REF/2009/1485

 

 

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

                   LAND REGISTRATION ACT 2002

 

 

                   IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

 

 

 

               BETWEEN

MALCOLM HARRY WILLINGTON POWELL

APPLICANT

 

and

 

IVOR DAVID JOHN POWELL

RESPONDENT

 

 

 

Property Address: Farmside Bungalow, Aston, Claverley, Wolverhampton WV5 7DZ

Title Number of Caution Against First Registration: SL176192

 

 

Before: Mr Daniel Gatty sitting as a Deputy Adjudicator to HM Land Registry

 

Sitting at: Victory House, Kingsway, London on Monday 15 June 2010

 

___________________________________________________________________________­

 

DECISION

___________________________________________________________________________

 

KEYWORDS: Caution Against First Registration – partnership – whether settled account – re-opening a settled account – laches

 

Cases referred to:

Robinson v Ashton (1875) LR 20 Eq 25

Miles v Clarke [1953] 1 All ER 779

Barton v Morris [1985] 2 All ER 1032

                

Introduction

 

1.      This is a dispute between two brothers, who, together with their now deceased mother and father, farmed together in partnership near Wolverhampton. The partnership was dissolved in 2002 but it is the Applicant’s case that a bungalow, which he says was an asset of the partnership, was not properly dealt with in the aftermath of the dissolution. The Applicant claims to have a beneficial interest in the bungalow, known as Farmside Bungalow, Aston, Claverley, Wolverhampton (“the Bungalow”), as a partner in the former partnership. The Bungalow stands on unregistered land and on 17 March 2006 the Applicant registered with Land Registry a Caution against First Registration in respect of it. On 18 May 2009 the Respondent applied to cancel that caution. The Applicant objected and it was that application that I heard on 15 June 2010.

 

2.      Since all of the main players in this dispute have the surname Powell, I shall refer to them in this judgment by their first names, Malcolm for the Applicant, Ivor for the Respondent, Gerald for their late father, Elena for their late mother and Joyce for Malcolm’s wife. Malcolm, Ivor and Joyce gave evidence before me.

 

3.      Throughout these proceedings Malcolm has been represented by Mills & Reeve LLP, solicitors. Sebastian Kokelaar of counsel appeared for him at the hearing. Ivor was represented by a lay representative, Henry Soulsby. Mr Soulsby is the Chambers Manager at a set of barristers’ chambers in Wolverhampton and told me that he had previous experience of conducting advocacy, in a county court.

                

The Issues

 

4.      It was common ground between the parties that the issues that I am required to decide are:

(a)    whether the Bungalow was partnership property;

(b)   if so, whether Malcolm is precluded from claiming a beneficial interest in the Bungalow because either (i) the partnership affairs have been wound up and there is a settled account, or (ii) Malcolm’s claim to have an interest in the Bungalow is statute barred by the passage of time;

(c)    if Malcolm has an interest in the Bungalow, whether it is a qualifying estate or an interest in a qualifying estate capable of being protected by a Caution against First Registration pursuant to s. 15 of the Land Registration Act 2002.

 

5.      In fact, there was no real dispute on issue (c). Correctly, in my judgment, Mr Soulsby did not seek to argue that the interest of a former member of a dissolved partnership in unregistered land resulting from it being partnership property is not an interest in a qualifying estate for the purposes of s. 15.

 

The facts

 

6.      Gerald acquired the freehold of Lower Aston Farm, then unregistered, in 1959. He farmed it for most of the rest of his life, initially on his own account and later in partnership with his immediate family. It was on Lower Aston Farm that the Bungalow was built in 1978. It is common ground that, with the possible exception of the land on which the Bungalow was built, the freehold of Lower Aston Farm was never a partnership asset.

 

7.      In the mid 1960s Malcolm was made a partner in his father’s farming business, named GH Powell & Sons (“the Partnership”). The Partnership farmed Lower Aston Farm and the partnership accounts showed the Partnership paying Gerald a rent to do so. Consequently, although there is no written tenancy agreement it was common ground that the Partnership must have had a tenancy of Lower Aston Farm.

 

8.      In about 1971 Ivor and Elena both joined the Partnership. There was no formal partnership agreement but it is not disputed that the four partners had equal shares in the Partnership.

