Bathurst v Scarborow

Michael Bathurst and Philip Scarborow were friends and business partners. When on 31 March 2001 Mr Bathurst drowned in a swimming accident in Ireland, he was 51 and Mr Scarborow was almost 47. They had known each other for about 30 years, and had been good friends for about 20 years. In 1990 they went into partnership together. Their business was known as Southern Darts & Trophies and involved the sale to pubs and clubs of darts equipment, diaries, personalised polo shirts and other such paraphernalia. Mr Bathurst was the salesman and Mr Scarborow was the administrator. The partnership had a turnover of about £250,000 a year and provided both partners with a reasonable living. In truth, as quickly started to become apparent after his death, Mr Bathurst’s ability to generate sales had been the backbone of the business, which went into decline after his death.

There was no written partnership agreement. Profits were divided equally. There were no business premises, but the partners operated from their respective homes on the borders of Kent and East Sussex. Mr Bathurst was unmarried and had, I think, never been married, but at his death had a girlfriend whom he had been seeing for about two years. His only family was a brother, whom he hardly ever saw, and some distant cousins in Scotland. Mr Scarborow was married and had two young children at home.

In 2000 Mr Bathurst discovered an opportunity to invest in an elderly lady’s home just across the road from his own. She was a Mrs Smitherman, who was 90 or older and had just suffered the death of her son. She was willing to sell her house on condition that she could continue to live there until she died and that the purchaser spent money on its improvement. The two friends agreed to invest in the house. It would prove useful for storing the partnership stock, which up to that time had been stored in Mr Bathurst’s home. The address of the house is 8 Homestead Cottages, 35 First Street, Langton Green, Tunbridge Wells, Kent.

On 31 January 2000 the two friends and Mrs Smitherman signed a document on the letterhead of the partnership recording the essence of their agreement and her receipt of a deposit of £1000. The document was signed by the two men “For and on behalf of Southern Darts & Trophies” and each of them was described below their signature as “Partner”. The document referred to a condition “that we can store our company goods in part of the house”.

The two partners instructed Messrs Berry & Berry to act as their solicitors, where Mrs Zai Koder was a conveyancing partner. On 1 February 2000 they went to see her. The attendance note of that meeting confirms that she was instructed on behalf of the partnership. The price was to be £60,000, with £50,000 paid on completion and the balance within two years.

It is common ground that the original concept had been to buy Mrs Smitherman’s house for the partnership, as partnership property. There is an issue as to whether that concept changed, on the basis of some tax advice that the two had received from their accountant, Mr Antony Court, so that their ultimate intention had been to buy the house outside the partnership. The transfer document simply described the two transferees as “to hold the property on trust for themselves as joint tenants”. It said nothing as to partnership. In practical terms the issue at trial and on this appeal was whether the right of survivorship applied to the beneficial interests in the house. If it did, Mr Scarborow would be entitled, as the survivor of a joint tenancy, to the whole beneficial interest in the house. If it did not, the house would be owned in equal shares by Mr Scarborow and Mr Bathurst’s estate.

Mrs Smitherman died on 18 December 2002 and her lease terminated with her death. These proceedings had already been commenced on 18 July 2002 by Mr Bathurst’s brother, John, as administrator of his estate. The proceedings sought the winding up of the partnership, a declaration that the house “is property belonging to the partnership” and all necessary accounts. By the time of trial in October 2003 all other issues had been settled between the parties, save for the status of the house (and one other very minor issue connected with the renting of the house which is no longer of concern on this appeal).

The completion took place on 19 May 2000. On that day Mrs Smitherman signed a land registry transfer form which named Mr Scarborow and Mr Bathurst as the two transferees. Box 11 of the form is headed “Declaration of trust” and instructs the reader that where there is more than one transferee an “X” is to be placed in the appropriate box. Three choices are given:

“The transferees are to hold the property on trust for themselves as joint tenants.”

That was the choice which on this transfer form was indicated by an X in the left hand margin. The other two choices were “The transferees are to hold the property on trust for themselves as tenants in common in equal shares” and “The transferees are to hold the property (complete as necessary)”. The form states that if the transfer contains transferees’ declarations, it must be executed by them. The final box on the form allows for the signatures of transferees. It had been prepared for signature as follows: “Signed as a deed by Phillip Charles Scarborow and Michael David Bathurst…” The copy of the transfer in the appeal bundle (and at trial) was unsigned by the transferees. We were told by Mr Philip Sinclair, who appeared at the trial and again on this appeal on behalf of Mr Scarborow, that the trial was conducted on the basis that there existed a counterpart form signed by the transferees.

In any event, and even if the transfer was not signed by the transferees, the form has to be read together with a letter dated 22 May 2000, addressed to both of her clients, which Mrs Koder sent to each of them. It read as follows:

“Further to our various telephone conversations I confirm that we have now completed the purchase of the above property in your joint names which will now be registered in accordance with your instructions as joint tenants. This means that on the death of the first of you the survivor automatically becomes the owner of the whole property. You had instructed me that this was because this was partnership property and that the monies which you had borrowed were as part of the partnership investment in the property. If at any stage you wish to change this situation so that the property is held as “tenants in common” in equal or unequal shares you will need to notify the Land Registry of your joint wish to sever the joint tenancy and of the shares in which the ownership is then to be held.”

