New UK case on partnership property and accounts

Karim Sophie Kingsley and others v Sally Margaret Kingsley and another [2019] EWHC 1073 (Ch)

This case involved a family farming partnership which had dissolved automatically on the death of one of two partners. The deceased partner’s widow and sole beneficiary (Karim) brought a number of claims against the surviving partner (Sally), concerning the sale of the land which the partnership had farmed but which had been owned by the partners individually (the Farm Land) and the settling of the cessation and post-dissolution accounts.

As the Farm Land was not partnership property, its sale was governed by the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) rather than the Partnership Act 1890. However, the court noted the difficulty of valuation highlighted in the partnership case of Benge v Benge [2017] EWHC 2124.  Section 39 of the Partnership Act 1890 normally entitled partners of a dissolved partnership to insist on the sale of partnership property, but under Syers v Syers (1876) 1 App Cas 174 the court had discretion to permit the majority partners to buy out the minority on dissolution. In Benge the court had declined to exercise this discretion and instead ordered a sale on the open market, because valuation was so problematic. In the present case the court ordered that Sally should have the option to buy the Farm Land by a deadline specified by the court and at a price specified by it on the basis of expert evidence, with sale on the open market if Sally failed to exercise this option.

The only outstanding dispute on the cessation accounts was the expenditure of partnership money on buildings erected on the Farm Land. In such circumstances, the court could direct that the improved value of the property be treated as a partnership asset, but that depended on what the partners had agreed should happen as a result of the partnership expenditure. The court held that although the partnership accounts had included a figure for “freehold property”, and this was not the improved value of the property but the depreciated expenditure, and was likely to have been included solely in order to allow the expenditure to be claimed as an expense against tax.

As to the post-dissolution accounts, the court applied the principle in Lie v Mohile [2014] EWHC 3709 (Ch) that the implied licence granted to the partnership by the partners who owned the property continued on the same terms until the partnership was wound up or a receiver was appointed by the court. The court considered that the District Master would not have ordered Sally to pay interim occupation rent had Lie been argued before her, but there had been no appeal against this order, and it therefore stood. The court noted, without making any findings given the lack of submissions from the parties, that the order could be interpreted as being subject to repayment of the rent if the final court judgment found no rent was payable.  It further noted that if this interpretation was open to it, it would have found no rent to be payable and ordered repayment of the rent already paid. However, if the order meant that interim occupation rent was payable, Sally was entitled to 50% of it as she was 50% co-owner of the Farm Land. The parties were invited to make further submissions at a future hearing.