Introduction

Margaret Thatcher was anxious to ensure that if you were lucky, worked hard all your life, able to buy your own house, you should be able, up to a value, to pass that benefit on to:

1. your married partner or spouse
2. your children or
3. a Charity.

The relief was always a partial relief for many intended to benefit the common man.

From the girl who started life above the shop, there was equally in her plan qualifying relief through Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”).

In the years which followed the Inheritance Tax Act 1984 Section 8, plans extended to accommodate:

1. the passage from property of first partner to pass to surviving partner, so as to avoid the use of the discretionary trust arrangements and
2. the concept of marriage.

But the real and true value has not been linked to property values.

Since April 2017, whilst the Inheritance Tax Act 1984 Section 8 remains the main Section (there have been additions), we end up with:

1. a Nil Rate Band or “NRB”. Currently £325,000. If that is not used up by the first to die, then it can pass to the surviving partner and so to the next generation with a total of £650,000 and
2. an additional Residence Nil Rate Band “RNRB” currently £175,000. This relief applies to one house which must be a “qualifying residential interest” (or QRI).

If a person’s estate exceeds £2,000,000 the RNRB is reduced by £1 for every £2 above £2,000,000. There is “taper relief”, so the relief deteriorates to zero by £2,700,000 million pounds. Generally, this poses a problem for those with a special home in the countryside or by the sea.

For the majority married or in a recognised civil partnership, each spouse and under the current allowances have:

NRB £325,000
RNRB £175,000
________________
Total £500,000

If first to pass has not claimed or used up any of their allowance by their activities prior or disposition on death, then there is no tax payable on first to die, only on second death with currently a total allowed relief of £1,000,000.

Example A
Janet and John are married with one home and savings comprising a total of £1,200,000. John predeceases. The Revenue need to be told but there is no tax payable. When Janet dies (and in this example the allowances and assets remain the same) her estate can use the two allowances and so £1,000,000 is relieved. £200,000 is not. This will be subject to IHT currently 40% and so an £80,000 tax.

Not quite what Margaret intended in 1984 but the problem is reflected by increased property prices and allowances which have not kept pace with them.

Applying the Rules
It is open to any of us to make tax efficient transfers in our lifetime, subject to taper and potentially exempt transfers (“PET’s”). We can also keep assets out of our calculable estate. That happens with pension funds and life policies which are written in trust. Then, of course, those living above the shops still or on the farm there is APR and BPR. The programme of tax assessment to see if APR applies, if the estate is not fully saved. Whether BPR can be claimed. Leaving the NRB and RNRB until last hoping that the three when taken together will reduce the tax to a manageable amount.

The Farmhouse
Often referred to as the elephant in the room [Dixon v. IRC].

There are three starting points:

1. consider if the farmhouse is a farmhouse [Antrobus – see below]
2. occupied for the purpose of agriculture for the required period. That is at least two, sometimes seven years depending on ownership
3. be of a size and character appropriate to the agricultural land. Therefore, size and type of the holding.

If it qualifies relief is for the agricultural value, not open market price. That is, if you pass both tests, be aware that the relief is only based on “agricultural value”, not “market value”. You still have to pay tax on the difference (unless it is otherwise subject to some other relief) [McCall & Another (PR’s of McClean (deceased) v. Revenue & Customs [2008] ST (SCD) 752]. The definition of “market value” is defined in Section 160 IHTA as:

“the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time”.

Agricultural value is defined by Section 115(3) IHTA as:

“the agricultural value of any agricultural property shall be taken to be the value which would be the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property”.

The leading case (and used by HMRC) on this is Lloyds TSB (PR of Antrobus dec’d) v. I.R. Capital Taxes (No. 2) [2002] STC 483 (see below).

In some cases the APR will not be enough and every penny of the NRB and RNRB will be required. Others illustrate the advantage of APR.

Example B
APR though remains an important relief in comparison with those working in a town. Take Janet and John, this time farmers in an accepted farmhouse. Ignoring the APR and BPR on the farm itself. Taking just the house.