The letter enclosed a completion statement which included a reference to Berry & Berry’s costs and fees. On 14 June 2000 Mr Scarborow, writing as a “Partner…For and on behalf of Southern Darts & Trophies”, replied to Mrs Koder to complain about the level of the fees. There was, however, no complaint that she had misunderstood her instructions, and no request to sever the joint tenancy.

A trial was held before Master Bowman. In such circumstances, one of the critical witnesses, here Mr Bathurst, is of course unavailable. The other critical witness, here Mr Scarborow, is of course very apt to persuade himself that the right of survivorship had been intended to apply. As Nicholls J said in Barton v. Morris [1985] 1 WLR 1257 at 1260G/H, equity leans in favour of tenancies in common and “the evidence of…the survivor must be viewed with caution”. Master Bowman concluded that there was no express agreement between the parties that they would purchase the property outside the partnership and that thus there was no right of survivorship. He therefore gave judgment in favour of Mr Bathurst’s estate. Mr Scarborow appeals.

At trial the only witness on behalf of the estate was Mr John Bathurst, but he naturally had little to contribute. Mr Scarborow, Mr Court and Mrs Koder gave evidence on the other side.

Mr Scarborow said that when the partnership was formed he and Mr Bathurst agreed that if one died while they were still in business together, his share would pass to the other; and that that had been said to each other a number of times. As for Mrs Smitherman’s house, they had initially intended to purchase it as a partnership asset, but, following discussion with Mr Court in April 2000 as to the tax implications of holding it within or outside the partnership and renting space in the house to the partnership, they had advised Mrs Koder that they wished instead to purchase it as a separate business investment “and as joint tenants”. That had been fairly close to the time of completion of purchase. He accepted that Mrs Koder had not needed to know the detail of their reasoning for changing their approach to the purchase of the property, provided they made it clear to her, as they had done, that they needed to hold the property as beneficial joint tenants.

He was closely cross-examined as to the circumstances of those revised instructions to Mrs Koder. He was pressed as to the actual words used, and said that he did not recollect other than that he got as close to it as he could in his witness statement. He said:

“Well, that’s the main piece we put over to her, that we wanted it in joint tenants…We told her that we wanted it in joint tenants. Q. And that is all? A. I can’t recollect, but if that’s – this is what she is suggesting, then maybe that was all we told her.”

He was vague as to the occasion of those instructions, whether it was in a telephone conversation or left as a message on the answer-phone.

He was also cross-examined as to his evidence that he and his friend had agreed that the survivor of them would get the business. It is worth setting out the substance of this passage:

“Q…So, in a sense there is a matching between the two. As far as the property was concerned, if someone died the other person, the other owner/co-owner gets it, and as far as the business is concerned, it is the same; if one of them dies the other person takes it?

A. Well, one was legally and the other wasn’t; there was no actual partnership agreement to that, but that was our understanding between us.

Q. And that understanding, how was that expressed? You agreed that, did you?

A. Yes, Michael said it often and it was understood. I mean, none of us expected any of this, of course…

Q. So, your evidence to the Master is that you had agreed with Michael that in the event of your death your wife and two children would get absolutely nothing from the business or the property – is that what you are telling the Master?

A. That’s what we had agreed.

Q. Isn’t that the most ridiculous thing to be putting forward for the purposes of this court case?

A. Not necessarily. I mean, that was the agreement. There were other policies, you know, to pay obviously everything else off and life policies…”

Mr Court spoke of a meeting with the two friends, which he placed in February 2000, about whether for tax reasons the property should be held within or outside the partnership. He believed that as a result they had changed their minds and decided to buy it as a separate personal investment. He did not make a record of the advice, which he remembered as having been given in the local pub, which is where they were accustomed to meet. He said:

“It wasn’t significant as I saw it, in that I wasn’t giving them hard advice as to what they should do, but really what the consequences of it were.”

He naturally could not give any evidence of any private discussion to which his advice might have led between the friends following that meeting.

Mrs Koder gave clear evidence that her clients “had instructed me that they wished to purchase the property as beneficial joint tenants”. She was therefore concerned to point out to them that in buying the property in this way, as distinct from buying it as tenants in common, the share of the first to die would automatically pass to the survivor. She gave that advice to them in her letter of 22 May 2000, but that was not the first time that she had so advised them. She had been instructed that they intended to purchase the property as a partnership effort, but also knew that they were taking advice from their accountant about the possibility of buying it outside the partnership. She thought she remembered a telephone conversation about that, of which she had made an attendance note, but no such note was found in the conveyancing file. In any event, that had not led to any change of her instructions. She said:

“My instructions were to purchase in their joint names as joint tenants and that is what I did.”

During her cross-examination, there was agreement between her and Mr Ayres, then as now counsel on behalf of Mr John Bathurst, that her instructions were to convey the property to the two friends as beneficial joint tenants. Thus the following is found:

“Q. It is correct to say that you received instructions that they were to hold the property as joint tenants in equity?

A.

Correct, yes.”

Similarly, when asking Mrs Koder about the passage in her letter of 22 May 2000 where she described the rule of survivorship, Mr Ayres said: “…that is a correct definition of beneficial joint tenants, is it not?” and Mrs Koder agreed. Mrs Koder also agreed that her letter represented her instructions in referring to partnership property and to partnership investment.

In re-examination it emerged that the first side to have approached Mrs Koder to give evidence had been Mr John Bathurst’s solicitors, but after holding several conversations with them she had declined to sign a witness statement which had been drafted for her.

