Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 75

F83/14

Lord Brodie

Lord Drummond Young

Lord Malcolm

OPINION OF THE COURT

delivered by LORD DRUMMOND YOUNG

in the cause

by

ANDREW JACK

Pursuer and Respondent;

against

ISOBEL JACK

Defender and Reclaimer

Pursuer and respondent:  R Innes;  Morton Fraser

Defender and reclaimer:  Halley;  TC Young Wilson Terris, Solicitors

14 October 2016

[1]        The parties were married in 1972, and have four children who are all over the age of 16 years.  They lived together until 9 November 2011, when they separated, and they have not lived together since that date.  The pursuer has brought proceedings for divorce on the ground that the parties’ marriage has broken down irretrievably as a result of non-cohabitation for a period in excess of two years.  The defender did not oppose granting of decree of divorce but sought a capital sum of £1,164,285 and a periodical alliance of £2,000 per month for a period of three years from the date of decree of divorce.  The parties are the partners of Andrew Jack Farmers, a partnership which carries on a farming business.  The pursuer sought an order that the defender should transfer her share in the firm to him.  On 14 July 2015 the Lord Ordinary, after hearing proof, granted decree of divorce and ordered the transfer to the pursuer of the defender’s interest in the firm of Andrew Jack.  He further awarded the defender a capital sum of £175,000 and periodical alliance of £1,400 per month for three years from the date of divorce.  The defender has reclaimed against that decision. 

Facts
[2]        The material facts as found by the Lord Ordinary are as follows.  Andrew Jack Farmers carry on business on two farms, Torbanehill Mains and Boghall.  Both of those farms formerly belonged to the pursuer’s father, Andrew Jack Senior, who owned the farms from approximately 1954 until 1997.  Andrew Jack Senior carried on business as a sole trader on the farms.  At all times they were farmed as a single unit.  The pursuer became an employee of his father when he left school aged 16, and remained an employee until 1997.  One other person worked on the farm.  The parties married in 1972, and thereafter they resided together in properties situated on the farm lands owned by the pursuer’s father, latterly in the farmhouse at Torbanehill Mains.  Until 2006 the defender had no formal employment capacity in the farming business, but the Lord Ordinary records that unchallenged evidence was led that she supported the pursuer in his work on the farm.  She cared for the children of the marriage and fulfilled duties normally performed by a farmer’s wife on a farm, such as preparing lunch for the pursuer and the farm hand.  The Lord Ordinary records that throughout the marriage she supported the pursuer in his work on the farm.  In addition to looking after the four children of the marriage, she fulfilled the duties normally associated with a farmer’s wife on a busy farming enterprise. 

[3]        The pursuer’s father carried the farming business at Torbanehill Mains and Boghall until 1997.  In that year he sold part of the land at Boghall Farm to a developer, and thereafter he acquired title to a new house which was part of a residential development constructed on the land so sold and moved into that house.  At about the same time the firm of Andrew Jack Farmers was constituted.  The original partners were the pursuer and his mother, Mrs Jemima Jack.  The pursuer’s father was not a partner.  The partnership began to trade on 7 April 1997.  It farmed both Torbanehill Mains and Boghall, taking over the farming business that had been carried on by the pursuer’s father together with the whole assets of that business.  The work of farming continued to be carried on by the pursuer and his father, with the assistance of the farm hand. In addition, the defender was responsible for carrying out certain of the financial and administrative work of the partnership.  The work carried out by the pursuer’s father is discussed below. 

[4]        On 2 October 1997 the pursuer’s father granted a disposition of the farm and lands of Torbanehill Mains amounting to 200 acres or thereby in favour of the pursuer.  The disposition was expressed to be “for the love, favour and affection which I have and bear toward my son Andrew Jack, Junior, residing at Torbanehill Mains Farm”.  It was subsequently discovered that there was a defect in that disposition and a correcting disposition was accordingly granted, in the same terms as the passage quoted above, on 17 October 2001.  The disposition said nothing about the partnership, and was in outright terms in favour of the pursuer.  It was certified that the transaction was exempt from stamp duty under Category L of the Schedule to the Stamp Duty (Exempt Instruments) Regulations 1987;  that provision conferred exemption from stamp duty in respect of the conveyance or transfer of property operating as a voluntary disposition for no consideration in money or money’s worth nor any consideration comprising a debt.  It is accordingly clear that the disposition in favour of the pursuer was gratuitous. 

