Drake v Harvey and Others
| Jurisdiction | England & Wales |
| Judgment Date | 16 June 2010 |
| Neutral Citation | [2010] EWHC 1446 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC08C03126 |
| Date | 16 June 2010 |
[2010] EWHC 1446 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mr Justice Mann
Case No: HC08C03126
Mark Blackett-Ord (instructed by Burges Salmon LLP) for the Claimant
Ulick Staunton (instructed by TWM) for the 1 st & 2 nd Defendant
Elspeth Talbot-Rice QC (instructed by Charles Russell) for the 3 rd & 4 th Defendant
Hearing dates: 8 th– 9 th March 2010
The Hon. Mr Justice Mann
Introduction
1. This is an unfortunate family dispute about the terms on which the members of a former four-member partnership are entitled to be paid out upon their ceasing to be partners. The essential question is whether or not they are entitled to have their shares or entitlements valued on the footing of a current as opposed to a historic valuation of the farming land.
Essential Facts
2. The four partners were two parents (Jack Harvey and Mary Harvey) and two of their children, namely Aidan and Francesca. To avoid confusion I will use their first names in this judgment. Francesca is the Claimant in these proceedings; Jack and Mary are the first and second Defendants respectively appearing by their Litigation Friend. The third and fourth Defendants are Aidan's Personal Representatives. There were other children of the family, but apart from another son (Paul) they did not engage in the family partnership. The partnership farmed land at Michelmersh Manor Farm, Hampshire (“the Farm”).
3. Until mid-August 2006 the four partners carried on the partnership. There then followed a series of highly unfortunate events. First, Aidan died of cancer on 20 th August 2006. This triggered a provision of the partnership under which his share in the partnership accrued to the other partners on terms which are now in dispute (so far as valuation is concerned). The next day his parents gave Enduring Powers of Attorney to Richard Jenkins, the husband of one of the other children. Shortly thereafter Jack had a stroke and lost mental capacity, and on 30 th December 2006 Richard registered his EPA and has acted as his Attorney ever since. Two years later, in mid-June 2008, Mary had a stroke and again lost capacityh, and Richard registered her Power of Attorney on 27 th June 2008. Under the terms of the Partnership Deed, those last two events (or rather the disability which underlay them) caused successive forced retirements of the two parents from the partnership, again giving the continuing partners with their shares, acquired under the terms of the deed the effect of which is in dispute, ultimately leaving Francesca as the sole surviving partner.
4. Before going back into the history a little more, it will be useful to set out the relevant terms of the Partnership Deed.
5. Recital A is in the following terms:
“(A) The parties hereto (hereinafter collectively called “the Partners”) became partners in the trade or business of farmers on the Twenty-ninth day of November One thousand nine hundred and eighty-two and Paul Harvey (“Paul”) was admitted to the partnership as an additional partner on the 31 st day of May One thousand nine hundred and eighty-seven.”
6. The next Recital deals with the historic and current capital:
“The “A” capital of the partnership is and was the sum of One hundred and fifty thousand Pounds (£150,000.00) which was originally provided by and belonged to the Partners in the following shares:
7. The remaining Recitals set out some further relevant history. They are as follows:
“(C) On 30 th April 1987 the partnership property was revalued and the increase of £210,000.00 was credited to the Partners in the above percentages excepting that Mr Harvey gifted to Mrs Harvey £63,000.00
(D) On the 31 st day of May One thousand nine hundred and eighty-seven Mrs Harvey assigned to Aidan 18% of the “A” capital of the partnership to Francesca 12% of the “A” capital of the partnership and to Paul 5% of the “A” capital of the partnership
(E) On the 30 th day of April One thousand nine hundred and eighty-eight Paul assigned to Francesca his 5% of the “A” capital and retired from the partnership”
8. The Deed provides that the partners continue in the former partnership. Clause 1 provides that it started on 29 th November 1982 and would continue “until determined as hereinafter provided”. Clause 6 is an important provision for providing for capital. It reads:
“(a) Paul assigned the 5% “A” capital to Francesca on the 30 th day of April One thousand nine hundred and eighty-eight and Paul retired by agreement from the partnership
(b) The “A” capital of the partnership (which the Partners intend shall relate to monies required on a long term basis for the establishment consolidation and extension of the partnership business) shall be the sum of Three hundred and sixty thousand Pounds (£360,000.00) and at the date hereof belongs to the Partners in the following shares:
£
Mr Harvey
12.5%
45,000.00
Mrs Harvey
12.5%
45,000.00
Aidan
48%
172,800.00
Francesca
27%
97,200.00
£360,000.00
(c) Subject to the subsequent provisions of this Deed no Partner shall be entitled to withdraw all or any part of his “A” capital nor shall there by any increase in the amount of the “A” capital or any alteration in the respective shares of the Partners therein without the consent of all the Partners Provided that nothing in this Deed shall preclude the transfer by one Partner to another existing Partner of all or part of his share in the “A” capital
(d) No interest shall be paid to the Partners on their respective shares of the “A” capital”
9. Thus the “A” capital is a fixed amount and it cannot be increased without the consent of all Partners. It is common ground that no consent was given and that, in the events which have happened, that capital has not been increased. It was at all material times reflected in the partnership accounts in the amounts just referred to.