I can take other evidence more briefly because it is no longer controversial, if indeed it ever was. Much of it was covered by documentation. The purchase was financed with the help of an unsecured business loan for £25,000 from the partnership’s bankers, Barclays. The loan was repayable over seven years and protected by an insurance policy on the lives of the two partners. As for the balance of the £50,000 paid on completion, £13,500 was injected by Mr Bathurst, £3,500 by Mr Scarborow, and the balance came from partnership funds. All these funds went through the partnership account. Following completion, the interest and capital repayments on the loan were paid from partnership funds. An upstairs bedroom in the property was used for the storage of the partnership stock. In February 2001, prior to Mr Bathurst’s death, the loan was refinanced with the assistance of a new business facility to the partnership from Barclays, this time in the sum of £40,000: the additional finance was to enable the property to be renovated, as had been agreed. When Mr Bathurst died the insurance policy paid off all the borrowings.

Partnership accounts for the relevant period were not drawn up until after Mr Bathurst’s death. They were then drawn up by Mr Scarborow with the assistance of Mr Court. We are told that they show the property as being held outside the partnership. However, because they were drawn up after Mr Bathurst’s death it is common ground that they can throw no light on the issues in the case. However, a partnership cash book kept by Mr Scarborow during the period after the completion and before Mr Bathurst’s death was investigated at trial. An entry dated 20 July 2000 in the sum of £410 (taken we understand as an example of other such entries) had been tippexed over: beneath the tippex Mr Scarborow had written “Loan on warehouse”. Mr Scarborow accepted that on the case he had made at trial, namely that the house had been ultimately bought outside the partnership for tax reasons and that the loan payments to the bank were matched by rent payable by the partnership to the friends for the storage space, this entry should have read “Rent for warehouse” and that the original entry was a mistake. This may be said to have demonstrated no credit to Mr Scarborow.

Unfortunately the tape on which Master Bowman’s judgment was recorded has been lost, and we have only an agreed note of what he said. That inevitably lacks detail, but it is sufficient for present purposes.

The judgment begins by stating the issue before him as follows: Was the property an asset of the partnership? He then dealt with the facts fairly briefly. In referring to the witnesses, he said that Mr Scarborow was “oddly unspecific and said that he could not remember certain details, which was disturbing”. However, those remarks were made with respect to Mr Court’s advice and its consequences, and ultimately Master Bowman did not find that such advice had not been given. He also said that Mr Scarborow’s explanation for the tippexed entry as a mistake was “somewhat unconvincing”. Ultimately he was to reject Mr Scarborow’s case that the friends had agreed on a right of survivorship: but he was to do so on the overall probabilities of the case rather than by finding that Mr Scarborow was not a witness of truth. Despite the criticisms implicit in the remarks quoted above, he did not make a finding as to how Mr Scarborow’s evidence should be regarded.

As for Mr Court, the master accepted that the meeting with the two friends had taken place in the pub but he said that it was “not particularly material”. He said that it was surprising that Mr Court had not made a record of the meeting. He made no finding as to what, if any, advice had then been given, but there is nothing in his judgment to demonstrate that he rejected the evidence that Mr Court and Mr Scarborow had given about the meeting. He noted but did not resolve the discrepancy between Mr Court and Mr Scarborow about the date of that meeting.

As for Mrs Koder, he said:

“It is right to say not surprisingly that she could be regarded as wholly independent in the evidence she gave. She was plainly an experienced conveyancer, who spent significant time on commercial transactions.”

He also said:

“She was uncertain in her evidence of when she was told of a change – she did not regard it as of great significance. This may have seemed casual but as far as she was concerned she was retained to procure the transfer into joint names of the joint tenants and that did not change and it did not matter whether or not it was partnership property.”

Master Bowman then turned to the submissions of the parties. On the basis of these he immediately rejected the transfer document itself as being of any significance. He said that the “joint tenancy is equally consistent with partnership – it triggers the appropriate section of the Partnership Act”. I do not understand that comment. He therefore rejected the submission that he should not look behind the words of the transfer, saying that “it is not in my view necessary for a proper determination of the matter”.

He then turned to the law, citing appropriate passages from Lindley & Banks on Partnership, 18^th ed, 2002, at paras 18.03, 18.07, 18.34 and 19.15, and from Blackett-Ord, Partnership, 2^nd ed at paras 8.37 and 9.3. Against that background he appears to have asked himself the question whether he could find in the evidence the indicia of partnership property. He immediately noted that the source of the finance was the partners aided by Barclays, that storage space was a substantial purpose of the investment, that the property had been deployed for storage of the partnership stock, and that the ongoing costs of the purchase had been paid from partnership assets. He said those were the “primary considerations”. In speaking of the meeting with Mr Court, he remarked that, although this was not the subject of cross-examination, he was confident that Mr Court did not have the ability to advise on the dangers of the right of survivorship. He does not appear to have reminded himself that Mrs Koder did have that ability and had said that she had advised the friends about the significance of the right of survivorship and to have done so before her letter of 22 May 2000. His conclusion was as follows:

“38.

Moreover, I find it altogether unlikely, had Michael appreciated its full impact, that he and Philip would have agreed to it. The property was likely to increase in value. Philip had a wife and young children and I find it inconceivable he would have agreed to give up his rights to part of the property if he had died first.

“39.