[5]        At about the same time as the disposition of Torbanehill Mains, a disposition of the farm and lands of Boghall was granted to Mrs Jemima Jack, the pursuer’s mother.  The pursuer’s father had previously granted standard securities in favour of the Royal Bank of Scotland over the two farms to secure his borrowings.  That indebtedness was repaid following the sale of land for development.  The standard securities were not discharged immediately, notwithstanding the discharge of the debt owed to the bank.  The standard security over Torbanehill Mains was eventually discharged on 17 December 2001, after the firm’s accountants had drawn the pursuer’s attention to the continued existence of the standard security.  We do not think that any significance can be attached to the continued existence of the standard security for a period of four years;  the security did not achieve anything during that period, and it is not unusual for securities of this nature to be left in place through simple inaction.  The balance sheet of the firm as at 5 April 1998, forming part of the accounts for the year to that date, indicates no debt due to the Royal Bank of Scotland.  This fact by itself makes it clear in our opinion that the loan from the Royal Bank was paid off following the receipt of the proceeds of sale of the development land. 

[6]        After 1997 the pursuer’s father continued to work on the farms, although he had retired from conduct of the business.  The Lord Ordinary narrates that the defender gave evidence that she could see no change in the way that the pursuer’s father worked after 1997;  he remained fully involved in the farming business.  He continued to look after the banking transactions of the business, and appeared to be wholly responsible for its administration.  He attended livestock auctions to deal on behalf of the business.  The pursuer confirmed in his evidence that after 1997 his father continued to deal with banking transactions on behalf of the partnership, and he stated that he himself was not concerned with banking transactions and took little part in the administration of the business, which was largely conducted by his father.  He gave evidence that his father attended livestock auctions, although he also attended those with his father.  The Lord Ordinary records that the only difference between the evidence of the pursuer and the defender was that the pursuer considered that the amount of work carried out by his father diminished over time. 

[7]        In 2004 the pursuer’s father suffered a stroke.  After that he had no active involvement in any aspect of running the farm business;  the whole of the farming side of the business was taken over by the pursuer.  The administration of the farming business was conducted by the defender.  The work that she undertook thereafter involved the firm’s banking transactions, the registration of the livestock, and administration concerned with applications for Single Farm subsidy and other grants that were available to the business.  The pursuer did not dispute that the defender undertook these categories of work.  The parties were in dispute as to how much time was involved:  the defender gave evidence that she required to perform a considerable amount of work, spending some time each day on her tasks; the pursuer, by contrast stated in evidence that the work involved no more than two or three hours per week.  Nevertheless, the business continued to be conducted by the firm of Andrew Jack, Farmers, with the pursuer and his mother as partners. 

[8]        In 2006 the defender was assumed as a partner of the firm.  The Lord Ordinary describes the circumstances surrounding her assumption as a partner as “opaque”.  He notes that the defender’s evidence, which was unchallenged, was that she was not aware that she had been made a partner in 2006 and only became aware of it at a later stage, when she acquired part-time work in the local post office and was surprised at the amount of income tax that she was paying.  She indicated to the Lord Ordinary, however, that if she had been asked to consent to becoming a partner in 2006 she would have agreed.  She was also unconcerned about her lack of knowledge of her assumption.  In 2007 the pursuer’s mother resigned as a partner, leaving the pursuer and the defender as the only partners.  There was no partnership agreement and no agreement as to the sharing of the firm’s profits, but in practice the defender was treated as entitled to 50 % of the profits of the firm, and that continued until the proof. 

[9]        When the pursuer’s father sold land to a developer in 1997, he acquired a capital sum which appears to have amounted to £292,651.  As indicated above, part of that sum was used to discharge in full his indebtedness to the Royal Bank of Scotland.  The balance of the sum received for the sale of the land was introduced as capital into the farming business.  It was shown in the accounts of the firm as a loan to the firm from the pursuer’s father, amounting to £172,971.37 in the balance sheet as at 5 April 1998, sums varying between £150,914 and £180,935.25 in the balance sheets between 1999 and 2003, and £215,157 in the balance sheet as at 5 April 2004.  On 18 October 2005 the pursuer’s father wrote to the partnership accountants, Hugh Ferguson & Co Ltd, in the following terms: 

“Please accept this letter as written confirmation of my verbal instructions in the matter of my Loan Account to the firm of Andrew Jack.

The sum of £215,156.80 as at 5^th April 2004, was gifted to my son Andrew Jack, residing at Torbanehill Mains Farm, Bathgate as at that date.

Please make an entry in the firm’s records to that effect”.

The partnership accountants then made entries in the partnership’s financial records to give effect to that instruction; the sum of £215,156.80 was treated as capital introduced to the partnership by the pursuer.  The result was that the sum at credit of the pursuer’s father’s account with the firm was regarded as a gift to the pursuer from his father. 