John dies first. Unless he used up allowances they pass on his death to Janet. No tax payable on first death. On Janets death as a working farmer in the farmhouse. The house is worth £2 million with no mortgage or debts.

Her estate first seek APR. That applies but the open market is reflected by APR deducting 30% of open value. So, 30% of the £2 million = £600 not relied by APR. You then apply the two unused personal reliefs, so £1 million. Result no IHT.

Using Cases
Reported cases provide illustrations, lessons and comparables, although each is about the facts in that case and how that case has been argued. I refer to some of the main cases below to reflect the application of the rules on that basis.

Eight Tests of the Elephant
There is under Section 115 the definition of agriculture but no specific definition of farmhouse. The cases and the Revenue have, therefore, usually looked at eight connected questions. None are mutually exclusive but when taken together produce an answer. I have repeated most of the main cases to date in what follows. The questions are:

1. Is it a farmhouse by reference to its size? [Antrobus]
2. Is that size appropriate to the holding?
3. Is the house ancillary to the farm or the farm ancillary to the house?
4. If you rode past that house, does it look like a farmhouse to you or say a lodge or grange? [Dixon v. IRC]
5. One required as such for the holding around it?
6. How long has that building been associated with the land?
7. What is the relationship between the value of that house against the profitability of the holding? You are allowed to make a loss in farming. You can live in a mansion with twenty acres but cannot claim that to be a farm.
8. Has it in fact lost its status and become a retirement home? [Rosser v. IRC].

Applying the Tests
The relief in many rural, coastal or popular areas will not stop the need to consider trusts or hoped for methods to reduce tax or a wish to transfer or gift property at least seven years before death (see below).

Nor may the reliefs entirely protect the larger farmhouse from tax.

With the farmhouse and APR the first thing to recognise is that whilst a qualifying farmhouse would be entitled to 100% APR relief, it is on its agricultural value (often lower than open value). The principal case remains Lloyds (PR’s of Antrobus) [2002] STC (SCD) 468. Facts – this was a case of two halves and hearings. It involved Cookhill Priory although it was a farm and farmhouse. The market value (remember this was in 2002) with its garden was £680,425. HMRC and the Land Tribunal agreed it had an agricultural value of £425,932 (although that was believed to be 70% of the market value) but an issue was whether a “want-to-be farmer” would pay more than the agricultural value, so whether that should include a “lifestyle” buyer’s price. It would have increased the agricultural value to £517,000 or 85%. The decision fell under the operation of Section 115 (3) IHTA 1984. Essentially, the view was that the value of the property would be like a reduction in the market when there is an agricultural restriction for planning purposes. Obiter in Antrobus No. 2 it was said of The Priory “a farmhouse is the chief dwellinghouse attached to the farm, the house in which the farmer of the land lives”.

When is the assessment whether it is a farmhouse to be made? That became an issue in Rosser v. IRC [2003] STC (SCD) 311. The facts were the deceased was a Mrs. Philips who had farmed with her late husband since 1932. The holding was 41 acres, a farmhouse and a barn. They went in as tenants but were able to buy their farm and farmhouse in 1952. But by the date of death 39 acres of farmland had passed to their daughter. The farmhouse had become a place for retirement. The issue was whether it was, therefore, a farmhouse under Section115 (2). It was found that “the prime function of the house [was] as a retirement home”. The test was what the houses’ function was “immediately before death” [similar to the later case of HMRC v. Executors of Atkinson [2011] UKWT 506] below.