I recognise that Michael had no dependants but he had a reasonably long-term partnership with Vivienne McCrea and it would have been odd if he was prepared to enter into an agreement of this nature.

“40.

Often parties agree to a position without understanding but I doubt if either party would have entered into this transaction if they had known.

“41.

Mrs Koder’s letter pointed up the dangers. I find that there was no express agreement between the parties that they would purchase the property outside the partnership and in those circumstances the claimant succeeds…”

It may be observed that Master Bowman expressly ignored the terms of the transfer, and, apart from that concluding reference to Mrs Koder’s letter, appears to have found no assistance in that either. In considering what if any agreement may have been made by the two friends he does not seem to have considered at all Mrs Koder’s firm evidence, supported by those two documents and not disputed by Mr Ayres, that she had been instructed by her clients to have the property transferred to them as joint tenants in equity.

The effect of the Partnership Act 1890 (the “Act”) is that in relation to one another the primary rule (section 19) is that partners have full autonomy to make such agreement as they wish and that their consent may be either express or inferred, but that subject to that the rule is that, whatever else may be done with the legal interest in land, the beneficial interest in partnership property must be held in trust for the partners and applied exclusively for the purposes of the partnership (section 20). Moreover, subject to contrary intention, property bought with partnership money is deemed to have been bought for the partnership (section 21). I set out those sections below:

“19.

The mutual rights and duties of partners whether ascertained by agreement or defined by this Act may be varied by the consent of all the partners and such consent may be either express or inferred from a course of dealing.

20.

(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 the legal estate or interest in any land, or 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…

21.

Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.”

Under the heading of “Partnership Property” Lindley & Banks contains the following commentary:

“18.03.

As intimated in the previous paragraph, it is up to the partners to agree between themselves what assets are to be treated as partnership property. In the absence of an express agreement, the relevant factors will generally be (1) the circumstances of the acquisition, with particular reference to the source from which it was financed, (2) the purpose of the acquisition, and (3) the manner in which the asset has subsequently been dealt with…Although these statutory rules [sections 20/21] will assist in determining what is and what is not partnership property when the intentions of the partners are not readily apparent, they cannot be applied in the face of contrary agreement, whether express or implied…

“18.08.

The statutory presumption that assets purchased with partnership money constitute partnership property may, of course, be rebutted. An obvious example is where the asset is vested in some or all of the partners upon express trusts which are inconsistent with it being partnership property…

“18-13. In order to determine whether an asset acquired by a partner has in truth been acquired “on account of the firm, or for the purposes and in the course of its business”, all the surrounding circumstances must inevitably be taken into account…”

Under the heading of “Separate Property” beginning at para 18-24 Lindley & Banks discusses a number of cases which illustrate the circumstances in which separately held property may or may not be treated as partnership property. Again, it is emphasised that “Any agreement between the partners is, of course, paramount” (at para 18-24). One topic is that co-ownership does not of itself mean partnership, even where the co-owners share profits (see section 2(1) of the Act). Another topic considered the situation where heirs and partners jointly receive devised property. Thus in Jackson v. Jackson (1804) 9 Ves Jr 591 (discussed in Lindley & Banks at para 18-29) a testator had devised his business and land to his two sons jointly with a view to them carrying on that business after his death, and they did so as partners. One issue was whether in doing so they severed the joint tenancy in the land, which was accessory to the business. Lord Eldon LC said that if the father’s will had made clear that the joint tenancy was to survive despite the sons’ dealings with it as partnership property, then the intention of the testator should prevail. As it was, in the absence of such an intention, it was open to the sons to sever the joint tenancy, and they had done so. Lord Eldon said (at 604):

“…after transactions for 12 years; shewing that William lived and died in the persuasion, maintained by the acts of the other, that he was entitled to one-half; and after his death the Defendant acting upon the idea; which is the rational inference from the nature of the property and the transactions till his brother’s death; who was, during his whole life, entitled to sever his interest.”

On the other hand, in Brown v. Oakshot (1857) 24 Beav 254 (discussed in Lindley& Banks at para 18-27) a father devised his estate to trustees for a term, for them to pay a residue of rents from that estate to his sons as tenants in common; but the reversion of the estate he devised to his sons as joint tenants. The question was whether the joint tenancy of the reversion had been severed because the sons, during the term, had used the estate in their partnership trade as brewers. It was held that they had not, and so the surviving son took the whole of the reversion, subject to the term.

In the present case the property was not devised in joint tenancy, but there is firm and in one sense undisputed evidence that the partners wished to buy the property in beneficial joint tenancy. In the case of a devise, the intention looked at is that of the devisor, but subject to any subsequent intention on the part of the devisees to sever the joint tenancy for the purposes of taking the property in question into partnership. In the present case the problem is what to make of the apparently conflicting and contemporaneous instructions that the property was to be taken as partnership property but also into the beneficial joint tenancy of the two partners. I say apparently conflicting instructions, because the nature of a beneficial joint tenancy is that the survivor becomes absolute owner of the property, whereas the prima facie rule in partnership is that property is held in common and not jointly so that death, although it brings the partnership to an end, does not affect beneficial interests. That is the subject-matter of the next citations, to which Master Bowman also referred. I should however emphasise that no argument was advanced before us to the effect that, if the transfer was into the partners’ beneficial joint tenancy, the joint interest was nevertheless thereafter severed.

