Arbitration — Termination of farming partnership — Whether milk quota partnership asset — Whether any claim to enhanced value of holding attributable to milk quota on partnership dissolution
The parties entered into a partnership
agreement on February 1 1983 to farm a 109-acre dairy holding owned by the defendants
with the plaintiff providing the day to day running and management of the
farming business. It was agreed that the holding itself was not to be a
partnership asset. On April 1 1984 milk quota was allocated to the holding and
during the period of the partnership was registered in the names of the
partners. The partnership dissolved in February 1988, at which time the milk
quota was worth £94,000. The plaintiff claimed that the milk quota was an asset
of the partnership, and/or had enhanced the value of the holding, and fell to
be apportioned between the partners at the dissolution. The arbitrator,
appointed to determine disputes which had arisen on the dissolution of the
partnership, sought the determination of a number of questions relating to the milk
quota.
parties entered into the partnership. It was impossible to attribute to the
partners any intention other than that milk quota should be treated in the same
way as the holding. The milk quota allocated to the holding in 1984 was not an
asset of the partnership: Faulks v Faulks [1992] 1 EGLR 9 followed. (2) There
was no basis on which a claim could be made by the plaintiff by which he was
entitled to any enhanced value of the holding attributable to the milk quota.
No quota was bought in, nor was there any evidence that owing to exceptional
efforts of the partnership a greater amount of quota was allocated than might
otherwise have been expected. The partnership did not incur any significant
expenditure to maintain the quota which might not otherwise have been
undertaken.
The following cases are referred to in
this report.
Burdon v Barkus (1862) 4 De GF&J 42
Cottle v Coldicott [1995] STC 239
Faulks v Faulks [1992] 1 EGLR 9; [1992]
15 EG 82
Harries v Barclays Bank plc unreported
December 20 1995
Wachauf v Bundesamt für Ernährung und
Forstwirtschaft (Case 5/88) [1991] 1 CMLR 328; [1989] ECR 2609
This was an application by the plaintiff,
David Leslie Davies, expressed to be under section 2 of the Arbitration Act
1979 seeking the determination of a number of questions in an arbitration
arising out of the dissolution of a partnership between the plaintiff and the
defendant, H&R Ecroyd Ltd.
Nigel Thomas (instructed by Williams
& Bourne, of Lampeter) appeared for the plaintiff; Joanne Moss (instructed
by GF Lodder, of Ellesmere) represented the defendant.
Giving judgment, Blackburne J said: This is an
originating application, brought in the course of an arbitration, in which the
court’s determination is sought of various questions arising in the
arbitration. The arbitration, which was entered upon as long ago as August
1991, relates to disputes arising out of the termination in February 1988 of a
farming partnership. The application, although expressed to be under section 2
of the Arbitration Act 1979, which refers to an application made by one of the
parties to the reference, appears to have been brought by the arbitrator. It
seeks the determination of various so-called ‘preliminary points’ as set out in
an attached ‘statement of case’. The old procedure of case stated by an
arbitrator for the court’s decision on any question of law arising in the
course of an arbitration was abolished by section 1 of the 1979 Act so that, in
form, the application, which was launched nearly three years ago, appears
misconceived. Since, however, the parties to the arbitration are anxious that I
should decide the questions which the arbitrator has identified, I am willing
to treat the application as if brought by one of them with the consent of the
other.
My jurisdiction under section 2 is
limited to questions of law and it is not open to me to resolve issues of fact.
It is therefore necessary for me to set out the findings of fact, of which
there are remarkably few, appearing from the so-called ‘statement of case’ and
from an interim award by the arbitrator published some months after this
application was launched, together with such additional factual matters as are
agreed between the parties, which are material to the questions which I am
asked to decide.
Those facts are as follows:
1. The parties to these proceedings,
David Leslie Davies and a company now called H&R Ecroyd Ltd (formally EWP
Ltd), entered into a partnership agreement on February 1 1983 to farm Lower
Newton Farm, comprising some 109 acres near Haverfordwest, in South Wales.