Following a serious of cases arguing what is a farmhouse under Section 115 (2) IHTA came Higginson’s Executors v. IRC [2007] STD SCD 483. This case concerned whether Ballyward Lodge was a farmhouse within the meaning of a sub-section giving rise to what was actually meant by “farmhouse” under the Act. The facts involved Ballyward Lodge. By admission a 19th Century Hunting Lodge set in an estate. The late M. Higginson has bought the Lodge in 1954. Whilst there was 63 acres of arable or grassland, the rest was lake or woodland or wetland and 3 acres of garden, included in this, an old gardener’s cottage. The beneficiary had considered farming the 63 acres of arable and that would have worked. However, he had been in the Army and had been told that in the remote area he would be a potential target, so the estate decided to sell. It was sold in 2001 at £1.15 million. The decision was that the Lodge, whilst having some farmland with it, was just not a farmhouse within the meaning of Section 115 (2). It was a Lodge. That decision paved the way for the 2006 cases of Arnander & Others (Executors of McKenna dec’d) v. R & C Commissions [2006] STC (SCD) 800 and Antrobus No. 2 (Lloyds TSB Bank PR’s of Antrobus) v. Twiddy [2006] 1 EGLR 157 which is responsible for the phrase “the dirt under the fingernail” test of the deceased farmer. In Antrobus the questions were:

1. was the Grade II Listed Building a farmhouse at all and
2. it at the time of death occupied by a farm?

The decision was that both Rosteagre House was not a farmhouse and that at the time of death unfortunately whatever he had done in the past, Mr. McKenna was not a farmer before death. He had retired. The house was in fact a beautiful Listed Manor House by the sea on the Roseland Peninsula, Cornwall and Mr. McKenna in the last period of his life effectively had retired, “it is clear neither Mr. McKenna nor Lady Cecilia were able to engage in farming matters”. Their role had been limited to providing workers with sherry and cups of tea. The attempt at a Contract Farming Arrangement with those actually working also failed. Similarly, in HMRC v. Executors of Atkinson [2011] UKWT 506. Mr. Atkinson was a farmer and moved into a bungalow built for him on the farm in 1966. He had farmed his 195 acres latterly in partnership with his family but by 2002 he was not well enough to do that and had moved into a care home originally and always hoping to return to his bungalow, but he never did. It did not help the Executors case that his
family had gained an exemption from Council Tax between 2002 and 2006 with Mr. Atkinson dying in 2006.

Of the cases mentioned above and those excluded, the outcome is that:

1. if there is a farmhouse APR and/or BPR should apply [IHT 1984 Section 114]
2. where the farmhouse has the character of a farmhouse, but the house must be a farmhouse within the meaning of IHTA 1984 Section 115 (2)
3. the relief for APR will be as a farmhouse (Antrobus) but
4. only if occupied as a farmhouse by a farmer [Atkinson and Arnander].

Conclusion
The modern law has changed very little. It is its application and effect which has changed.

In my next section I will refer to the larger farm business which includes the farmhouse. With that the need for dovetailing and consideration of a diversified holding.

David Hassall LLM MSc
19 June 2023
The copyright of Hassall Law Ltd

Introduction

A proposed sale by a small company of one of its significant assets raises the question:

(a) Sell the asset?

(b) Sell the company and with it the asset?

Many will be one ship, one hotel or farm companies.

Then as so many of these transactions are by companies in which the directors are also shareholders:

(a) What are the directors’ obligations to their companies, and potential creditors.

(b) Then the often separate interests as shareholders to their company, other shareholders and them personally.

With the risks of conflicts of interest.

Especially if one of the shareholders or directors is both buyer and seller personally or through a separate company.

Differing Contracts for Different Purposes or Reasons

When selling the assets, the exact law applicable will depend upon the asset being sold. But it will be a sale so a Contract of Sale, Memorandum of Sale or Agreement.

When selling the company, a Share Purchase Agreement. There are hybrids where:

(a) one of the shareholders is in fact a trust,

(b) where a part share or purchase is proposed either of the asset or the company

(c) there is to be a seller’s loan

(d) one of the parties in the selling company proposes to buy the asset from the selling company and using the asset start afresh.

Under a Contract or Memorandum of Sale, the seller may often want to carry on in the business but not with the sold asset. It could be his old boat, tractor, pub or hotel which for him has reached its time for sale. For the buyer he may prefer the asset without baggage through a simple purchase of the asset.