Lindley & Bank’s chapter 18 had been dealing with “Partnership Property”. In chapter 19 the subject matter is “Partnership Shares”, and explains among other things the nature of a partnership share. Thus at para 19-15 the following is found:

“It has long been recognised that partnership is not a species of joint tenancy and that, in the absence of some contrary agreement, there is no survivorship as between partners, at least so far as concerns their beneficial interests in the partnership assets.”

Blackett-Ord, however,puts the matter thus (at para 8.37):

“The alleged absence of a right of survivorship in partnership law echoes the undeniable presumption that land which was held as partnership land was not held for a beneficial joint tenancy. But this presumption has little value in relation to partnership land today because:

(a)

unlike before 1926, a legal estate cannot be held by partners or other co-owners as tenants in common but only jointly [citing the Law of Property Act 1925, ss 34 and 36]; and

(b)

it is strictly incorrect to describe the land as being held beneficially upon trusts for the partners as tenants in common or jointly. It is held in trust for the purposes of the partnership.

The strong presumption against partnership land or other property accruing to a surviving partner beneficially can only be rebutted by clear evidence of a contrary intention such as a declaration of trust to the effect that in Equity the property is owned jointly.”

Neither counsel has cited any authority as illustrating the facts of the present case where, at one and the same time, the partners’ instructions to their solicitor were, at any rate on one view, to deal with the purchase both as a purchase for the partnership and so as to give the partners a joint tenancy in equity. Nevertheless a modern case cited more than once in the passages referred to above from Lindley & Banks which has some similarity to (but also some material differences from) the facts of this appeal is Barton v. Morris [1985] 1 WLR 1257. There a man and a woman who were living together as man and wife purchased a property with the intention of using it for the purposes of a guest house business which was to be run as a partnership. The conveyance, which was executed by both of them, included an express declaration to the effect that they held the property upon trust for themselves as beneficial joint tenants (at 1259C). The purchase price was £40,000, of which the man contributed only £900. There was no written partnership agreement, but profits and losses were shared equally. The woman kept the partnership’s books and accounts. Her draft accounts showed the property as an asset of the partnership; rates were shown as a partnership outgoing, as was interest on a temporary bank loan (at 1260F). The woman died intestate and, as here, there was a dispute between the man and the woman’s estate. The man said that he took the property as the survivor of a joint tenancy. The woman’s mother, as administratix, said that the joint tenancy had been severed or alternatively that the proper inference was that the property should be treated as a partnership asset.

Nicholls J preferred the man’s submission. He said (at 1260G/1263A):

“For the plaintiff, Mr Jennings advanced the case in favour of severance in two ways. He accepted that the onus of severance lay on the plaintiff, but he pointed out that equity leans in favour of tenancies in common. He observed, and I accept, that, in a case such as this, the evidence of the defendant must be viewed with caution. He drew my attention, amongst other authorities, to the judgment of Lord Denning M.R. in Burgess v. Rawnsley [1975] Ch. 429, 438. Lord Denning M.R. referred to Sir William Page Wood V.-C.’s well known classification in Williams v. Hensman (1861) 1 J. & H. 546, 557, of the three ways in which a joint tenancy may be severed. In short, the third of these three modes of severance is by any course of dealing sufficient to intimate that the interests of the joint tenants were mutually treated as constituting a tenancy in common…

Mr Jennings’ alternative formulation was closely related. It was that from the matters I have just mentioned the inference to be drawn is that the parties agreed that the property should be treated as a partnership asset. So treating the property gives rise to the presumption of severance mentioned in Lindley on Partnership, 15^th ed. (1984), p. 77:

“where jointly owned property is brought into partnership, and thereafter constitutes a partnership asset, a severance will be presumed, since the right of survivorship has no place in a partnership.”

I shall consider the two claims in that order.

To my mind the evidence established clearly that when the express declaration of joint tenancy in the conveyance was executed by the parties in mid-August 1979 they both knew what the effect of that joint tenancy would be, and they both intended that the property should automatically accrue to the survivor on the death of the first to die. I accept the evidence of Miss Malthouse, the solicitor who acted for the parties on their purchase, concerning what passed between her and Miss Barton and the defendant on this topic prior to completion…Again, it is plain from the evidence that from the outset the parties hoped and intended that the farmhouse would be used by them as a guest house, and indeed, they took over one booking from their vendor. They planned to carry on such a business there together, with the house also being their home…

Further, I think it is clear that when the draft accounts were discussed with Mr Howells [their accountant] in January 1981 nothing was said to suggest that the inclusion of the property in the partnership accounts would alter or was intended to alter in any way the existing arrangements agreed between the parties regarding the property when it was acquired in 1979.

In those circumstances…I do not accept that…Miss Barton’s inclusion of the property in the draft accounts as I have mentioned, and the defendant’s awareness of this, showed an intention on her part, let alone the defendant’s part, that henceforth the property was to be held as tenants in common…That would have represented a fundamental change in the parties’ intention from what was expressed when the property was bought…

Nor…am I able to accept the plaintiff’s alternative formulation. With the parties’ intention being as I have mentioned, I can see no justification for treating that intention as defeated by such evidence as there is of an intention that the property should be a partnership asset. There may well be some inconsistency between those two intentions, but I am unable to regard the evidence that the property should be an asset of their joint venture as evidence of an intention superseding or affecting the intention that the survivor should by right of survivorship take the property. In truth so far as Miss Barton and the defendant were concerned, the partnership and the accounting records kept of the partnership business were formalities necessary because of tax considerations: receipts and expenditure were recorded and profits and losses were arrived at and formally split between them. But really, as Miss Barton said to her solicitor, Miss Malthouse, on one occasion, they did not have a business relationship.

