Wild west partnerships: who owns what?

The lack of formality required to establish a partnership has been the root of a great deal of litigation over the centuries. If the existence of a partnership and its composition are established, the next likely area of conflict is what was owned by the partnership. The extent of the property owned is relevant throughout the life of the partnership (particularly if the property generates profits) but it becomes a more vexed question on dissolution.

The question is whether the property was used by the partnership and treated as partnership property

Particular complications arrive when property has been paid for not by the partnership but by one of the partners individually. The property may remain the property of that individual or it may become partnership property. The question is whether the property was used by the partnership and treated as partnership property. Mere use by the partnership is insufficient to change the ownership of an asset.

This question often arises in relation to property. It is not unusual for a property interest (freehold or leasehold) to have been owned before the creation of the partnership. If there was no express agreement as to a change in ownership the court will need to consider whether such an agreement can be implied or inferred in the circumstances of the case.

The case

In Wild, the court was faced with a dispute between two brothers as to whether or not farmland was partnership property.

The relevant farm land had been owned by the main protagonists’ father, Ben Wild, from around 1975, having passed to him on the death of his parents. In 1978, a partnership was formed between Ben Wild and his son, Malcolm Wild. This was done for tax purposes. At the time Malcolm Wild was around 16 years old.

There had been a continuing partnership in several different compositions from 1978. This litigation arose following the dissolution of the partnership in 2016. At the time of dissolution the partners were two brothers, Gregory Wild and Malcolm Wild. Ben Wild had died in July 2003 and the legal title to the farmland was held by the brothers’ mother.

The claimant, Gregory Wild, argued that the farmland was partnership property and should be brought into the account on winding up. The defendants (Malcolm Wild, his wife and the brothers’ mother) argued that the farmland had remained in the ownership of Ben Wild throughout and was to be dealt with as part of his estate.

An agreement as to property being introduced to a partnership will not readily be implied

There was no written agreement on the commencement of the partnership in 1978 or any other documents from that time giving information about how the property was to be held. There were partnership accounts from the 1990s which included details of fixed assets including ‘property: £40,750’.

The judge, His Honour Judge Eyre QC, heard evidence from all members of the family and considered their reliability. He did not think that any of the members of the family gave unimpeachable evidence but he was particularly unimpressed by the claimant.

The judge found that the reference in the accounts referred to the farmland and stated that ‘the inclusion of an asset in partnership accounts as partnership property is evidence that it is partnership property and is likely to be very powerful and persuasive evidence but it is not conclusive of that question’.

However, the judge held that the farmland was not partnership property as he could find no evidence of an agreement in 1978 (it appears that a later agreement was not pleaded) and it was not necessary to imply such an agreement.

Comment

This case was largely a decision on the facts before the judge. However, there are several points which arise that will be of general use.

First, if an asset appears in partnership accounts, that is very strong evidence in favour of it being partnership property. The statement from the judge quoted above may be useful in future cases.

Second, those accounts are not conclusive. If you are acting for the party relying on the accounts, finding and exhibiting them is not the end of the road; you must look at the broader circumstances regarding the property. Ensure that any evidence in your client’s favour is collected and filed.

Third, if there is no evidence of an express agreement as to property being introduced to the partnership the court will consider whether such an agreement will be implied. Such an agreement will not readily be implied.