Jack v Jack 2016 CSIH 75 is a divorce case but has found itself on the radar of those in the rural sector because it concerns a farming partnership. The two central issues for the Judge at first instance and the appeal court were (a) whether the farmland was partnership property and (b) to what extent Mr Jack’s interest in the firm was matrimonial property. It is essential for those involved in structuring land and rural business transactions to know whether assets are personal property or property belonging to a partnership. This article offers a brief summary of the facts of the case and explains the decision.
Mr Jack’s father (Jack Snr) purchased the farm in 1954 and operated a farming enterprise as a sole trader. His son (Jack Jnr) worked on the farm as an employee along with another agricultural worker. In 1972 Jack Jnr married and he and his wife resided on the farm with their four children. In 1997, Jack Snr retired from farming and Jack Jnr and his mother (Mrs Jack Snr) began farming in partnership. There was no written agreement and was therefore a partnership at will. Following Jack Snr’s retirement, he transferred his land “for love, favour and affection” to his son. It was clear that the transfer had been a gift from father to son. In 2006, Jack Jnr assumed his wife into the partnership and the following year Mrs Jack Snr resigned. The marriage of Mr and Mrs Jack Jnr broke down in 2011 and the parties separated. The court did take account of the fact that Mrs Jack Jnr had been given an interest in the partnership at no cost to her, and, that she would be entitled to a share in the capital upon dissolution of the firm. As there was no written partnership to the contrary, the sharing of profit was divided equally between Mr and Mrs Jack Jnr.
The court stated that in order for land to become partnership property, it must either be brought into the partnership stock, or acquired on account of the firm, or for the purposes and in the course of its business. Should an individual partner acquire heritable property in the course of partnership business and by making use of partnership funds or credit facilities obtained through the partnership, it is clear that the property will be held on an implied trust for the partnership. This was not what happened in Jack v Jack because the land was the existing property of Jack Snr. The court considered that there were various legal structures that would have had a bearing on whether the land had been partnership property. It could have been possible for the father to make an express declaration of trust that the land was partnership property. Alternatively, he could have granted a lease or formal licence to the partnership, or, the partnership could have occupied the land by an informal licence at will. The court found that the partnership’s occupation of the land was by means of an informal licence by Jack Snr to the partnership.
It was crucial in this case that the land had not at any point been included in the partnership balance sheet. The court noted that the balance sheets of the partnership were important evidence in disclosing that the land was not partnership property. The court held that although Jack Snr’s farming enterprise was transferred to the partnership in 1997, the land was distinct and not partnership property. In relation to a capital sum received by Jack Jnr from his father, it was held that Jack Jnr’s interest in the firm was not matrimonial property. Accordingly, as his interest had been a gift from his father it was not within the scope of matrimonial property as set out in the Family Law (Scotland) Act 1985. This case serves as a useful reminder to those farming in partnership that the partners should be clear on what is, and isn’t, partnership property. The best way to do this is by making an express declaration in a written partnership agreement. Consideration should also be given to obtaining advice from a family law specialist in relation to a pre or post nuptial agreements. If you have any queries on the case, or any other partnership matters, please get in touch with your usual Brodies LLP contact.