In my judgment, therefore, on the evidence before me, it is not established that at any time before Miss Barton’s death Miss Barton or the defendant, or either of them, intended to treat the property as no longer held by them as beneficial joint tenants.”

The main factual differences between that case and this are that: the parties there were effectively man and wife using their home also as a business, here they were merely friends and business partners making an investment in a property which was the home of neither of them; although the purchase there was already with a view to using the property for a business partnership, here the parties were already partners when they bought Mrs Smitherman’s house; there the guest house was fundamental to the partnership business, here it was not. The first difference supports Mr John Bathurst’s case, the second is ultimately double-edged, and the third supports Mr Scarborow. The conveyance there was executed by the transferees, here that is strictly unproved but presumed and, significantly, Mr Ayres does not rely on this as a factual difference. There, but not here, an argument of severance of the joint tenancy was deployed. In other respects, however, the cases are rather similar. There, as here, there was a conflict between evidence that suggested that the property was to be a partnership asset and evidence that suggested the parties wanted a beneficial joint tenancy with a right of survivorship.

On behalf of Mr Scarborow, Mr Sinclair submits that Master Bowman had erred in failing to find that the partners had changed their minds about taking the property as a partnership asset and had decided, following their meeting with Mr Court, to take it as a personal investment outside their partnership. That was so whether or not Mrs Koder was made fully aware of their change of mind. She in any event knew that they were thinking of the possibility of such a change of mind.

Alternatively, Mr Sinclair submits that, whether the property became a partnership asset or not, there was clear evidence that the partners had agreed to take a beneficial joint tenancy in it. Those were the instructions given to Mrs Koder, reflected both in the transfer form itself and in Mrs Koder’s letter. The partners had been advised both before and in that letter of the effect of a joint tenancy. There was no response to the letter to say that Mrs Koder had misunderstood and that in any event it was necessary to change the joint tenancy into a tenancy in common. The rule of survivorship was what they wanted, whether within the partnership or outside it.

On behalf of Mr John Bathurst on the other hand, Mr Ayres submits that Master Bowman was plainly right to find that the partners always intended to treat the property as a partnership asset. All the evidence pointed to that, such as the contents of the conveyancing file, the financing of the purchase, the use of the house for storage of the partnership stock, and the payments from partnership funds. Mrs Koder’s letter and her evidence confirmed that her instructions that the purchase was on behalf of the partnership remained unaltered to the end. In such circumstances there was a strong presumption that the partners did not intend the right of survivorship to apply. That presumption was supported by the unlikelihood of the partners, and in particular Mr Scarborow, being willing to gamble on outliving the other. Moreover, the appeal was simply an appeal on findings of fact, and the court of appeal should not depart from the trial judge’s conclusions of fact unless satisfied that he had gone seriously wrong: Assicurazioni Generali SpA v. Arab Insurance Group [2002] EWCA Civ 1642, [2002] 1 WLR 577.

As for the transfer, this did not amount to clear and cogent evidence of an agreement between the partners for a beneficial joint tenancy; nor did Mrs Koder’s letter, which merely emphasised that the request for a joint tenancy was itself premised on a partnership purchase (“because this was partnership property”). At best the letter was ambiguous and unclear. There was none of the evidence that one would expect and need to support the appeal, viz evidence of conversations between the partners as to the consequences of one of them dying and the agreement that the survivor would take the whole property. In any event, and even if full effect was given to the partners’ beneficial joint tenancy, the survivor would still have his beneficial interest subject to all the obligations and purposes of the partnership and would have to account to the deceased’s estate.

In my judgment it is necessary to disentangle two separate concepts, even if they bear upon one another. One is whether the property was partnership property. If it was, then there is a strong presumption that the right of survivorship was not intended to apply. The maxim is ius accrescendi inter mercatores locum non habet, or the right of survivorship has no place among merchants. The other however is whether the partners nevertheless agreed to vary the normal rule of partnership property, in favour of their own autonomous consent to their being beneficial joint tenants with the standard consequence of that arrangement. After all, every one of the texts relied on by Mr Ayres or Master Bowman says that the general rule of partnership in favour of a tenancy in common and against joint tenancy is nevertheless subject to contrary agreement: see especially Lindley & Banks at para 19-15 and Blackett-Ord at para 8.37. Ultimately, section 19 is the primary rule.

It seems to me that Master Bowman’s judgment is flawed in as much as he saw the issue solely in terms of whether the property was an asset of the partnership; and also because, perhaps for that very reason, he paid scant or no attention to the terms of the transfer and of Mrs Koder’s letter or to her evidence to the effect that the parties wanted to be beneficial joint tenants. It is true that he nevertheless asked himself, in the concluding paragraphs of his judgment, whether the partners had agreed to a rule of survivorship: but he did so purely in terms of the probabilities of their having done so. What he did not do was to put the terms of the transfer and of Mrs Koder’s letter and evidence into the scales. In such circumstances, in my judgment this court is entitled to look at the matter again for itself. Even on the assumption that Mr Scarborow’s evidence adds nothing, Mrs Koder’s evidence was accepted as that of an independent witness and an experienced lawyer, and the transfer and letter can speak for themselves.

