Ham v Ham, High Court, 14th April
On 14 April 2016, HHJ McCahill QC, sitting as a High Court Judge, delivered judgment in this family farming partnership dispute. He held that the farm was not an asset of the partnership. Stephen Jourdan QC acted for the successful Defendants. A transcript of the judgment is not yet available.
In 1997 Mr and Mrs Ham, who were then established dairy farmers, took their son John Ham, then aged 19, into partnership. At that time Mr and Mrs Ham were the owners of a farm. The accounts of the partnership for the first year, and for several subsequent years, showed the farm as an asset of the partnership. However, in 2004, new accountants were instructed, and they prepared accounts which removed the farm from the accounts. Thereafter, the accounts, which all three partners signed, did not show the farm as a partnership asset.
In 2009, John Ham gave notice retiring from the partnership, and his parents elected, under the partnership agreement, to purchase his share at its “net value”. In 2013, the Court of Appeal determined that this meant that the assets of the partnership had to be determined on the basis of their market value at the date of retirement. The issue which HHJ McCahill QC had to decide was whether the farm was an asset of the partnership.
John Ham did not contend that there was an express agreement that the farm was to be a partnership asset. He contended that was to be inferred from the accounts, and the fact that the partnership had spent money on improving the farm.
The Judge rejected that claim. 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. Property owned by one or more partner at the start of the partnership will only be treated as partnership property if that is expressly or impliedly agreed between the partners. Often (especially in farming partnerships) the most valuable assets used by the firm are owned by some or all of the partners outside their capacity as such partners.
In the absence of express agreement, no more agreement between the parties should be inferred than is necessary to give business efficacy to that which has happened. With a farming partnership, it is not necessary to imply that the land on which crops are grown or animals are grazed is an asset of the partnership. Such a partnership can work perfectly well on the basis that the landowning partners make the land available to the partnership for use for the partnership business so long as it continues.
The accounts of a partnership may provide evidence as to whether there was an express agreement to make land a partnership asset. If one partner says there was such an express agreement and the other denies it, the accounts may help the court to decide whose recollection is more reliable. But mistakes can be made. In this case, the entries in the accounts up to 2004 were a mistake which was put right in 2004. That conclusion was supported by the fact that, if the partnership accountants had thought that Mr and Mrs Ham had intended to give John Ham a share in the farm, they would be bound to have advised that a claim to holdover relief should be made, to avoid the risk which would otherwise exist of a charge to capital gains tax.
As to the fact that the partnership had spent money on improving the fixed equipment on the farm, that did not make the farm a partnership asset. It often happens that a partnership which is using land belonging to one or more partner pays for works to the land, or for replacements or additions to fixed equipment on the land. In those circumstances, when the court is winding up the partnership, it has power to direct that the non-owning partner is given credit in respect of their contribution to the payments, if that is necessary to avoid injustice. The fact that such money has been spent is not a ground for inferring an agreement that the asset was to be partnership property.
Therefore, objectively, no agreement was to be inferred from the partners’ conduct.
If that was wrong, then the question arose as to the subjective intentions of the partners. The law does not impose an agreement on parties where subjectively neither intended to create an agreement, even if objectively it appears that an agreement was made. The Judge held, on the evidence, that neither Mr and Mrs Ham, nor John, believed that the farm was a partnership asset.
The judgment also considered clause 3.5 of the partnership agreement. This said that the accounts should be signed by all partners: “…who shall be bound by the contents of the balance sheet and the profit and loss account unless some manifest error is found within 6 months after he or she has signed in which case such error shall be rectified”.
John Ham sought to rely on clause 3.5. He argued that the accounts for 2002 and 2003, which showed the farm as a partnership asset, had been signed, because the partners’ typed names appeared on them and the accounts had been approved by the partners, so turning those typed names into signatures. The Judge held that this point, which had not been pleaded, was not open to John Ham, as it had been raised too late. In any event, he held that the argument would have been doomed to failure, in the light of the decision of the Court of Appeal in Firstpost Homes v Johnson [1995] 1 WLR 1567.
Mr and Mrs Ham also relied on clause 3.5. They said that, even if the farm had been a partnership asset because of the earlier accounts, John Ham was bound by the 2005-2008 accounts which he had signed, which did not show the farm as a partnership asset. John Ham sought to argue that he was not bound by his signature, because material facts had been dishonourably concealed from him. The Judge held that this point, too, was not open to John Ham as it had not been pleaded and was raised too late. In any event, he held that there had been no concealment.
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