to a common intention constructive trust.

This article also appears on David Hoffman’s blog and is reported on Lexis/Nexis.

 

David Hoffman