[10]      The Lord Ordinary records that Mr Gordon Stevenson, the accountant responsible for the preparation of the firm’s accounts, spoke to the letter.  He had been responsible for dealing with the instruction and making the consequent entries in the firm’s accounts.  The treatment that he had accorded the transaction in the accounts was challenged by counsel for the defender in cross examination, but Mr Stevenson maintained that this treatment of the instruction was correct and was in accordance with proper accounting practice.  His evidence in this respect was confirmed by an expert witness, Mr Euan Fernie, CA, a partner in Geoghegans, who gave evidence on accounting matters. In cross examination Mr Fernie was adamant that the entries made by Mr Stevenson following the letter were appropriate.  The Lord Ordinary notes that no contrary evidence was given on behalf of the defender.

Lord Ordinary’s decision
[11]      The Lord Ordinary held that the first critical issue was whether the lands at Torbanehill Mains Farm were property of the partnership.  He held that there appeared to be conclusive evidence that the transfer of Torbanehill Mains Farm to the pursuer was a gift from his father.  The critical evidence was the existence of the disposition of 2 October 1997 and the corrective disposition of 17 October 2001;  both of these were expressed to be for love, favour and affection.  Furthermore, the dispositions contained a declaration that the transaction was exempt from stamp duty under category L of the Schedule to the Stamp Duty (Exempt Instruments) Regulations 1987;  that indicated that the transaction was a gratuitous transfer, for no consideration.  The accounts demonstrated that the business was solvent.  While undischarged standard securities subsisted over both Torbanehill Mains and Boghall, the indebtedness to the Royal Bank had been discharged by October 1997, and it appeared that the existence of the standard security was simply overlooked in 1997, with the result that it was not discharged until 2001.  The defender had founded on the decision in Sim v Howat and McLaren, [2011] CSIH 115, where it was held that in the circumstances of the case there was a presumption against making a gift of partnership assets.  That presumption was, however, dependent on circumstances, and in the present case the Lord Ordinary held that there were no circumstances to support the application of the presumption.  The pursuer’s father had been the sole owner of Torbanehill Mains Farm, and his intention to transfer the property to the pursuer for love, favour and affection was clear from the terms of the disposition.  The same would apply to the lands at Boghall Farm, where the gift was to the pursuer’s mother 

[12]      The second critical question identified by the Lord Ordinary was whether the transfer of the pursuer’s father’s loan account to the pursuer should be treated as a gift.  For the defender it had been submitted that a proper assignation was required, with the result that there was no effective gift.  The Lord Ordinary rejected that argument, relying on the evidence of Mr Stevenson and Mr Fernie about the handling of the transaction in the partnership accounts.  The result was that this element in the pursuer’s capital account was a gift from his father, which had consequences in determining the value of matrimonial property. 

[13]      The Lord Ordinary accepted that the defender had contributed throughout her married life to the operation of the farming business, and took that into account in making the assessment required by section 9 of the Family Law (Scotland) Act 1985.  He further took account of the fact that in 2006 the defender had been given an interest in the partnership for which she did not require to pay, and she had shared in the partnership profits since the time when she was assumed as a partner.  She remained a partner at the time of the proof, and was accordingly entitled to a 50% share of partnership profits.  On dissolution of the firm, she would be entitled to a share in the capital, which she had acquired at no cost of herself.  On that basis the Lord Ordinary decided that an equal sharing of matrimonial property was appropriate.  In calculating the amount of matrimonial property, the Lord Ordinary treated Torbanehill Mains Farm as the sole property of the pursuer, and therefore as not being matrimonial property.  The share of capital received by the pursuer as a gift from his father also fell to be excluded.  The result was a sum due by the pursuer to the defender of £174,392, which was rounded up to £175,000.  Finally, the Lord Ordinary ordered payment of a periodical allowance of £1,400 per month by the pursuer to the defender for a period of three years, but no issue now arises about that award. 

Issues in dispute
[14]      In the reclaiming motion two principal issues were in dispute: first, whether Torbanehill Mains Farm was part of the partnership property of the firm of Andrew Jack Farmers or was the sole property of the pursuer;  and secondly whether the pursuer’s interest in the firm of Andrew Jack Farmers was matrimonial property.  We will deal with these issues in turn. 