2. The partnership agreement recited: (1)
that EWP, as I shall call the company, had for many years been carrying on
trade as general farmers on the farm; (2) that EWP was the owner of the farm;
(3) that EWP and Mr Davies were desirous of entering into partnership in the
trade and occupation of farming; and (4) that, by an asset purchase agreement
of the same date, Mr Davies had agreed to purchase from EWP certain of the
farming assets of the farm. The partnership agreement then provided, so far as
material, as follows:
(i) The partnership would last five years
starting on February 1 1983.
(ii) The partnership business of farming
would be carried on on the farm.
(iii) EWP would, during the partnership,
make the farm available to the partnership, together with the milking plant and
equipment affixed to it (as per an inventory attached to the partnership
agreement) but ‘neither the farm itself or any part or parts thereof nor any
legal or equitable interest therein’ would be or become assets of the
partnership.
(iv) The capital of the partnership,
consisting of the live and dead
would be credited to the capital account of each partner in the sum of £26,000
each and any further capital required for the partnership business would,
unless otherwise agreed, be contributed by Mr Davies who would be credited in
the books of the partnership with a corresponding addition to his capital. The
asset purchase agreement provided simply for Mr Davies to purchase from EWP for
£26,000 a half-share in the value of the 80 dairy cows then on the farm and
silage at £16 per ton. The agreement also gave to Mr Davies the option of
purchasing certain fertiliser and farm machinery.
(v) Clause 7 set out how profits were to
be shared. In essence it provided that, subject to EWP receiving a first slice
of £9,500 (liable to increase after the first year of the partnership) and to
Mr Davies receiving an identical amount, the profits would be shared with Mr
Davies receiving 95% and EWP receiving 5%.
(vi) Any decisions as to whether
livestock other than dairy cows should be kept on the farm would be a matter
affecting the overall running of the partnership business and would therefore
be a matter about which both partners would be entitled to be consulted. The
day to day running and management of the farming business would be the
responsibility of Mr Davies.
(vii) Proper books of account would be
kept and annual accounts prepared showing, inter alia, the value of all capital
assets of the partnership, the amounts of any capital contributed by the
partners, and an account of profits and losses showing their distribution.
(viii) Various events were set out
entitling either party to serve notice on the other dissolving the partnership.
On a dissolution, including a dissolution caused by the death of Mr Davies or
by effluxion of time, the farm, together with the items listed in the inventory
attached to the partnership agreement, would be returned to EWP, a balance
sheet drawn up as at the date of dissolution with assets valued on an open
market basis as between a willing seller and a willing buyer (but with
partnership goodwill having no value) and a profit and loss account drawn up
down to the date of dissolution. Provision was made for unpaid profits down to
the date of dissolution to be paid. There were also detailed provisions
relating to the disposal of the dairy herd, any growing crops, silage, hay and
straw.
3. The partnership terminated on February
2 1988.
4. The farm was farmed as a dairy unit
from 1969, if not earlier, until November 1981 when milk production was
suspended while extensive refurbishment to the milking parlour took place and
feed bins and other equipment installed. While these works were in progress
some 90 acres of the farm were used to produce a cereal crop and the remaining
19 acres or thereabouts were used for grazing part of the dairy herd.
5. Notwithstanding the temporary
cessation of production the nature of the farming enterprise at the farm did
not change and the farm was utilised as a dairy unit, except during the period
of suspension, during the period April 1969 to January 31 1983.
6. Until January 31 1983 the farm had
been part of a larger holding. On February 1 1983 that larger holding had been
divided into two dairy units of which the farm was one. The 80 dairy cows
referred to in the asset purchase agreement had formed a part of the herd on the
larger holding.
7. The average output of the holding, ie
of the farm and the remainder of the holding, prior to 1983 had been 4,800
litres per cow pa with the result that the average output of the 80 cows, ie
the number in the herd taken over by the partnership at the farm in 1983, would
have been 384,000 litres pa.
8. In April 1984 the Ministry of
Agriculture allocated to the farm a milk quota of either 364,000 litres or
333,000 litres (the arbitrator’s figures conflict although nothing turns on the
conflict) subsequently reduced to 313,418 litres.
9. Following its introduction, the milk
quota attached to the farm was registered, during the period of the
partnership, in the names of the partners. Following dissolution it became
registered in the name of ‘Upper Newton Partners’ as the new occupants of the
farm.