 

9.      In 1971 the partnership purchased Little Bank Farm, Broughton, Claverley. Adjoining Little Bank Farm was Brantley Farm and in 1976 25 acres of Brantley Farm was also bought by the partnership. In addition to Lower Aston Farm, Little Bank Farm and those 25 acres, the Partnership also farmed other land the freehold of which was acquired by members of the Partnership but not by the Partnership itself. Malcolm and Ivor purchased 40 acres of Brantley Farm and 21 acres at Heathton, Claverley. Malcolm acquired some land known as the Davies Land. There was also some other land farmed by the partnership as tenants.

 

10.  As mentioned above, the Bungalow was built in 1978 on Lower Aston Farm. It was built to provide Ivor and his new wife somewhere to live nearby the Partnership’s livestock. The construction costs, some £13,038.00 were provided by the Partnership. The Partnership’s accountant was Brian Morris of Ridgway Wall & Co. From 1979 onwards Mr Morris prepared accounts for the Partnership which included the Bungalow in the balance sheet, attributing to it a value of £13,038.00.

 

11.  Elena died on 12 March 1994, leaving her quarter share in the Partnership half to Malcolm and half to Ivor. The Partnership continued but in November 2001 a disagreement within the family led Ivor to indicate that he wished to dissolve it. Ivor’s then solicitors, Manby & Steward, wrote to Gerald and Ivor in November and December 2001 respectively to state Ivor’s wish that the Partnership be dissolved from 1 April 2002. There was no dispute before me that it was indeed dissolved on 31 March 2002.

 

12.  In the run-up to the dissolution date a “Valuation of Live and Dead Farming Stock at Little Bank, Brantley and Lower Aston Farms” was undertaken by Roger Saddler of Halls in Kidderminster. The valuation placed a value on the freehold of Little Bank Farm, consisting of almost 60 acres, on 40 acres at Brantley Farm, on the 21 acres at Heathton and on the Davies Land.

 

13.  Lower Aston Farm, including the Bungalow, was not valued. It was submitted to me on behalf of Malcolm that the 25 acres at Brantley Farm were also not valued. When writing this decision I have wondered whether the valuation of Little Bank Farm included those 25 acres. The valuation of Little Bank Farm stated that it was nearly 60 acres in all but the plan to the 2002 conveyance of Little Bank Farm (a conveyance to which I shall return below) contains in the middle of the plot a figure of 34.72 which may well be the acreage of the land being sold. 34.72 acres plus 25 acres is, of course, nearly 60 acres. Although it was not relied upon at the hearing, the trial bundle contains a valuation of the partnership assets dated 11 January 2006 obtained by Malcolm. I note from paragraphs 4.2 and 4.3 of the report, said to be based upon Malcolm and Joyce’s instructions, that Little Bank Farm is described as being made up of a plot of 35 acres and a plot of 25 acres purchased for £15,841 and £26,626 respectively. In Malcolm’s witness statement he says that the 25 acres of land at Brantley Farm was purchased for £26,626. So this valuation report treated the 25 acres of Brantley Farm land as part of the 60 acres of Little Bank Farm. It appears to me likely that the valuation carried out by Halls and utilised in the Revised Capital Accounts did the same. This possibility was not canvassed at the hearing, however, and whether the 25 acres were valued by Halls is not critical to my decision. So I do not propose to reach any final conclusion on whether the 25 acres were properly dealt with in the Halls valuation.

 

14.  Mr Morris prepared Revised Capital Accounts as of 31 January 2002 and 31 March 2002, which utilised Mr Saddler’s valuations. According to a letter that he wrote on 9 July 2004, they were sent to Gerald and Malcolm on 10 July 2002 for approval, along with draft accounts for the period ending 31 March 2002. Nobody seems to have signed the Revised Capital Accounts – indeed there is no place on them for signature by the partners. Gerald, but only Gerald, signed the annual accounts to 31 March 2002.