Was Torbanehill Mains Farm partnership property?
[15]      It is not in dispute that the heritable title to Torbanehill Mains Farm was in the name of the pursuer’s father until 1997, and that by the original disposition of 2 October 1997 and the corrective disposition of 17 October 2001 he transferred his interest to the pursuer.  The critical question is whether those dispositions amounted to a transfer of absolute ownership, or whether the transfer was of the farm as partnership property.  Section 20 of the Partnership Act 1890 provides as follows: 

“(1) All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.

(2) Provided that… in Scotland the title to and interest in any heritable estate, which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust, so far as necessary, for the persons beneficially interested in the land under this section”.

The result of those provisions is that any land that has been brought into the partnership stock or is acquired on account of the firm or for its purposes and in the course of the partnership business are to be treated as partnership property.  Land in Scotland is treated in a special manner:  the partnership does not become heritable proprietor, but if the land is partnership property it is held by the proprietor on trust for the partnership. 

[16]      It is important to note that section 20 does not of itself render property partnership property.  Before any property becomes partnership property, one of the conditions in subsection (1) must be satisfied:  either the property must be brought into the partnership stock, or the property must be acquired on account of the firm, or for the purposes and in the course of its business.  The reason for those requirements is obvious: partnership property must be distinguished from an individual partner’s own property, and consequently something is required to establish that the property is truly the property of the partnership rather than part of the personal estate of an individual partner (or the estate of another partnership in which one more of the partners are interested). 

[17]      The critical question is accordingly whether the land in question, Torbanehill Mains Farm, was part of the partnership stock or was acquired as specified in section 20(1).  The farm had been the property of the pursuer’s father when he was a sole trader.  In that situation its ownership would not have mattered, because a single individual was involved.  When the partnership was set up and the business transferred in April 1997, however, the rights of the partnership in relation to the farm became a matter of importance.  At this point there were in theory four ways in which the farm could have been treated.  First, it would have been possible for the pursuer’s father to render the farm partnership property by an express declaration of trust to that effect, either in a freestanding declaration of trust, if he were to remain the heritable proprietor, or in a disposition in favour of another person as trustee for the partnership, with appropriate trust purposes.  Had it been intended to make the farm partnership property, that would have been the clearest way of doing so.  Secondly, it would have been possible for the pursuer’s father to grant a lease of the land in favour of the partnership;  rent would normally have been payable, and a term of the lease would be specified.  In that event the tenant’s interest in the farm would normally become partnership property, but the landlord’s interest would remain with the heritable proprietor as his own property.  It is clear, however, that this course was not followed.  Thirdly, it would have been possible for the pursuer’s father to grant an express right of occupation in favour of the partnership, in the form of a licence that did not amount to a lease.  Such a licence might or might not be granted in exchange for periodic payments, and might or might not have a definite duration.  In this case, the contractual rights of the occupier under the licence would become partnership property, but as with the lease the heritable property would remain the property of the individual proprietor.  Once again, it is clear that no express licence or other right of occupation was granted. 

[18]      Fourthly, it would have been possible for the pursuer’s father to allow the partnership to occupy the land on an informal basis.  In effect this would be an informal licence at will.  Under such an arrangement the partnership as occupier has only the most minimal of rights, and the land itself remains the property of the owner and does not become partnership property.  We observe that the last of these is a very common arrangement in practice where land or premises belonging to an individual are made available to a partnership in which he or members of his family are partners.  Such an arrangement has a number of consequences that may be advantageous.  The proprietor retains the right to do as he will with the property, and can dispose of it at any time he wishes.  Because the property remains with the original proprietor, it cannot normally be used to satisfy the rights of the partnership’s creditors.  In succession to the proprietor’s estate the property is treated as his own heritable property, whereas if it becomes partnership property it is treated as between the partners and their heirs and executors as moveable and not as heritable property;  provision to that effect is contained in section 22 of the Partnership Act 1890.  Finally there may be tax advantages, such as the exemption from stamp duty on gifts which was relied on in the present case.  

[19]      In the present case it is clear in our opinion that the arrangement adopted by the pursuer’s father when the partnership was set up in April 1997 fell into the fourth of these categories.  We reach this conclusion for two principal reasons.  In the first place, the disposition and corrective disposition granted in favour of the pursuer were both expressed in absolute terms, and proceeded on the basis of love, favour and affection, the usual wording used to indicate a wholly gratuitous disposition.  The wording of the dispositions is of great importance in indicating that an outright transfer of the property was intended, not subject to any trust rights in favour of the partnership.  Had it been intended that the firm should have been partnership property, it would have been very straightforward to make express provision to that effect, either in the disposition or in a separate trust deed.  That was not done, however.  Furthermore, the disposition includes a certificate that the transaction was exempt from stamp duty under Category L of the Schedule to the Stamp Duty (Exempt Instruments) Regulations 1987.  Category L confers exemption from stamp duty on any conveyance that operates as a voluntary disposition for no consideration in money or money’s worth or no consideration comprising a debt.  That again emphasises that the disposition was intended to operate as an outright gratuitous transfer. 