10. At the date of dissolution of the
partnership, in February 1988, the milk quota was worth £94,000.
11. There was never any reference in the
partnership accounts to milk quota as a separate asset.
12. The farm was farmed as a dairy unit
throughout the period of the partnership.
The questions which I am asked to decide
are as follows:
1.1 Whether the market quota allocated to
the farm in 1984 was an asset of the partnership;
1.2 If so, how the asset is to be valued
and apportioned between the partners in the balance sheet to be drawn up as at
the date of dissolution of the partnership;
2.1 Whether the farm had acquired an
enhanced value as a result of the dairy enterprise which the partners carried
on at it;
2.2 If so, how such enhanced value is to
be valued and apportioned between the partners in the balance sheet to be drawn
up as at the date of dissolution of the partnership.
The question whether, where the
partnership deed is silent on the matter, milk quota is an asset of a
partnership, to be brought into account when the partnership is dissolved,
arose in Faulks v Faulks [1992] 1 EGLR 9. In that case, so far as
material, two brothers, John and Harry, farmed in partnership a 170-acre farm
in Nottinghamshire between May 31 1983 until Harry’s death on June 12 1988. The
farm itself was held on a tenancy by John. Under the partnership deed, and in
the events which happened, John held the tenancy of the farm in trust for the
partnership but on terms, as was held when the matter was later referred for
arbitration, that on dissolution of the partnership it ceased to be a
partnership asset and was not therefore to be brought into account as an asset
in the winding-up. Thus, on Harry’s death, the tenancy ceased to be an asset of
the partnership and was thereafter legally and beneficially owned by John
alone. In the meantime, in 1984, milk quota was introduced and a quota of
426,640 litres was allocated to the partnership in respect of the partnership
farm holding.
Another of the questions referred for
decision to the arbitrator in that case was whether the milk quota registered
in the partnership’s name was to be taken into account as an asset of the
partnership in its winding-up.
The arbitrator decided that it was not
and it was that question which came before Chadwick J by way of appeal under
section 1(2) of the 1979 Act. After reviewing at length the European Community
and United Kingdom regulations relating to milk quota — an exercise which I do
not find it necessary to repeat in this judgment — Chadwick J concluded that,
when allocated to the partnership in 1984, the quota enjoyed by the farm was
not a right or interest in property separate and distinct from the holding, ie
the land held by John under his tenancy. His conclusions are to be found in the
following passage, at p13:
In the light of the relevant community
legislation and the United Kingdom regulations the position which arose in
England on the introduction in 1984 of the additional levy on milk and milk
products and the implementation by the United Kingdom of Formula B [the method
of implementing the additional levy system adopted by the United Kingdom] in
respect of a region constituted by England and Wales may be summarised as
follows:
(a) A milk producer is liable to pay
Formula B contribution in respect of the milk which he delivers to the Milk
Marketing Board if, but only if, two conditions are satisfied: namely (i) the
total of wholesale deliveries of milk to the board from holdings in England and
Wales exceeds the ‘purchaser quota’ which has been allocated to the board; and
(ii) the wholesale deliveries of milk to the board by that producer from his
holding exceeds his own ‘wholesale quota’.
(b) There is nothing in the community
legislation or in the United Kingdom regulations which prohibits the production
or the wholesale delivery of milk by a producer. Registration of wholesale
quota in the name of a producer confers on that producer immunity to the extent
of his quota from liability to pay Formula B contributions. Delivery of milk in
excess of his wholesale quota may, but not necessarily will, expose the
producer to liability to pay Formula B contributions.
(c) Wholesale quota may be surrendered to
the wholesale reserve, but, save to that extent, it cannot exist independently
of a producer and a holding, both
follows from the terms in which ‘wholesale quota’, ‘producer’ and ‘holding’ are
defined for the purposes of the United Kingdom regulations.
(d) Upon a change in the occupation of
all or a material part of the producer’s holding, there will be a corresponding
change in the register entry relating to that holding. The change will reflect
the principle that quota follows the land. The register entry must be amended
to show the new occupier of the whole, or part, of the holding as the person
entitled to the whole, or a corresponding part, of the quota.