 

15.  It is agreed between the parties that the Revised Capital Accounts were incorrect because they included land which was not partnership property – the 40 acres at Brantley Farm and the 25 acres at Heathton. That is so, although it is to be noted that the Revised Capital Accounts do show only Malcolm and Ivor, and not Gerald, as having any interest in those two parcels of land – which was indeed the position. Nor do the Revised Capital Accounts separately mention the 25 acres at Brantley Farm which was a partnership asset but as mentioned above I think that land may have been treated as included in Little Bank Farm. Malcolm criticises the Revised Capital Accounts for not placing a value on the Partnership’s tenancy of Lower Aston Farm but as explained below, I think that was probably surrendered by or on 31 March 2002.

 

16.  The Revised Capital Accounts omitted any mention of the Bungalow which had formerly been treated in the accounts as a partnership asset. Instead, the building cost of the Bungalow was treated as a debt owed to Malcolm and Ivor by Gerald. Malcolm’s case is that this was an error. Ivor does not agree. Curiously, the accounts for year ending 31 March 2002, although prepared at the same time, continue to show the Bungalow as a partnership asset.

 

17.  Before the preparation of the Revised Capital Accounts, on 27 March 2002, a meeting took place at Halls’ offices attended by Gerald, Malcolm and Ivor. At this meeting arrangements were made for the future. Gerald and Ivor entered into a five year farm business tenancy of Lower Aston Farm, including the Bungalow. According to Malcolm’s witness statement the inclusion of the Bungalow was insisted upon by Ivor at the meeting. Malcolm and Ivor entered into a farm business tenancy leasing to Malcolm the 40 acres at Brantley Farm that they jointly owned.

 

18.  Either at that meeting or not long afterwards it was also agreed that the Partnership would convey Little Bank Farm and the 25 acres it owned at Brantley Farm to Gerald and Malcolm to be held as tenants in common, with Malcolm to have a 75% share in them. Those transfers were executed on 6 December 2002. On the latter date Malcolm transferred his interest in the land at Heathton to Ivor and paid Ivor £23,014 – the sum shown on the Revised Capital Accounts as owed by Malcolm to Ivor. Malcolm agreed to take on the Partnership’s bank borrowings.

 

19.  The Partnership bank accounts was left open until all outstanding credits had been paid into it and then closed, in October 2003, with Malcolm and Ivor each taking half of its contents. None of the monies in that account were paid to Gerald, who had agreed on the dissolution of the Partnership only to take interests in land by way of his share of the Partnership assets.

 

20.  Gerald died on 12 December 2003. By his will, dated 11 June 2002, he left his quarter share in Lower Bank Farm to Malcolm and left Lower Aston Farm, including the Bungalow, together with his residuary estate, to Ivor. Malcolm appears to have been surprised and disappointed by the contents of Gerald’s will and contested it for a period.

 

21.  In early 2004 Joyce and Malcolm obtained some business advice from somebody by the name of David Meredith, I was told by Joyce. He was shown the Revised Capital Accounts. Apparently, he identified various ways in which he though them to be deficient, including the failure to treat the Bungalow in the same way that it had been dealt with in the Partnership accounts. This led Malcolm to instruct Stephen Maton of GB Personal Taxation Ltd to review the Revised Capital Accounts. Mr Maton wrote to Ridgway Wall & Co. in July 2004 seeking information. Subsequent correspondence took place between the accountants and between solicitors engaged by Malcolm and Ivor. It did not result in Ivor conceding that Malcolm retained an interest in the bungalow so on 17 March 2006 Malcolm obtained the registration of a Caution against First Registration regarding the Bungalow.

 

22.  In October 2006 Ivor applied for first registration of Lower Aston Farm excluding the Bungalow and on 18 May 2009 Ivor applied to cancel the Caution against First Registration.

 

Decision

 

Whether the bungalow was partnership property

 

23.  In the Applicant’s statement of case and in Malcolm’s witness statement an attempt is made to distinguish between the building comprising the Bungalow and the land on which it stands. An interest was asserted over the former but not, apparently, the latter. Sensibly, Mr Kokelaar did not seek to pursue that distinction. As Mr Kokelaar accepted, it is not a sustainable one. Buildings fixed to land become part of that land. So it was common ground by the time of the hearing that if Malcolm has an interest in the Bungalow, it must be an interest in the land on which the bungalow building stands as well as the building itself.