[20]      In the second place, in the accounts of the partnership the land was not included as an asset in the balance sheet.  If it had been intended that the land should be partnership property, it should have been included as an asset, and the fact that it was not is in our opinion a strong indication that there was no intention on the part of any of the persons involved, the pursuer, his mother as the other partner or his father as the granter of the dispositions, that the land should be partnership property.  In this connection it is significant that in the last balance sheet prepared on behalf of the pursuer’s father as a sole trader, that as at 6 April 1997, both Torbanehill Mains Farm and Boghall Farm are included as assets, albeit at a book valuation that clearly bore no relationship to current values.  In the first balance sheet of the partnership, that as at 5 April 1998, the two farms are absent.  That is only explicable on the basis that they were not understood to be partnership property.  In this connection, we note that Mr Gordon Stevenson, the accountant who was responsible for preparing the accounts of the partnership, gave evidence as to the disadvantageous consequences that can occur when a farm belonging to a sole trader becomes partnership property, and indicated that in such a case it is normal to remove any doubt about the ownership of the farm by omitting it from the balance sheet; that makes it clear that the farm is not partnership property. 

[21]      If the two farms, Torbanehill Mains and Boghall, were not made partnership property at the time in October 1997 when the partnership came into existence, they cannot in our opinion be regarded as becoming partnership property at the time when they were conveyed by the pursuer’s father to the pursuer and his mother, some months after the creation of the partnership (with a corrective disposition some four years later).  At that point the terms of the dispositions, including the corrective disposition of Torbanehill Mains, are highly significant;  for the reasons already discussed we consider that the reference to love, favour and affection clearly indicates that a gratuitous disposition of the farm is contemplated, without any implication that the farms should be held on trust for the partnership.  Moreover, if the existing arrangement between the pursuer’s father and the partnership was a mere licence to occupy, as we have held, there is no sensible reason why it should at this point be converted into a trust for the benefit of the partnership, in such a way as to render the farms partnership property.  It is also significant that the two farms occupied by the partnership were conveyed to different persons, the pursuer and his mother;  if the intention was that they should become partnership property no obvious purpose would be served by separate dispositions, resulting in separate heritable ownership.  On this topic we note, finally, that no evidence was led of any intention of either the pursuer or his mother to make their interests in the two farms partnership property at any time after 1997.  Thus the property in the two farms remained that of the pursuer and his mother as individuals. 

[22]      Counsel for the defender advanced a range of arguments to the effect that the Lord Ordinary had been in error in concluding that Torbanehill Mains Farm was not partnership property.  In our opinion none of these arguments supports such a conclusion.  First, it was submitted that section 20 of the Partnership Act 1890, which is quoted above, had not been adequately taken into account by the Lord Ordinary:  the result of the section was that the agreement and intention of the partners at the time when the partnership was entered into was of crucial importance.  No such evidence had been led; indeed the pursuer had given evidence that there had been no discussion at the time when the partnership was constituted in April 1997 as to the ownership of the farms.  This argument is in our view misconceived: the fact that no discussion took place at the time when the partnership was entered into indicates that no express agreement was reached when the partnership was created that the farms should be partnership property.  The existing status of the farms was that they were in the absolute ownership of the pursuer’s father, and agreement of some sort would be required to alter that status. 

[23]      It might have been argued that, at a time when the partnership was constituted, the farms came to be held on an implied trust for behoof of the partnership, with the result that they would become partnership property by implication.  It is certainly possible for a trust to arise by implication.  This would normally occur in a commercial context, and the implication of a trust would be designed to serve one of two purposes:  either to protect specific assets against the insolvency of one of the parties involved, or to segregate a fund to ensure that it is available for a particular defined purpose:  see the Report on Trust Law of the Scottish Law Commission (Scot Law Com No 239), published in July 2014, at paragraphs 3.14-3.17.  The context for the implication of a trust will often be a pre-existing fiduciary duty, although an agreement to segregate a fund for a particular purpose might give rise to an implied trust even in the absence of any other form of fiduciary duty.  Partnership is clearly a commercial arrangement, and the obligations of partners to one another are fiduciary in nature.  Section 20 of the Partnership Act should be read in this light.  If, for example, an individual partner acquires heritable property in the course of the partnership business, making use of partnership funds or credit facilities obtained through the partnership, that property will be held on an implied trust for the partnership, in accordance with section 20(1) and (2). 