In these circumstances, if the question
posed in this appeal were to be answered on the basis of the community
legislation and the United Kingdom regulations as adopted and made in 1984, I
should have no doubt that the conclusion which the arbitrator has reached was correct.
He then went on to consider the position
subsequent to 1984, introducing this part of his judgment as follows:
It was urged upon me that, whatever had
been the intention of those who adopted the community legislation and made the
United Kingdom regulations 1984, circumstances had altered by 1988. It was said
on behalf of the appellant that, by 1988, milk quota had become recognised as
an independent asset having an economic value. I do not doubt that this
perception of milk quota is widely held. Nevertheless, I do not think it
accords with the community legislation and the United Kingdom regulations as
they were at the death of Harry Faulks in June 1988. It is necessary to trace
the material developments.
After reviewing those later developments,
including the decision of the European Court of Justice in Wachauf v Bundesamt
für Ernährung und Forstwirtschaft case (5/88) [1989] ECR 2609, he stated
his conclusions as follows at p16:
… I do not find anything in the
developments which have taken place since the introduction of milk quota in
1984 which causes me to alter the view which I have already expressed — namely
that the milk quota formerly registered in the name of the partnership should
not be taken into account as an asset of the partnership for the purposes of
valuing the assets as at June 12 1988 pursuant to … the partnership deed.
Accordingly, I dismiss this appeal.
Central to Chadwick J’s conclusion is the
core provision, to which certain limited derogations have been enacted,
contained in the relevant regulations from time to time governing milk quota
(and originally set out in article 7(1) of EC Council Regulations 857/84) that:
Where an undertaking is sold, leased or
transferred by inheritance, all or part of the corresponding reference quantity
[ie milk quota attributable to the relevant holding] shall be transferred to
the purchaser, tenant or heir …
So far as the first question is
concerned, Faulks v Faulks, is, in my view, indistinguishable in
any material respect from this case. As in that case, the partnership deed is
silent on the question of milk quota. As in that case, the farm at which the
partnership activities were carried on was not an asset of the partnership in
its winding-up. Indeed in this case, in contrast to Faulks v Faulks,
the farm did not at any stage during the partnership constitute an asset of the
partnership. Moreover, it was explicitly provided in the partnership deed that
neither the farm nor any legal or equitable interest in it should be or become
assets of the partnership. In this case the partnership lasted until February
1988. In that case it lasted until mid-June 1988. For all practical purposes,
therefore, the relevant regulations regulating milk quota during the period of
the partnership were in both cases identical. Indeed, if anything, the
legislative framework was relaxed somewhat during the last months of the
partnership in the Faulks case with the enactment in the United Kingdom,
with effect from April 1 1988, of the Dairy Produce Quotas (Amendment) Regulations
1988 (SI 1988 no 534) relating to quota leasing, which gave effect in the
United Kingdom to EC Regulation 2998/87.
Mr Nigel Thomas, for Mr Davies, accepted,
I think, that on this first question the case was indistinguishable from Faulks
v Faulks. Unless therefore he could persuade me that the decision in
that case was wrong in some relevant respect it is right, as I think he
accepted, that I should follow it.
In seeking to persuade me not to follow Faulks
v Faulks, Mr Thomas drew my attention to a difference of view which has
emerged in the authorities as to the nature of milk quota and whether, in
particular, as Chadwick J held in the Faulks case, it does not
constitute ‘a right or interest in property separate and distinct from the
holding to which it relates’.
In contrast to that view, he said, is the
view which others have expressed that milk quota is capable of forming an asset
separate from the land on which the relevant dairy undertaking is carried on.
In this connection he referred me to various passages in the opinion of
Advocate-General Jacobs given in the Wachauf case [1989] ECR 2609 where,
at p2630, the following appears:
25. In their written observations in this
case, both the Commission and the United Kingdom Government have sought to
argue that a quota is nothing more than an instrument of market management and
cannot be considered as a kind of intangible asset in which property rights can
arise. In my view, while this might correspond to the intention of the
Community legislation, it does not reflect economic reality. If one considers
the nature of the quota from the point of view of the producer, then it is
plain that what the quota amounts to is a form of licence to produce a given
quantity of a commodity (milk) at a more or less guaranteed price without
incurring a penalty (the additional levy). In a market which has been
effectively ossified by the introduction of quotas, such a ‘licence’ is bound
to acquire an economic value. This value will primarily translate into higher
rental and capital values for dairy holdings. But that a quota can also have an
intrinsic value is shown by the practice of ‘quota leasing’, ie the temporary
transfer without land of unused quota from one producer to another, a practice
authorized by Article 5c(la) of Regulation No 804/68, as amended by Council
Regulation (EEC) No 2998/87 (Official Journal 1987, L 285, pl). It is also
indicated, though more indirectly, by Article 7(4) of Regulation No 857/84,
which can be seen as designed to protect the tenant’s interest in the economic
value represented by the quota.