 

24.  It was also common ground, however, that Lower Aston Farm belonged to Gerald, did not become partnership property and was subject to a tenancy in favour of the Partnership. So, Malcolm’s case is that the land on which the Bungalow stands was carved out of the freehold of Lower Aston Farm when the Bungalow was built using Partnership funds, and thereafter held by Gerald on trust for the Partnership. Since Lower Aston Farm was already subject to a tenancy in favour of the Partnership, it is Malcolm’s case that the land on which the Bungalow was built was taken out of the tenancy by an implied surrender of part.

 

25.  There was no evidence of any express agreement for Gerald to transfer the Bungalow to the Partnership, or to hold it on trust for the Partnership, and for the land on which it stands to be taken out of the tenancy. Nor was the existence of any such express agreement suggested on Malcolm’s behalf. So I am asked by Mr Kokelaar to infer an intention to that effect from the inclusion of the Bungalow as a fixed asset in the Partnership accounts for many years and from the fact that the Bungalow was built using the Partnership’s money in order to house Ivor at Lower Aston Farm so that he could look after livestock there. In support of Malcolm’s case I was referred to an extract from Lindley & Banks on Partnership (18^th Ed.), specifically paragraphs 18-45 to 18-62 on the transfer of assets into a partnership, and to Robinson v Ashton (1875) LR 20 Eq 25.

 

26.  On Ivor’s behalf, Mr Soulsby disputed that there was any intention to make the land on which the Bungalow stood, and hence the Bungalow, an asset of the Partnership. He contended that the Bungalow was part of Lower Aston Farm which was always intended to belong to Gerald. He disputed that the inclusion of the Bungalow in the balance sheet of the annual accounts of the Partnership proved such an intention. He provided me with copies of Miles v Clarke [1953] 1 All ER 779 and Barton v Morris [1985] 2 All ER 1032 both of which are cases in which it was held that property treated in accounts as partnership property actually belonged to one of the partners. He also referred me to an extract from the first edition of Mark Blackett-Ord’s book on Partnership Law and to some HM Revenue and Customs guidance .

 

27.  It was apparent from Malcolm’s evidence given in cross-examination and in answer to a couple of questions from me that he had no opinion or intention as to whether the Bungalow was or should be a partnership asset at any time before dissolution of the Partnership, and I so find. He told me that his father was at the helm of the business and although he and his brother had shares in the partnership, he regarded everything as really belonging to his father while he was alive.

 

28.  Ivor’s evidence was that the issue of ownership of the Bungalow was not brought up in discussions at the time of dissolution. It was not valued as a partnership asset in the Revised Capital Accounts because nobody thought that it was an asset of the Partnership. He explained in cross-examination that he was aware that the Bungalow was treated as a partnership asset in the accounts, and that the question of ownership of the Bungalow had come up in his divorce proceedings in the 1990s. His ex-wife’s solicitors had sought to take the Bungalow into account in the ancillary relief proceedings. His lawyers had advised him that he did not have a share in the Bungalow, i.e. it was not an asset of the Partnership, and his ex-wife’s solicitors had come to accept that. He said that he was told that if you put a building on someone’s land after seven years it becomes the landowner’s. The ancillary relief proceedings seem to have been compromised on a payment being made to Ivor’s ex-wife, funded by the Partnership.

 

29.  I have concluded that the Bungalow has never been an asset of the Partnership. When the Bungalow building was erected on Gerald’s land, it became part of that land, the freehold of which remained vested in Gerald. Since Lower Aston Farm was subject to a tenancy in favour of the Partnership, and the Partnership funded the erection of the Bungalow, the Bungalow building (as well as the land it stood on) became subject to that tenancy – it was leased to the Partnership by Gerald. When the Partnership was dissolved and a new farm business tenancy of Lower Aston Farm was granted by Gerald to Ivor with Malcolm’s knowledge and concurrence, the Partnership’s lease of Lower Aston Farm was surrendered by operation of law and the Partnership’s leasehold interest in the Bungalow determined.

 

30.  Clearly, the legal interest in the Bungalow was not transferred from Gerald to the Partnership. Mr Kokelaar did not seek to argue otherwise. An inter-vivos transfer of land must be made by deed. See s. 52 of the Law of Property Act 1925. The argument advanced on behalf of Malcolm was that Gerald held the Bungalow on trust for the Partnership. I cannot accept that argument. In my judgment, no trust was created over the Bungalow, whether by s. 20(2) of the Partnership Act 1890 or otherwise.

