Ham v Bell and Others

Approved Judgment

Judge McCahill QC:

Introduction – The Ham Family and the Old and New Partnerships

This is a distressing farming partnership dispute between a son, the Claimant, John Ham, and his parents, the original Defendants, Ronald and Jean Ham. Tragically, Ronald Ham died on 10 July 2015 in an accident on the farm during the subsistence of this litigation, which was commenced by a claim form issued on 27 October 2011. Ronald's executors, including Jean Ham, have been substituted for him as a Defendant.

Ronald and Jean married in 1967 and have been dairy farmers all their lives. In 1986 Ronald and Jean bought their first farm, River Farm, Godney, which they sold in 1986 in order to buy in their own names the farm, the subject matter of this dispute, namely Lower West Barn Farm, Witham Friary, Frome, Somerset ("the farm").

The farm comprises the farmhouse, farm buildings and originally 220 acres. The farm grew to 900 acres of which 350 acres were rented and 550 owned in the names of Ronald and Jean Ham.

Ronald and Jean carried on their farming business in partnership ("the old partnership") between 1967 and 1997.

They have three children: Judith, now 45; Catherine, now 43 and the Claimant, John, now aged 37 years.

All three children worked on the farm from a very early age; in John's case since he was about eight. Judith left home when she married in 1986 or 1987 as did Catherine when she married in September 1997. Catherine's weekly wage before she left was about £220 per week, plus her keep, and John's was between £60 and £80 per week plus his keep.

Judith has become estranged from her family, although Ronald and Jean allowed her, after her marriage, to graze her sheep and cattle on farm land.

This was a traditional farming family in which all members worked from an early age on the farm, albeit in the belief, as happened, that the daughters would marry and live elsewhere, and with the hope or belief that their only son would carry on farming at the home farm.

After Catherine's marriage in 1997 only John remained at home with his parents.

John had left school at 16 to work full-time at the farm. He was about 19 and a half years old when Catherine got married.

Ronald and Jean decided to make him a partner in the family business which they did with effect from 1 October 1997, trading under the name RW and LJ Ham & Son. The written partnership agreement ("the new partnership") was made between John and his parents on 15 December 1997. At some later stage, Ronald and Jean also gave John about two acres of land with planning potential for his own ownership. That land had been bought with new partnership money.

The Issues

The central issue which I have to decide is whether the farm, comprising the farmhouse, buildings and land, as at 30 September 1997, undoubtedly assets of the old partnership, became assets of the new partnership at its commencement on 1 October 1997, because of their appearance in the accounts of the new partnership for the years 1998 to 2003.

John's case is that they did. His parents' case is that they did not and that the error in those accounts was rectified in the accounts for the years 2004 to 2008, all of which latter accounts John had signed, except for the 2004 accounts. Moreover, it was the case of Ronald and Jean that John always knew that they did not intend to make the farm and those buildings and land new partnership assets, when they brought him into the new partnership.

It is not John's case that there was any express agreement between him and his parents that the farm would become an asset of the new partnership.

Rather, he relied upon an implied agreement to that effect to be inferred from the conduct of the parties. Specifically, he relied on the accounts of the new partnership which, between the years ended 28 February 1998 and 28 February 2003 (none of which had been signed in manuscript by the parties or any of them), included the farm as an asset of the partnership. Those accounts credited one half of the historic cost of the farm (about £696,000) to the partnership accounts of Ronald and Jean.

Accordingly, the central issue which I have to decide has been broken down into sub-issues, although there is a dispute over whether one aspect of the third sub-issue arises on the pleadings.

Those sub-issues are as follows:

First, does the inclusion in the accounts for the years ending 28 February 1998 to 2003 of figures representing the historic cost of the farm mean that it was an asset of the new partnership or was that simply an accounting error that was put right in the accounts for the years ending 29 February 2004 (a leap year) and subsequently?

Secondly, if those accounts did have the effect of making the farm an asset of the new partnership, was this the result of a mistake which Ronald and Jean could have had rectified? If so, should they be read as if rectified or should the court make a formal order for rectification? John has sought permission to amend in closing speeches to allege that Ronald and Jean had in fact signed the accounts for the years ended 2002 and 2003, which accounts showed the historic cost of the farm in the balance sheet. I shall deal later with that application.

Thirdly, does the fact that John and his parents signed the accounts of the new partnership for the years ending 28 February 2005 to 2008 – none of which show the farm as an asset of the new partnership – mean that he is not now entitled to claim that the farm was an asset of the new partnership? Ronald and Jean rely on clause 3.5 of the Partnership Agreement to say that it is now too late to re-open those signed accounts. John has sought to re-open those signed accounts on the grounds that his parents were guilty of dishonourable conduct in concealing material information from him relating to the 2004 accounts. The Defendants have argued through Mr Jourdan QC that the contention of dishonourable conduct has not been pleaded and that it is now too late for me to grant the application (also made in closing speeches by Mr Partridge on behalf of John) for permission to amend to enable John to allege dishonourable conduct against his parents, thereby opening the door to the rectification of the signed accounts for the period 2005 to 2008.

The Partnership Accountants

There was a change of partnership accountants during the new partnership.

The accountants for the old partnership and for the new partnership up to the years ended February 2001 were Hucker & Booker. In the main, Mr Pritchard acted for the Defendants and John at that time.

For the accounts ended February 2002 and 2003 the accountants were Chalmers HB.

The accounts between the years ended 29 February 2004 and 28 February 2009 were prepared by Margaret Scarrott, an accountant and partner in the firm of Moore Scarrott.

Did Ronald and Jean sign the 2002 and 2003 accounts? The Application to Amend

In the accounts to February 2002 and 2003 the names of John and his parents had been typed on that page of the accounts dealing with the approval by the partners of those accounts. However, none of the parties – John, Ronald or Jean – had applied their own manuscript signature above their typed name.

I am satisfied that these names had already been typed in by the accountants when they sent those accounts to John, Ronald and Jean for signature and approval. I also infer that from the fact that on the same pages the name of the accountants too was typed in, but above the accountants' typed name someone had written in manuscript "Chalmers HB".

Mr Partridge, counsel for John, sought to raise during the trial the argument that the Defendants had adopted (and so signed) their typed names by authorising the accounts to be sent to the Revenue and that somehow this converted their typed names into a "signature" by the Defendants.

This allegation was not raised on the pleadings or in the amended position statement filed on John's behalf, dated 4 November 2015.

Mr Partridge applied in his closing submissions for permission to amend to allege that the Defendants had in fact signed the accounts for the years ended February 2002 and 2003 and, therefore, were bound by them in accordance with clause 3.5 of the Partnership Agreement, with the result that those accounts showed the farm in the fixed assets of the new partnership. That application was opposed by Mr Jourdan.

I refuse the application to amend. It is made far too late. Moreover, in order properly to investigate the factual background to those alleged "signatures" further evidence might be required and of course Ronald Ham is no longer able to give live evidence and John himself gave no evidence about it.

In any event, even if the matter had been properly before the court, I would have held that for the purpose of clause 3.5 of the Partnership Agreement (to which I shall later turn), the deemed conversion of a name – typed by accountants before presenting the accountants to the parties – into a "signature" for the purposes of clause 3.5 is an argument doomed to failure: see Firstpost Homes Ltd v Johnson & Ors [1995] 1 WLR 1567 at 1574, per Peter Gibson LJ; and 1576G-H, per Hutchinson LJ.

Clause 3.5 and the re-opening of signed partnership accounts