[24]      In the present case, however, the farms were the existing property of the pursuer’s father.  He did not become a partner in the newly constituted partnership.  Against that background any one of the four legal structures discussed in paragraphs [17] and [18] above could have been adopted.  We can discern no reason for preferring a version of the first structure, an implied trust for the partnership, rather than the fourth structure, an informal licence at will.  Both arrangements are commonly found in commercial practice in relation to farms. Moreover, the fact that the pursuer’s father was not a partner in the new firm would give him good reason to confine the partnership to a licence at will, to protect his own interest in the farms.  The commonest reason for the implication of a trust is to protect against insolvency.  In this case, however, the primary risk of insolvency lies with the trading enterprise, the partnership.  Consequently protection of the asset against insolvency would favour a licence at will, with property remaining with the non-partner  The other main reason for implying a trust is to segregate an asset, but in a case such as the present there is no compelling reason for segregating the farms in such a way that they are held on trust for the partnership;  as we have remarked, an informal licence is a very common form of relationship in such a situation.  Consequently we are unable to conclude that a trust in favour of the partnership should be implied. 

[25]      Counsel for the defender placed emphasis on the fact that the farms had been occupied by the partnership, and the partnership had paid the outgoings on the land.  In our view these factors are of little significance.  If a partnership is given a licence to occupy, the purpose is clearly that it should use the land in question; thus the fact of use is neutral as between ownership and a mere licence.  Furthermore, in a number of cases it has been clearly held that the mere use of heritable property for the purposes of a partnership is not sufficient to stamp the property with the character of partnership property:  Miller, Partnership, page 393.  In our opinion there are good reasons for this;  it permits a proprietor of land to make it available to a partnership without its becoming partnership property, which can have the advantages described at paragraph [18] above.  So far as outgoings are concerned, if an informal licence to occupy is granted, it is normal for the occupier to pay the outgoings on the land;  that is only fair, as the occupier otherwise receives a gratuitous benefit.  Consequently we do not regard this factor as of importance. 

[26]      Counsel further cited two relatively recent decisions of the court on the question of whether, in the context of divorce, heritable property should be regarded as partnership property.  The first of these was Marshall v Marshall, 2007 Fam LR 48.  In that case the primary question before the court was whether two farms should be regarded as partnership property or matrimonial property for the purposes of determining financial provision on divorce;  on the particular facts of that case, it was a matter of concession that if the land were partnership property it should be excluded from the matrimonial property to be shared between the parties.  Lord Hardie held that, in determining whether the farms were partnership property or matrimonial property, it was necessary to go beyond the terms of the recorded heritable title and consider further evidence as to the basis on which the property was held.  We agree entirely with that approach, which we have attempted to follow in this opinion.  We are nevertheless of opinion that the terms of the heritable title are, in the circumstances of the present case, of some importance.  The terms of the disposition of 1997 and the corrective disposition of 2001 in favour of the pursuer for love, favour and affection form an important element in the evidence as to whether Torbanehill Mains Farm was considered by the pursuer’s father to be partnership property.  That evidence was supported by other important evidence, notably the treatment of the farms in the subsequent balance sheets of the partnership.  It is also supported by the general context in which the transfer took place, and in particular by the availability of an informal right of occupation, in the form of a licence terminable at will, as an alternative to partnership property. 

[27]      The second case referred to by counsel was Longmuir v Moffat, 2009 SC 229.  In that case the approach taken by Lord Hardie in Marshall was approved.  The court referred (at paragraph [15]) to “numerous cases in which the court has been prepared to examine the issue of beneficial ownership in the face of a contention that the title to heritable property did not reflect the true position regarding such ownership”.  In our opinion that approach is inevitable in the context of the law of partnership.  The court went on (at paragraph [16]) to indicate that, if the court were disabled from considering the true position as regards beneficial ownership, the provisions of section 21 of the Partnership Act would be unworkable;  section 21 provides that, unless the contrary intention appears, property bought with money belonging to a firm is deemed to have been bought on account of the firm.  That provision is obviously not relevant to the present case, but it illustrates why the approach adopted in Longmuir is correct.  We note that in that case the court refers to the importance of the partnership accounts, and in particular of its balance sheets, in determining whether an asset is partnership property.  In the present case, we consider that the balance sheets of the partnership are important evidence in disclosing that the two farms were not partnership property. 