 

31.  Absent any express agreement to make the land on which the Bungalow was built a freehold asset of the Partnership, by Gerald holding it on trust for the Partnership, the question is whether there was an implied agreement for him to do so. In other words, has Malcolm shown that it was the intention of all the partners that the freehold of the Bungalow should be a partnership asset? The repeated inclusion of the Bungalow in the balance sheet of the Partnership as a fixed asset would usually be strong evidence that the Bungalow was intended to be partnership property but it is not conclusive. In both Miles v Clarke [1953] 1 All ER 779 and Barton v Morris [1985] 2 All ER 1032 the Court held that property included in partnership accounts as partnership property was in fact nothing of the sort. Robinson v Ashton (1875) LR 20 Eq 25 does not appear to me to establish any relevant general principle but rather to be a decision on its own facts as to whether a mill was intended to be partnership property. It throws no light on whether the land with which I am concerned was intended to be partnership property.

 

32.  Having heard evidence from the two surviving (former) partners, I have reached the conclusion that while the partnership was trading the partners were not concerned with the accounting treatment of the Bungalow in the partnership accounts. While I have no reason to doubt their business acumen, they were farmers, not accountants or lawyers. Malcolm appears to have regarded the structure of partnership as more of a formality than a real indicia of ownership of assets while Gerald was alive. Ivor was forced to consider the question in his divorce proceedings (many years after the relevant intention would have had to be formed) and was advised that the Bungalow was not a Partnership asset. Doubtless this conclusion was a convenient one from the point of view of the ancillary relief claim but I did not gain the impression that he regarded his lawyers’ advice as mistaken. There is no evidence before me to explain why the Bungalow was dealt with in the annual accounts as it was, in particular whether it was upon the instructions of the partners about ownership of the Bungalow. Nor are the accounts free of ambiguity as to whether it was a freehold or leasehold interest in the Bungalow that was being recorded as a fixed asset of the Partnership – although I acknowledge that the tenancy of Little Aston Farm itself is not shown as an asset of the Partnership.

 

33.  In these circumstances, the fact of inclusion of the Bungalow in the annual balance sheets (both before and after Ivor’s divorce) is not, in my judgment, strong evidence of what these partners intended. Despite the criticisms made of the Revised Capital Accounts, I consider that stronger evidence of the partners’ intentions was that they all acted upon the Revised Capital Accounts which treated the cost of the erection of the Bungalow as a loan by the Partnership to Gerald. Each of Malcolm, Ivor and Gerald had separate legal representation at that time and could have been expected to be anxious to protect their own interests in the fall-out from the dissolution.

 

34.  It is significant that there was no protest from Malcolm at the time of the dissolution of the Partnership about the fact that the Bungalow was not treated as a partnership asset in the Revised Capital Accounts or in Halls’ valuation. It was only after Gerald had died that the issue arose. Indeed, it seems from Joyce’s oral evidence that the first suggestion that the Partnership had an interest in the Bungalow came from David Meredith, based upon his reading of the Partnership accounts, rather than from any belief of Malcolm that the Bungalow was intended to be a partnership asset.

 

35.  Furthermore, Ivor came away from the dissolution of the Partnership with little but a Farm Business Tenancy and some cash (disregarding his share in the 40 acres of Brantley Farm and 21 acres at Heathton, land which were not partnership property at all). He would have had as much incentive as Malcolm did in 2002 to lay claim to an interest in the freehold of the Bungalow in the winding up of the Partnership had he believed and intended that the Bungalow was partnership property. There is no suggestion that he did so.

 

36.  I also take into account the inherent unlikelihood that Gerald intended informally to sever the freehold of the land on which the Bungalow was built from the freehold of the rest of Lower Aston Farm and create a trust over it in favour of the Partnership, while at the same time Gerald and the Partnership intended to extract it from the tenancy that the Partnership had of Lower Aston Farm. Such a complex transaction could have been expected to be recorded in writing. It was not. In the ordinary course of things, the erection of a building by agricultural tenants on tenanted land is far more likely to have resulted in the building becoming part of the tenanted property and so leased by the tenants. While in an arms’ length determination of such a tenancy one might have expected the tenants to seek greater compensation for leaving behind the building than the costs of its erection, this was not an arms’ length situation. The fact that the Bungalow was built where it was and for the purpose of allowing Ivor to live near the livestock is as consistent with an intention that the Bungalow building should become part of the tenanted property as that the freehold of the land should become partnership property.