The first question, then, is whether Mr Sinclair is right to submit that the master should have found that there had been a change of plan on the part of the two friends and ultimately a decision that they wanted to take the property as a separate investment outside their partnership. I have little hesitation in rejecting that submission. There is certainly good evidence that at some stage, be it February or April, the partners met Mr Court and discussed with him the tax implications of taking the property within or without the partnership. I do not pretend to understand the suggested advantage of the latter. However, it is clear that Mrs Koder herself knew of these matters being under consideration. I am therefore not particularly influenced, as perhaps the master was, by the informality of the setting for the meeting with Mr Court or the lack of any record of it. However, ultimately Mr Court was unable to say that he was present at a meeting when a positive decision was made by the friends to take the property outside the partnership, and the highest he put it in his witness statement was that “I believe” that that had been their decision. In those circumstances it becomes important to test Mr Scarborow’s evidence, that that decision had been taken, against all the surrounding circumstances.

So tested, Mr Scarborow’s evidence emerges as uncorroborated. Mrs Koder’s instructions that the property was to be a partnership effort remained unchanged. Her letter of 22 May 2000 stated in terms that “this was partnership property and that the monies which you had borrowed were as part of the partnership investment in the property”. The loan finance was indeed made to the partnership: it may be a fair point on behalf of Mr Scarborow that it was simply convenient to make use of a facility that had been offered to the partnership at a time when the intention had been to take the property in the partnership; but the facts remain that the formal offer of the facility was made to the partnership as late as 20 April 2000, and that the refinancing of February 2001 followed the same pattern. All the purchase monies went through the partnership account. The post-completion payments of loan interest and capital repayments and of life insurance premia were made out of partnership funds. The evidence about the tippexed cash book was unhelpful to Mr Scarborow. Ultimately Mr Scarborow bears the burden, both formal and evidential, of showing that a decision had been made to take the property outside the partnership, and not only is there no support for his evidence that such a decision had been made, but all the circumstantial evidence is negative. His answers to the force of that circumstantial evidence are all to the effect that it was a matter of casualness. I am not saying, and neither did Master Bowman say, that he is lying about that. It is possible that he had persuaded himself that his evidence is true, or even that it is true. But he has not succeeded in overturning the force of the considerable evidence against his case in this respect.

There remains however the second question: what is the significance of the evidence that the partners wished to take the beneficial interest in a joint tenancy themselves and that in doing so they knew the effect of the rule of survivorship? It seems to me that the evidence of this is very powerful. If the transfer was executed by the two partners, and it is clear that it was prepared for them to execute, then that amounts to an express agreement between them to take a beneficial joint tenancy, as well as a formally complete declaration of trust to that effect. Subject to all the difficulties of pursuing rectification of the transfer and the register, which is not in issue in these proceedings, I do not see how on that hypothesis the partners could be treated as holding the property as tenants in common. It is true that it would remain the case that they intended to hold the property as partnership property, but subject to an express agreement and declaration of trust to the effect that the property would accrue to the survivor: see Blackett-Ord at para 8.37. That would not mean that the property would cease to be partnership property: it would still be available, even after the death of one of the partners, to the creditors of the partnership on its dissolution. But as between the partners there would be an agreement, ousting the ordinary understanding of a partnership at will, that that property would accrue to the survivor. That was consistent with the arrangement that the debt to the bank would be paid off by the life insurance policy.

However, despite the fact that the trial appears to have proceeded on the basis that the partners did execute the transfer, it is uncertain whether the partners did execute it. I shall therefore continue on the hypothesis that they did not. On that basis the way in which the transfer has been filled out is some evidence of, but does not contain, the partners’ agreement to hold the property beneficially in joint tenancy. It is known, nevertheless, that that was their intention. Mrs Koder, whose evidence is not in dispute, said that that was their instructions to her. Indeed, in cross-examination Mr Ayres, on behalf of Mr John Bathurst, agreed with Mrs Koder that she had received instructions that the partners were to hold the property “as joint tenants in equity”. Therefore there was no mistake in the way in which the transfer was prepared.

The question might be raised, in the light of the partners’ contemporaneous intention to hold the property as partnership property, as to whether in that event they properly realised that a beneficial joint tenancy was inconsistent, in the event of the death of either of them, with the ordinary rule in a partnership at will. It is, however, absolutely plain on the face of Mrs Koder’s letter to both partners (and a separate letter was sent to each of them) that she was at pains to confirm that a joint tenancy would mean that “on the death of the first of you the survivor automatically becomes the owner of the whole property”. That plainly means, as Mr Ayres accepted, that the survivor would become the beneficial owner of the whole property. It would be nonsense to construe a letter such as this, written to lay clients, as telling them merely about the legal title. Moreover, Mr Ayres accepted already at trial that this sentence of Mrs Koder’s letter was referring to the beneficial interest, when he put to her that this sentence “is a correct definition of beneficial joint tenants, is it not?”: which Mrs Koder agreed. It might be said that this letter was only written after the completion: but Mrs Koder had said in her evidence in chief that she had given similar advice to the partners before. She was never cross-examined on that piece of evidence: in the light of which it is difficult to think that this independent and experienced conveyancer had not made perfectly clear to her clients in advance of completion what the effect of a beneficial joint tenancy was. Moreover, if Mrs Koder had misunderstood her clients’ agreed intentions, why did they not immediately respond to her letter by telling her that she had misunderstood them? They had plenty of time to do so. Either partner could have done so, and one would have thought would have done so, if she had misunderstood. It may be expected that lay clients would not necessarily know what the effect of a joint tenancy is, or the effect of property being partnership property, but if one thing stood out from her letter it was that the transfer had been arranged in such a way as to give the survivor the whole of the property and that if the partners wished that to be changed they would have to take some action.