26. Community legislation has not
resolved the issue of ownership of quota, possibly because it was not
considered desirable to admit — for fear of creating a market in quota — that a
quota could be owned at all. The issue is not an easy one. On the one hand, the
fact that the transfer rules in principle require the quota to follow the land
suggests that these attach to the land and should therefore be regarded as the
property of the landowner. On the other hand, the existence of Article 7(4) of
Regulation No 857/84 and the recent authorization of ‘quota leasing’ indicate
that attachment to the land is not absolute. Moreover, the quotas are allocated
to a person, the individual producer, who may of course be a tenant, on the
basis of his production in a given reference year, rather than to a holding.
These considerations in my view suggest that it is possible for either a
landlord or a tenant to have a proprietary interest in a quota.
That was a passage which, with others in
the case, Chadwick J referred to in Faulks v Faulks. Mr Thomas
referred me also to a recent decision of the Special Commissioners of Income
Tax in Cottle v Coldicott [1995] STC 239. In that case the
taxpayer had resorted to a well recognised, and, so far as I am aware, entirely
proper method to bring about a transfer of milk quota without a permanent
transfer of the land to which the quota originally applied. After a full review
of the relevant EC and UK regulations applicable to milk quota and various
decisions of the European Court of Justice, the special commissioners held
that, for the purposes of capital gains tax, the quota transferred by the
taxpayer was a separate asset of incorporeal property within section 19(1)(a)
of the capital Gains Tax Act 1979 and not a part of his holding. They were
referred to Faulks v Faulks. After referring to various passages
in the judgment and to Chadwick J’s conclusion that milk quota followed the
tenancy and was not a partnership asset, they said at p264:
That conclusion is entirely consistent
with our interpretation of the Community legislation and the decisions of the
Court of Justice, namely that quota follows the holding and must normally be
transferred with the holding unless one of the authorised derogations apply
(and they did not apply in that case). On the facts in that case we would have
reached the same view and would have held that the quota went with the tenancy
and was not a partnership asset.
My attention was also drawn to the
unreported decision of Rattee J in Harries v Barclays Bank plc,
unreported December 20 1995. In that case the defendant bank had the benefit of
a legal charge over a farm to secure the plaintiff’s indebtedness to it. The
legal charge was entered
bank took possession and sold the farm in early 1994 in exercise of its powers
under the legal charge. By then, and indeed since 1984, valuable milk quota was
attributable to the farm. The amount owed to the bank greatly exceeded the
proceeds of the farm sale. However there was an agreement between the bank and
the plaintiff, entered into some years earlier, whereby the bank would not look
to recover any residual indebtedness from the plaintiff (and his mother) over
and above what it could realise from its existing securities, of which the
legal charge of December 1979 over the farm was one. The question was whether
the bank was accountable to the plaintiff for any part of the sale proceeds of
the farm attributable to the milk quota applicable to the farm. Rattee J held
that it was not. After a full review of the relevant regulations and after
referring to the decisions in Faulks v Faulks and Cottle v
Coldicott and to the opinion of the Advocate-General in Wachauf,
Rattee J said at p27:
In the present case I doubt whether a
consideration of the somewhat metaphysical question as to the true nature of
the benefit of milk quota is a helpful starting point for answering the
question which I have to determine. As I have already indicated, there is no
doubt that, prior to the bank’s taking possession of the Farm, the Plaintiff
could, had he been so minded, have severed the benefit of milk quota from the
enjoyment of the land itself. The fact is he did not do so. As a result, when
the bank took possession of the Farm, a transfer within the meaning of the
relevant regulations took place, and, by virtue of those regulations, the quota
attributable to the Farm should have been registered in the name of the Bank.
