Ham v Bell & Ors

Property used by a partnership does not become partnership property merely because it appears in partnership accounts, or because partnership funds are used for improvements. Property owned by one or more partners becomes partnership property only where an express or implied agreement brings it into the partnership stock.

Partnership accounts are evidence of the parties’ agreement, but are not conclusive. They may reflect accounting error, particularly where accountants carry forward earlier treatment without considering ownership. A farming partnership may operate on the basis that land owned by some partners is made available rent-free for the partnership business.

The claimant, John Ham, had joined a farming partnership with his parents in 1997. The farm had previously been owned and operated by his parents. The accounts for 1998 to 2003 included the farm and historic cost as partnership assets, but later accounts removed them and were signed by the parties.

John claimed that the earlier accounts evidenced an implied agreement that the farm had become an asset of the new partnership. His parents contended that the entries were accounting errors and that the farm had remained their personal property. The court also considered whether signed accounts could be reopened and whether late amendments alleging dishonourable conduct should be permitted.

1. Claim dismissed. The farm and the milk quota were not assets of the new partnership. There was no express or implied agreement that they had been brought into the partnership stock, and John knew that this was the position.
2. Under section 20 of the Partnership Act 1890, property is partnership property only if it has been brought into the partnership stock. The section does not itself determine whether that has occurred. For property owned by a partner at the commencement of a partnership, an express or implied agreement between the partners is required: Miles v Clarke [1953] 1 WLR 537.
3. The inclusion of property in partnership accounts is evidence only. Accounts may contain mistakes or may continue an earlier accounting treatment without addressing ownership. The entries for 1998 to 2003 did not establish an agreement. The subsequent correction of the accounts, the absence of capital gains tax advice or holdover relief, the partnership agreement and the parties’ wills supported the conclusion that the farm remained owned by Ronald and Jean Ham.
4. It was unnecessary to imply that the farm was partnership property. A farming partnership can function naturally where land-owning partners make the land available to the partnership without transferring ownership. Expenditure from partnership funds on improvements or acquisitions may be dealt with on dissolution to avoid injustice, but it does not itself establish partnership ownership: Burdon v Barkus (1862) 4 De GF&J 42; Davies v H & E Ecroyd Ltd [1996] 2 EGLR 5.
5. The applications to amend the position statement to allege signatures on the 2002 and 2003 accounts, or dishonourable conduct and concealment, were refused as too late. In any event, typed names placed on accounts by accountants did not amount to signatures for the purposes of clause 3.5 of the partnership agreement: Firstpost Homes Ltd v Johnson & Ors [1995] 1 WLR 1567.