 

37.  In my judgment the Bungalow did not ever become partnership property. That conclusion is enough to determine this reference. It follows that Malcolm has never had an interest in the freehold of the Bungalow and that his leasehold interest in it was determined in 2002. He does not have an interest or estate entitling him to a Caution Against First Registration and Ivor’s application to cancel the Caution succeeds. In case this matter goes further, however, I shall go on to consider what the consequences would be if I am wrong and the Bungalow was partnership property.

 

Is there a settled account?

38.  If the beneficial interest in the freehold of the Bungalow was Partnership Property, I consider that Malcolm and Ivor agreed to forego any interest that they had in it when they agreed and acted upon the winding up of the Partnership and the distribution amongst the partners of its assets.

 

39.  Following the dissolution of the Partnership the transactions describe above took place, including the transfer from the Partnership to Malcolm and Gerald of two plots of land. Each transfer contained the following at clause 12.2:

“This Transfer is in full and final settlement of the agreement by the parties hereto to dissolve the farming partnership known as GH Powell and Sons”.

 

40.  Prior to those transfers being executed on 6 December 2002, an exchange of correspondence had taken place between Manby & Steward, Ivor’s solicitors, and Pitt & Cooksey, Malcolm’s solicitors, in September 2002. In their letter, dated 2 September 2002, Manby & Steward demanded payment of the sum of £23,014 mentioned above within 7 days. Their letter includes the following:

“We are instructed that it was agreed on the dissolution of [the Partnership] on the 31^st March 2002 that your client would pay to our client any sums due to our client in payment of his share, namely £23,014.”

 

41.  Pitt & Cooksey replied on 3 September 2002:

“You will appreciate that all 3 parties in this transaction i.e. your Client, our Client and Mr Powell senior have been represented separately in this transaction and certainly in connection with the execution of fresh Legal Charges in respect of Little Bank Farm and land at Gatacre. The execution of those deeds have caused the delay you refer to [a reference to delay in payment of the £23,014].

In order to conclude matters we now need to deal with the transfer of your clients [sic] interest in Little Bank Farm and land at Gatacre. Further we understand that your client is to have transferred to him approximately 21 acres at Heathton, Claverley again this will need to be dealt with before any money changes hands and perhaps you would let us know what your instructions are in respect of such transfers.”

 

42.  In December 2002, the transfers all took place and the £23,014 was paid. The transactions all reflected the Revised Capital Accounts and in my view the fact of the various transactions in December 2002, the correspondence that I have quoted and clauses 12.2 of the two transfers mentioned above show the parties acquiescing in the Revised Capital Accounts. I conclude, therefore, that they constitute settled accounts disentitling Malcolm from now seeking an account to wind up the affairs of the partnership. For there to be a settled account, the account in question need not be signed by the partners so long as it has been received and acquiesced in by them. See Lindley and Banks on Partnership (18^th Ed.) at paragraph 23-109. I have no doubt that the partners all received and acquiesced in the Revised Capital accounts and acted upon them by making the transfers of land and payments discussed above.

 

43.  It was argued on behalf of Malcolm that the account was not settled because of factors mentioned in the skeleton argument filed on his behalf and further developed before me. Without intending any disrespect and in the interests of brevity (since I have already made findings sufficient to dispose of this reference) I do not set out those arguments here, but having considered those arguments carefully I cannot accept them. The only sensible explanation for the parties’ actions and transactions during 2002 is that they were winding up the Partnership’s business in accordance with the Revised Capital Accounts and were acquiescing in the treatment of the Partnership’s assets that they contained. I find as a fact that this is what the partners did. It is noteworthy that all three parties had separate legal representation assisting them the winding up of the Partnership.

 

44.  It follows that Ivor and Gerald’s personal representatives would be able to rely on a settled account as a defence to an action for an account were Malcolm to issue proceedings for an account to wind up the Partnership’s affairs. That is not the end of the matter, though (if the Bungalow was formerly a partnership asset). Malcolm’s case, if it is held that there was a settled account, is that he would be entitled to set it aside because it contained errors, in particular the omission of the Bungalow, or at least could obtain “leave to surcharge and falsify” as regards the Bungalow.

