Inland Revenue v Graham's Trustees

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Reid,Lord Morris of Borth-y-Gest,Lord Guest,Lord Upjohn,Lord Donovan
Judgment Date08 Dec 1970
Judgment citation (vLex)[1970] UKHL J1208-1
Docket NumberNo. 1.

[1970] UKHL J1208-1

House of Lords

Lord Reid

Lord Morris of Borth-y-Gest

Lord Guest

Lord Upjohn

Lord Donovan

Commissioners of Inland Revenue
Graham and Others

Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Graham and others, that the Committee had heard Counsel, as well on Monday the 19th, as on Tuesday the 20th, Wednesday the 21st and Thursday the 22d, days of October last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London W.C.2, praying, That the matter of the Decision and Interlocutor set forth in the Schedule thereto namely, a Decision of George MacDonald Thomson, F.R.I.C.S., Referee, of the 6th of December 1967, so far as regards the words, " I hereby find that the farm and lands of East Scales, Gretna, Dumfriesshire falls to be valued subject to tenants' rights for the purposes of assessing Estate Duty arising on the death of the late R. F. Graham on 23rd February 1963 at the sum of £30,000 and uphold the Appeal by the Trustees of the late R. F. Graham against the decision of the Commissioners of Inland Revenue Estate Duty Office, Edinburgh, dated 30th January 1967," and also an Interlocutor of the Judges named for the purpose of hearing Appeals under the Valuation of Lands (Scotland) Acts, of the 18th of December 1969, so far as regards the words, " Question No. 6 in the Affirmative. Finds the appellants liable to the respondents in expenses," might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Decision and Interlocutor, so far as aforesaid, might be reversed, varied or altered, and that the Judges named for the purpose of hearing Appeals under the Valuation of Lands (Scotland) Acts, or the Referee named in this matter, might be ordered to find that the principal value of the property and lands owned at the time of the death of Robert Farish Graham was £44,500, and that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Mrs. Mary Ellen Graham, Mrs. Frances Hazel Graham or Smith and John Rogerson, the Trustees for the late Robert Farish Graham, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Decision of the 6th day of December 1967, and the Interlocutor of the 18th day of December 1969, both in part complained of in the said Appeal, be, and the same are hereby Recalled except as to expenses: And it is further Ordered, That the said Cause be, and the same is hereby, remitted back to the Judges named for the purpose of hearing Appeals under the Valuation of Lands (Scotland) Acts with a Direction to proceed in accordance with the Opinions expressed in this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal to this House such Costs to be taxed on a Common Fund Basis, the amount of such Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the parties entitled to the same within one calendar month from the date of the Certificate thereof, the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland, or to the Judge acting as Vacation Judge, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.

Lord Reid

My Lords,


Mr. Graham owned the farm of East Scales, Gretna. He died on 23rd February, 1963. To determine the estate duty payable it was necessary to determine the price which this farm would have fetched "if sold in the open market at the time of the death of the deceased" (section 7 (5) of the Finance Act, 1894). The Appellants contended that the price should be taken as £44,500. The Respondents contended for a price of £30,000.


The reason for this difference was that at the time of the death the farm was let to a partnership consisting of the deceased and three relatives. The Revenue contended that the Respondents, the trustees of the deceased, could have sold the farm with vacant possession at 1st April, 1964. The Respondents contended that, on the death, the surviving partners were entitled to remain in possession as tenants with the security of tenure provided by sections 25 and 26 of the Agricultural Holdings (Scotland) Act, 1949. The matter was submitted to a Referee. He decided in favour of the Respondents and stated a Case. The judges of the Court of Session appointed to hear such cases by Interlocutor of 18th December, 1969, answered the questions in the case in a manner which upheld the decision of the Referee and granted leave to appeal to this House.


This case raises some fundamental questions as to the law of partnership in Scotland. I must first summarise the provisions of this contract of copartnership. The partnership began on 1st April, 1957, and was to continue from year to year until one party should give six months' notice of his intention to have the partnership dissolved. Each partner was to be entitled to one quarter of the profits. By clause fifth the deceased agreed to let the farm to the partnership at the assessed rent of £360 or such rent as might be agreed from time to time. I must set out clause eighth in full:

"( Eighth) In the event of the dissolution of the partnership by any of the partners giving notice of termination as before provided the said Robert Farish Graham may, or in the event of dissolution by the death or bankruptcy of any partner the surviving or solvent partners may, within two months of the giving of such notice or of the death or bankruptcy, give written notice to the other partners or the representatives of the deceased partner or the Trustee of such bankrupt partner of his or their intention to purchase the other's interest in the partnership and in such case shall be entitled to acquire the interest or such others or deceasing or bankrupt partner in the assets of the firm at valuation, and on the termination or dissolution of the partnership each partner shall execute all deeds and documents and do all things necessary for the winding up and transfer of the assets of the firm."


There was no formal lease but the partnership took possession under the agreement and it is admitted that the partnership became the tenant. I think there was clearly a tenancy from year to year from 1st April, 1957. Other matters not provided for in the agreement would be determined by law.


There is no doubt that in Scotland a partnership or firm is and always has been a legal persona distinct from the partners, and there was nothing new in the provision of section 33 of the Partnership Act, 1890, that:

"Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner."


The first contention for the Respondents is that there was here an agreement that the partnership should continue notwithstanding the death of a partner. That appears to me to be inconsistent with the express terms of clause eighth and I can find nothing either in the contract or in the surrounding circumstances to justify any other conclusion. It is true that in clause eighth there are provisions enabling surviving partners to purchase the interest of a deceased partner, and it was argued that this must indicate an intention that the farm should be carried on by the survivors. Very likely that was so and it appears that that is what in fact happened after the death of Mr. Graham. But that does not necessarily indicate an intention that the same partnership should continue. It could equally well be that it was expected that the surviving partners being close relatives would make appropriate new arrangements.


Their next contention was based on a statement in Bell's Commentaries page 526 where, after dealing with guarantees and surety bonds, he wrote:

"2. The intention of the parties will be studied in the decision of such cases, where the obligation is undertaken to a firm, whether it was meant to be limited to the partners at the time, or to be extended to the house under all the changes it might undergo."


The conception of a contract with a "house" is not easy to apply but later authorities support it to some extent and I would be very willing to try to apply it in a proper case because it seems to me to reflect the common practice and understanding of those who deal with professional or commercial firms. Few people who enter into such contracts are greatly concerned about the death or retirement of one partner, still less about the assumption of another. And very often they do not find out about this at least for a long time. I think that any layman would be greatly surprised to be told by the partners of the new firm created by such a change that his contract with the old firm no longer existed. It might well be possible to imply that the old firm had undertaken that a new firm succeeding to the business would honour the old firm's contracts so that its assets would be liable if the new firm refused to do so.


But I would find that much more difficult in the case of a contract between the firm and one of its partners. And in the present case clause eight appears to me to exclude any such implication.


So, in my opinion, it must be held that this contract of co-partnership came to an end on the death of Mr. Graham. All that remained was to wind up its affairs. It must follow that thereafter there was no tenant because the farm had been let to the...

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