He then goes on to explain how, for
reasons which are not material, the bank came to be registered with more quota
than it should. He then continued:
Thus, when the Bank took possession of
the Farm in April 1988, the appropriate part of the quota previously enjoyed by
the Plaintiff in respect of his farming operations on the Farm necessarily, by
virtue of the regulations, followed possession of the Farm into the Bank’s
hands. In other words, the transfer of quota from the Plaintiff to the Bank was
an inevitable consequence of the transfer of possession. It was impossible,
under the regulations, for the benefit of quota to remain in the hands of the
Plaintiff while the land itself passed into the possession of the Bank …
When in due course in 1994 the Bank came
to sell the Farm in exercise of its powers of chargee, the benefit of quota in
respect of the Farm passed to the purchaser together with the Farm … the effect
of the Regulations was that the Bank could not, even had it so wished, have
transferred the Farm without the benefit of quota. What, in my judgment, the
Bank received on the sale was not, as to part, proceeds of the sale of the Farm
and, as to another part, proceeds of the sale of quota, but was the proceeds of
sale of a farm whose sale necessarily had the effect of transferring the
relevant quota to the purchaser of the farm …
That case demonstrates that, unless the
benefit of milk quota is severed from the enjoyment of the land to which it
relates, the quota will pass with the land, in effect as part and parcel of it.
There is nothing in those decisions to
suggest that Chadwick J misdirected himself in the approach which he adopted in
Faulks v Faulks. Indeed, in Cottle v Coldicott,
where milk quota was treated as a separate asset, the special commissioners
made clear that they would have come to the same conclusion as Chadwick J in Faulks
v Faulks.
The position, therefore, is that, while
it is well recognised that, in certain circumstances, milk quota may become
severed from the land with which it would otherwise run, the fundamental
principle is that milk quota attaches to and passes with the land to which it
relates. The only question therefore is whether, notwithstanding that that is
the position, there is anything in the circumstances of this case to indicate
that the partners were intending to treat milk quota as an asset of the
partnership separate from the farm which, it is admitted, was never an asset of
the partnership.
As in Faulks v Faulks, it
is impossible to attribute to the partners any intention in relation to milk
quota when the partnership deed was entered into: at that time milk quota had
not been introduced. When milk quota was introduced, and throughout the remainder
of the partnership, the milk quota registered in the name of the partnership
served to provide the partnership in effect with a licence to produce from the
farm, without penalty, a minimum quantity of milk for delivery to the Milk
Marketing Board. There is nothing in the facts, as found or as agreed, to
indicate that the partners ever gave any thought to how milk quota was to be
regarded, and whether, in particular, it should be treated as anything other
than an incident of the farm from which their partnership dairy enterprise was
carried out. In these circumstances I find it impossible to attribute to the
partners any intention other than that milk quota should be treated in the same
way as the farm. I therefore propose to answer the first question by declaring
that the milk quota allocated to the farm in 1984 was not an asset of the
partnership. It follows from this that the subsidiary question 1.2 does not now
arise.
I come then to the second question.
Question 2.1, as originally framed, asks whether the farm has acquired an
enhanced value as a result of the dairy enterprise which the parties carried on
at it. Recognising that that was not a question which I could properly
determine on an application under section 2 of the 1979 Act, Mr Thomas
reformulated the question by seeking my determination whether any allowance
should be made to the partnership in the drawing up of the dissolution
accounts, having regard to the terms of the partnership and the purposes for
which it was made, for expenditure on the farm which resulted in the farm
obtaining an enhanced value due to the allocation to it of wholesale milk
quota.