[28]      Finally, counsel for the defender referred to a range of factors relative to the business carried on at Torbanehill Mains and Boghall Farms to suggest that the beneficial interest in Torbanehill Mains Farm should be included in the value of the partnership property.  These were, in summary, as follows:  first, the same farming enterprise had been carried on by the pursuer’s father before 7 April 1997 and by the partnership after that date;  secondly, the same assets were used by the successor partnership, the partnership having acquired the whole assets of the pursuer’s father;  thirdly, the beneficial interest in the subjects therefore became partnership property;  and fourthly, it was only in the latter part of 1998, and without prior instruction or discussion, that the partnership accountants drew up accounts which omitted the subjects from the firm’s balance sheet for tax reasons.  We have already dealt with all of those factors except the last.  We are of opinion that, although the farming enterprise was transferred to the partnership, that was distinct from the heritable property in the two farms, which was dealt with separately by the pursuer’s father.  Consequently the beneficial interest in the farms did not become partnership property.  

[29]      As to the suggestion that it was the partnership accountants who were responsible, without instructions, for omitting the farms from the balance sheet and that they did so for “tax reasons”, we make three observations.  First, in drawing up accounts it is the duty of an accountant to reflect the true financial position of the partnership.  That applies both to the regulation of affairs as between the partners and to the partnership’s tax liability;  it is an elementary proposition that tax liabilities must be determined on the basis of the true financial position of the business.  Any attempt to misrepresent the true position to the tax authorities in such a way as to reduce tax liabilities would amount to fraud.  It was at no point suggested that in the present case the partnership accountants had attempted to defraud the Inland Revenue.  Consequently we disregard entirely the suggestion that the omission of the farms from the partnership accounts had been for “tax reasons”. 

[30]      Secondly, the accounts of the business are of obvious commercial importance, both in relation to the conduct of business and in relation to its tax liabilities.  It would be remarkable, to say the least, if the partners were not aware, at least in general terms, of what was in the accounts.  This applies in particular to the pursuer, who played an active part in the management of the business, and must have submitted tax returns on the basis of the accounts of the business.  Thirdly, although there does not appear to have been any evidence that the beneficial ownership of the farms was discussed prior to the creation of the partnership on 7 April 1997, those farms were the property of the pursuer’s father prior to that date and it was a matter for him to decide what was to happen to them.  In all the circumstances, the inference that we draw, for the reasons discussed above at paragraphs [19]-[25], is that he intended that the farms should remain his property.  That appears to us to be the only sensible inference to be taken from the terms of the dispositions and the treatment of the farms in the partnership accounts.  Because the ownership of the farms did not change in any way, there was nothing to discuss.  Thus the lack of discussion is a factor that points, if anything, against the notion that the farms would become partnership property.

To what extent was the pursuer’s interest in the firm of Andrew Jack, Farmers matrimonial property?
[31]      The second important question was whether the pursuer’s interest in the firm of Andrew Jack, Farmers was matrimonial property, and if so to what extent.  On this matter, the Lord Ordinary held that the pursuer’s interest had been a gift from his father, and that it accordingly fell outside the scope of matrimonial property as specified in section 10(4) of the Family Law (Scotland) Act. We agree with his conclusion. 

[32]      At the outset we should note that two distinct issues appear to arise in respect of gifts that are said to have been made to the pursuer by his father relating to the business of Andrew Jack, Farmers.  The first of these relates to the pursuer’s interest in the business as such: the patrimonial rights that he enjoyed as a partner.  On this issue, we are of opinion that that interest was a gift to the pursuer from his father.  The pursuer’s father carried on the business as a sole trader prior to 1997, and in that year he transferred the business to a partnership between the pursuer and his mother.  It is clear that that was a gift. 

[33]      The second issue that arises relates not to the pursuer’s share in the firm but to the transfer to the pursuer of the interest in his father’s loan account, which is said to have been effected in 2005;  the relevant facts are summarized in paragraph [9] above.  The Lord Ordinary held that an effective gift of the loan account had been made, and that no formal assignation was required.  For the defender it was contended that the terms of the letter of 18 October 2005 from the pursuer’s father to the partnership accountants were insufficient to transfer his interest in the loan account to the pursuer.  For a valid assignation, two steps are required:  delivery of a deed of assignation or a completed act of assignation, and intimation of such assignation to the debtor, in this case the firm.  The letter of 18 October 2005 was insufficient to amount to an assignation, as it merely amounted to an instruction to carry out an accounting exercise. 