10. Clause 7 provides for “B capital”, which was intended to be monies required on a medium term basis. Although the accounts for one year (or draft accounts) show some “B” capital (and indeed some “C” capital, which is not expressly provided for in the Deed), at the date of the events which are material to this trial there was no “B” capital.
11. Clause 9 deals with profit shares:
“With effect from the 1 st day of May One thousand nine hundred and eighty-eight and until agreed otherwise by all the Partners the profits of the partnership shall belong to and shall continue to belong to the Partners in proportion to their holdings of “A” capital viz:—
Mr Harvey
12.5%
Mrs Harvey
12.5%
Aidan
48%
Francesca
27%
Excepting that Francesca's share of profits (excluding capital profits) shall not be less than such sums as may from time to time be agreed as her salary”
And Clause 11 deals with the cut of profits:
“11. The capital profits and losses of the partnership shall be divided between and borne by the Partners in proportion to their respective shares in the “A” capital for the time being.”
12. Clause 13 deals with accounts, and, as will appear, is important in this case. It reads:
“13. (a) All necessary and proper books of account shall be kept by the firm and on the Thirtieth day of April in each year a general account shall be taken of all the assets and liabilities and of the profits and losses of the partnership for the preceding year and shall be signed by each Partner
(b) Such account when signed shall be conclusive and final between the Partners as to all matters stated therein unless some manifest error is discovered within three months of the signing hereof in which case such error shall be rectified.”
13. Clause 17 provided for the partnership to condinue until certain events involving notice by the parents, or the death of the parents, in terms which I do not need to set out. Clause 18 provides that a partner should retire on giving 6 months notice, and the parents could force Aidan or Francesca to retire by giving notice to them. Again, I do not need to set it out. The departure of Partners is dealt with by Clause 19, and that is the Clause under which Francesca now claims the shares of her brother and her parents. It reads:
“19. (a) In the event of a Partner retiring dying becoming bankrupt becoming a patient under the Mental Health Act the share of that Partner in the capital and assets of the partnership shall accrue to the surviving partners in the same proportions as their respective shares in the “A” capital for the time being and there shall be paid to the outgoing Partner his personal representative trustee in bankruptcy or receiver as the case may be a sum equal to:
(i) The amount standing to the credit of the outgoing Partner as his share in the capital of the partnership and as undrawn profits belonging to him in the last annual general account prior to his retirement death bankruptcy or becoming a patient as aforesaid; and
(ii) The amount of any further capital brought by him into and credited to him in the books of the partnership after the taking of the last annual general account or commencement of the partnership as the case may be; and
(iii) An amount equal to the outgoing Partner's share of profits of the partnership in respect of the period from the taking of the last general annual account or the commencement of the partnership or [sic] less an amount equal to the outgoing Partner's share of losses of the partnership in respect of that period as the case may be after allowing for all expenses in accordance with the partnership's usual accounting practices
(b) The said sum shall be paid by six equal half-yearly instalments the first of such instalments to be...
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