Mr Ayres submitted that if the partners had properly agreed to give the survivor of them the whole of the property, then there would have been evidence from Mr Scarborow of a discussion between them to that effect and that there was not. In that, however, he was mistaken. There was evidence from Mr Scarborow (see para 15 above) that the partners’ general understanding between them, and not merely as to the property, was that if one of them died, the other would take the business: and that this had been discussed many times. It was merely that “one was legally and the other one wasn’t”, that is to say that whereas there was no formal partnership agreement as to the business there had been a formal agreement with respect to the property. That evidence was cut short by Mr Ayres’ challenge to Mr Scarborow to the effect that the notion of the survivor taking all was ridiculous. However, Mr Scarborow disagreed.

Master Bowman, nevertheless, found it inconceivable that Mr Scarborow, with a wife and young children, would have agreed to give up his rights to part of the property if he had died first. The legal presumption is certainly in favour of that view. I also accept that in this respect this case is wholly unlike an arrangement between a man and his wife or partner (see Barton v. Morris). However, it seems to me that it is difficult to say that Mr Scarborow’s evidence was ridiculous or that the arrangement was inconceivable when there is independent evidence that the partners wanted the matter dealt with as a joint tenancy, that their solicitor explained the consequences of that to them both in her letter of 22 May and before, and that the partners had every opportunity of responding to alter the joint tenancy, if that was what they wanted. I do not think, therefore, that the case can ultimately be decided on the natural probabilities of the thing. Mr Bathurst had no particular ties and had made no will. We are told that his girlfriend is making a claim under the Inheritance (Provision for Family and Dependants) Act 1975. He may however have been perfectly willing for the business to have passed to his partner and good friend on his own death. Mr Scarborow may have been prompted by the feelings of reciprocity and for his part may have calculated that, as the younger man, the odds were in his favour.

The final question, on the basis that the transfer was not executed by the partners, is whether the contemporaneous intention to hold the property both as joint tenants in equity and as partnership property means that the presumed tenancy in common that goes with the latter should take precedence over the rule of survivorship that goes with the former: either as a matter of law; or because there is sufficient uncertainty in such a combination as to make it impossible to say that a contrary agreement has been clearly shown; or, as Mr Ayres submitted, because Mrs Koder’s letter had given the partnership property concept priority by saying that her instructions in relation to a joint tenancy and its consequences had been “because” the property was intended to be partnership property.

In my judgment, this solution cannot be a matter of law: for the presumption of the law of partnership, and the favour that the law shows in general towards tenancies in common, strong as those may be, are still subject to the ultimately primary rule of the autonomy of the parties.

It is in theory possible to say that an insufficiently clear and cogent case has been made out for the parties’ agreement for a joint tenancy. However, this would involve rejecting both Mrs Koder’s evidence and the forceful corroboration of the transfer, her letters to both partners, and the absence of any reply other than to query the fees. Neither the judge nor Mr Ayres rejected Mrs Koder’s evidence, and the letters and transfer speak for themselves. Ultimately there is no inconsistency between a beneficial joint tenancy and partnership property: the only inconsistency is between the rule of survivorship and the presumption that partnership property is held in common. Ultimately, however, contrary agreement prevails. No case of severance has been made.

Mr Ayres’ reliance on the word “because” in Mrs Koder’s letter has finally to be considered. The submission is that this gives primacy to the partnership presumption in favour of tenancy in common over the consequences of a beneficial joint tenancy. The difficulty with this approach, however, is that it makes a nonsense of the letter. It appears to be a legal solecism to say that her instructions to transfer into a joint tenancy with the rule of survivorship spelled out follow from instructions that this was because of the partners’ intention to treat the purchase as partnership property. And yet Mrs Koder was acknowledged as “plainly an experienced conveyancer, who spent significant time on commercial transactions”. She had been a solicitor for 25 years. At the beginning of his cross-examination of her, Mr Ayres said that there was no intention to criticise her work in any way. There is, nevertheless, a way of reading her letter which makes perfectly good sense against the background of the evidence as a whole. Mr Scarborow said that the partners had often discussed their feelings that the survivor should take the whole of the partnership business. In the light of that it would make perfectly good sense for Mrs Koder to say that she had been instructed to make the partners joint tenants, with the consequence that the survivor would automatically become the owner of the whole property, and that this was because, as she had been instructed, the house was to be partnership property.

I have asked myself whether Mr Scarborow’s somewhat unsatisfactory evidence about the change of mind to take the property outside the partnership and the tippexed entry should nevertheless require a result which ignores Mrs Koder and her two critical documents. Ultimately I do not think it should. Mrs Koder’s evidence was independent and unchallenged. Even on the basis that the transfer was not executed by the partners, and on the basis that the house was to become partnership property, there was in my judgment clear evidence of the partners’ agreement to take the property as beneficial joint tenants in full knowledge of what that would mean.

I would therefore allow this appeal and declare that the house belongs to Mr Scarborow.

I agree.