[34]      Perhaps the leading authority on the requirements of a valid assignation is Carter v McIntosh, 1862, 24 D 925.  In that case it was held that words of conveyance are unnecessary for a valid assignation. In the words of LJC Inglis (at 933): 

“But, if anything is settled and the law of Scotland, it is that no words directly importing conveyance are necessary to constitute an assignation, but that any words giving authority or directions, which if fairly carried out will operate a transference, are sufficient to make an assignation”.

The document founded on in Carter was part of the compromise of a claim.  In that document the creditor in a debt authorized and directed the debtor to pay over the principal sum of the debt and interest thereon to named assignees.  It was held that this was effective as an assignation.  It was an instruction – in effect a mandate – given by the creditor in a debt to the debtor to pay a different creditor, and that was sufficient to assign the debt.  The case is a very clear example of the court’s having regard to the true substance of a transaction rather than to niceties of form.  We note that the case is the subject of helpful commentary in Gloag & Irvine, Rights in Security, at pages 471-472. 

[35]      The present case is in our opinion indistinguishable from Carter v McIntosh.  The debt at issue was owed by the partnership to the pursuer’s father.  When the pursuer’s father wrote to the partnership accountants on 18 October 2005, it is obvious that he did so on the basis that they were to act as an agent for the partnership;  there was no other reason for instructing them, as they obviously had no personal interest in the debt.  The letter of 18 October 2005 instructed the accountants as agent for the partnership to record in the firm’s books that the debt owed to him by the firm was gifted by him to his son with effect from 5 April 2004.  On any sensible interpretation, the words used if carried out will operate a transference of the debt from father to son.  That is sufficient for an effective assignation.  The requirement of intimation is clearly satisfied, because the instruction was given to the partnership accountants in their capacity as agents for the partnership, the debtor.  Furthermore, the evidence of Mr Stevenson, the accountant, was that the entries consequent on the instruction were made in the firm’s accounts, in accordance with proper accounting practice.  That evidence was confirmed by Mr Euan Fernie, an expert witness.  The Lord Ordinary makes it clear that he accepted the evidence of those witnesses, and that indeed no contrary evidence was led. In these circumstances we are of opinion that it must inevitably be inferred that a valid assignation was made. 

[36]      Counsel for the defender relied on the more recent decision in Gallemos Ltd v Barratt Falkirk Ltd, 1989 SC 239, a case involving orders for goods and services where some of the acknowledgements for orders contained a rather badly drafted provision that might be construed as authorizing wide rights of set-off.  It was held that the document was not effective as an assignation.  Lord Dunpark stated (at 242): 

“In my opinion an effectual assignation must contain words which may be construed as effecting an immediate transference of A’s right against C (A’s debtor) to B (the assignee), and the transfer is completed when intimation of the transfer is made to C, who then knows that B has become his creditor in place of A; but it is vital that the document intimated to C should inform C of the extent of the right transferred to B. There can be no transfer of an undefined right, for A’s debtor must know the extent of his obligation to the assignee”.

We agree entirely with that statement of the law.  Nevertheless it is satisfied in the present case.  The letter sent by the pursuer’s father to the partnership accountants instructs them to make entries in the firm’s books to transfer the debt that he is owed by the firm to his son.  That is perfectly clear.  Moreover, the letter makes it clear at that it is the whole of the father’s loan account that is to be transferred.  Thus this is not a case that involves an undefined right, and the debtor, the firm, must clearly be aware of the extent of its obligation to the pursuer, the assignee. 

[37]      Counsel for the defender presented a subsidiary argument based on the proposition that the defender was entitled to a 50% share in the value of the partnership,  in accordance with the presumption found in section 24 of the Partnership Act 1890 that, subject to any agreement to the contrary, the partners are entitled to share equally in the capital and profits of the business.  The pursuer had founded on a valuation of the parties’ interest in the partnership prepared by Mr Euan Fernie of Geoghegans, Chartered Accountants, which resulted in an unequal sharing of the capital of the partnership, and counsel for the defender submitted that that was inconsistent with section 24.   In our opinion this argument must be rejected.  The presumption of equal sharing in profits and capital is subject to any agreement to the contrary.  It is clear in the present case that the figures used by Mr Fernie were based on the transactions recorded on an annual basis in the partnership’s accounts over the period between the creation of the partnership among the pursuer, his mother and the defender in 2006 and the date when matrimonial property fell to be valued on 9 November 2011.  Indeed, the initial figures reflected transactions prior to 2006 in respect of the partnership between the pursuer and his mother.  It is not surprising that the result was an unequal sharing of assets. 

Conclusion
[38]      For the foregoing reasons we are of opinion that the reclaiming motion should be refused.  We will accordingly adhere to the interlocutor of the Lord Ordinary.