The inspiration for this question
derives, as I understand it, from a passage at the end of Chadwick J’s judgment
in Faulks v Faulks in which, after having dismissed the appeal,
the following appears at p17:
Second, in dismissing this appeal, I am
not to be taken as having decided that there are no circumstances, either in
this or in a similar case, in which some adjustment may need to be made in
taking the accounts of a farming partnership to reflect the fact that the land
which, ex hypothesi, the partnership has ceased to occupy may have acquired an
enhanced value as a result of a dairy enterprise which the partnership has
carried on. I was referred, in the course of argument, to Pawsey v Armstrong
(1881) 18 ChD 698 and Miles v Clarke [1953] 1 WLR 537. The
principle in those cases appears to me to be this: that where partnership money
has been expended in maintaining or enhancing the value of land which is the
exclusive property of one partner, then in taking partnership accounts on a
dissolution it may be fair and right to make some allowance to the partnership
against that partner for the money which has been so expended or, perhaps, for
a portion of the enhanced value. In making such an allowance the court does
not, I think, treat the land or anything on it as an asset of the partnership
which is to be valued as such; rather, it adjusts the accounts between the
partners by debiting the account of the partner who benefited from the
expenditure in order to do what is just and equitable. It is not difficult to
imagine circumstances in which that principle might apply in relation to milk
quota formerly registered in the name of a partnership — for example, where the
dairy enterprise was commenced by, or was wholly attributable to, the efforts
of the partnership (cf the Wachauf case) or where (in so far as that is
possible) some part of the quota had been acquired by the partnership on the
back of a transfer of a limited interest in land (as to which see, generally,
para 8.4, ‘Transfer of Quota’, in Essential Law for Landowners and Farmers
(3rd ed, 1990) by Gregory and Sydenham). There is nothing in the facts which I
have seen which suggests that the principle applies in the present case and the
question is not one which I can properly decide on this appeal.
Mr Thomas took me to the two cases
referred to in that passage and to Burdon v Barkus (1862) 4 De
GF&J 42 in amplification of the principle to which Chadwick J refers, and
to paras 18–37, 18–38 and 20–26 of Lindley & Banks on Partnership
7th ed.
That principle is not in doubt. It arises
where a partnership expends money for the benefit of a partner in circumstances
where justice requires that, in taking the partnership accounts, some allowance
should be made to the partnership against that partner for some or all of the
amount of the expenditure or of the enhanced value brought about by the
expenditure.
The question, as it seems to me, is
whether on the facts as found or agreed, any allowance should be made to
reflect any enhancement in value of the farm resulting from the allocation to
it of milk quota.
Mr Thomas submitted that such an
allowance would be justified having regard to the following matters.
1. Prior to the start of the partnership
there was, he said, no dairy business conducted at the farm. There had been a
dairy business at some earlier date as part of a larger holding embracing
adjoining land but, as regards the farm itself, there had been a cessation of
dairy farming during the previous year except only in relation to some 19
acres.
2. The dairy enterprise which the
partnership embarked upon involved the partnership in expenditure in purchasing
and feeding dairy cattle and otherwise in running the farming business. It was,
he submitted, as a result of this expenditure that the farm qualified for milk
quota and it would only be just, therefore, assuming that the value of quota is
not, in any event, an asset of the partnership, that an allowance should be
made to the partnership by EWP to reflect the enhancement in value which the
farm thereby acquired.
I do not accept the factual premise upon
which this claim is brought. Indeed, I can discern nothing in the facts, both
as agreed and as found, which would remotely justify the claim. Those facts are
that, at its inception, the farm was a fully equipped dairy farm, that, with
the exception of a period (unspecified in duration) when extensive
refurbishment works were undertaken to the milking parlour and feed bins and
other equipment were installed, the farm had been farmed as a dairy unit
continuously since 1969 if not earlier, and that the farm was run as an
ordinary dairy farm. There is no finding, and certainly no agreement, that any
exceptional expenditure was incurred by the partnership over and above what was
inherent in running a dairy enterprise on the farm, let alone any directly
related to the acquisition of milk quota. There is no suggestion, for example,
that any quota was bought in. There is no suggestion that, owing to the
exceptional efforts of the partnership, a greater amount of quota was allocated
to the farm than might otherwise have been expected. There is nothing to
indicate that, as a result of the introduction of quota and in order to
maintain the amount of quota allocated to the farm, the partnership incurred
any significant expenditure which it might not otherwise have undertaken.
In short I can see no basis upon which in
justice this claim should succeed. I propose therefore to answer in the
negative the second question as reformulated by Mr Thomas. The further question
of how, if I had been of a different view, any allowance should be valued and
apportioned does not accordingly arise.
Determination accordingly.