 

Can Malcolm go behind a settled account?

45.  The Court, usually the Chancery Division of the High Court but in lower value cases the county court, has the power to re-open a settled account if it contains errors. If the account has stood unimpeached for several years a general re-opening of the account will normally be refused but permission to challenge particular items (“leave to surcharge and falsify”) might be granted. See Lindley & Banks at paragraph 23-112. It is that remedy that Mr Kokelaar argued was open to Malcolm if the Bungalow had been partnership property but there was a settled account. He submitted that a claim to re-open settled accounts/to surcharge and falsify is a equitable one to which no limitation period applied but rather the doctrine of laches. Mr Kokelaar took me to paragraph 15.61 of Partnership Law by Mark Blackett-Ord (3^rd Ed.) on laches.

 

46.  Mr Soulsby’s response to that on behalf of Ivor is that what Malcolm really sought was a general account and that was statute-barred – more than six years having passed since the dissolution of the partnership.

 

47.  I accept Mr Kokelaar’s submission that (if I were to find there to be a settled account) the remedy that Malcolm would be entitled to, if any, is permission to re-open the account vis-à-vis the Bungalow, not a general account. I also accept that the remedy is an equitable one to which no limitation period under the Limitation Act 1980 applies. If sufficient time has passed a claim to that remedy might be barred by laches, though.

 

48.  It appears to me that if Malcolm were now to issue proceedings seeking to re-open the account and lay claim to a share in the Bungalow he would be met with a defence of laches that would be very likely to succeed. It is now over eight years since dissolution of the Partnership and over six years since Mr Meredith alerted Malcolm to the different ways in which the Bungalow was treated in the annual accounts and in the Revised Capital Accounts. The parties acted on the agreement to wind up the Partnership’s business in accordance with the Revised Capital Accounts by transfers of land (including some land which was owned by the partners individually), by payments of money and by entering into farm business tenancies. Although Malcolm placed a Caution Against First Registration against the Bungalow and has laid claim to a share in it in solicitors’ correspondence, he has not brought any proceedings seeking an account or to re-open the Revised Capital Accounts. He was able to give no satisfactory explanation for why he had not done so. I would expect a Court faced with an application made in 2010 to re-open the account settled and acted upon in 2002 to hold that it is no longer possible to make that claim.

 

49.  However, laches is an equitable doctrine and the Court has some discretion in how it applies the doctrine to any particular set of facts. I do not have jurisdiction to re-open the account that I have found to be a settled one. That application would have to be made to the Chancery Division and it would be for that Court to decide whether Ivor has a good defence to it, whether of laches or otherwise. So if I had concluded that the Bungalow was once Partnership property, I would have ordered that the Chief Land Registrar should be directed to cancel the Caution Against First Registration unless Malcolm were to issue a claim in the Chancery Division within six weeks seeking to re-open the account vis-à-vis the Bungalow. I would have ordered that if such a claim were to be issued within six weeks, the proceedings before the Adjudicator should be adjourned pending the outcome of those proceedings.

 

 

50.  Since I have concluded that the freehold in the Bungalow was not Partnership property at all and the Partnership’s leasehold interest in the Bungalow was surrendered in 2002 I do not make that order. Instead, having held that Malcolm has no interest in the Bungalow, I shall direct the Chief Land Registrar to give effect to Ivor’s application to cancel Malcolm’s Caution. Subject to the necessary applications and any submissions being made I would be minded to order Malcolm as the unsuccessful party, to pay Ivor’s costs. If any party wishes to apply for an order for costs they should make an application in writing, accompanied by a schedule of costs, within 28 days of this judgment and order. Such an application should be served on the other party who will then have 28 days to respond to the application by way of written submission sent to the Adjudicator’s office, copying any submissions to the applying party. Any response to such submissions should be provided to the Adjudicator’s office and the other party within 14 days of receipt of the submissions.

 

Dated this Tuesday 6 July 2010

 

 

 

 

Mr Daniel Gatty

 

By Order of The Adjudicator to HM Land Registry