Under a Share Purchase, anticipating the sale is by Limited Company and so it has its legal personality, then you are buying the shares of the company which owns the asset. With it, unless you make it clear, the historic risks and liabilities affecting the company and its assets.

A buyer might prefer to cherry pick the chosen asset without additional debt or liability. Some might see benefit in taking the company perhaps with a term under which the selling company pays from the price some of its liabilities. The purchaser otherwise gaining access and use of the brand name, with good human resources, license’s or even accrued losses which can be set off against profits.

Whatever, there is one golden rule. The courts job is to interpret and apply the deal agreed between the parties not a better deal than the one made. The legal rule on mistake is a very dangerous area of law to try to seek help under.

The Varied Applicable Law

An asset sale or purchase is like any other sale or purchase, so for land the Law of Property Acts, other assets the Sale of Goods or Sale of Goods and Services Act.

With a sale of shares a sensible buyer will need to check the assets just as if they were being sold. The transfer of shares introduces the Companies Acts of 2006(“CA”) and the Corporation Tax Acts (“CTA”) of 2000 and 2010. Also considering the Insolvency Act.

Just as you may look deeper, so with property the Land Registration Acts or with a boat the Merchant Shipping Acts 1995 the platform will vary, but the search may be in a different way but the same.

The Corporate Disposal

Each Corporate disposal will by its nature bespoke. Most though through the process below. The time frame can be very different. It will usually consist of 7 steps:

(1) The parties agreeing and understanding the Deals Structure in principle.

(2) Moving on to the signing up of “confidentiality and/or exclusivity agreement” .The first for the benefit of the seller, usually the second for the intended buyer.

(3) Due Diligence (see below). Increasingly not just by buyer to check the purchase but seller to ensure payment and other terms.

(4) Negotiating and ultimate signing of the agreed documents (see below).

(5) Final checks, searches, resignations and appointments.

(6) Completion,then

(7) Post-Completionwork.

Due Diligence and Misrepresentations

Whichever route taken the common law is “Buyer Beware” The buyer must undertake “Due Diligence” or risk it. The Misrepresentation Act 1967 (or its exclusion by contract), alongside claims of Collateral Warranty may apply depending upon who made any misrepresentation/warranty on behalf of who. The company cannot talk, save through its shareholders or directors if properly authorized. Whilst a personal shareholder selling his shares is a different person. If there has been a misdescription causing loss, then who by and who can rely on the breach? Contract (Rights of Third Parties) Act 1999.

“Entire Agreement” clauses are increasingly common in Contracts, one attempt being to restrict the Contract to that which exists within the Contract signed whether that is the sale of the asset or the shares in the holding company.

Licenses, Contracts and Associations

Part of due diligence needs to extend to appraisal or examination of the licenses, main contracts, associations memberships needed, or leases used by the company to operate or use the asset. Many businesses operate under licenses. Many specifically applicable to the assets the buyer is looking to own. Their terms will not be set out in the accounts. Many customers may only want to deal with the existing directors and no one else. A sale of the company and change of directors is often with licenses, memberships of trade organisations. Change of controlling ownership is often a trigger point bringing one agreement to an end with no guarantee another will follow for the company. That will affect valuation, lending and anticipated profit. In short, the “drop dead” term.

A fishing boat needs a license. Points on that license may trigger a revocation. That boat may need quota to operate profitability. If not part of the deal and held by the company the viability of the company becomes questionable if not to the buyer, then certainly the lender. The Fish Producer’s Terms of membership will usually have a change of director trigger point. As will many secured or unsecured loans and debentures. The effect obvious. Similar will apply with a hotel.

Directors and Shareholders

Few people in business are deliberately dishonest. When challenged common responses are “it just never occurred to me”, “I did not understand” or “I never saw it”.

The Companies Act 2006 was largely a codifying Act. In short, on both sides there are duties and obligations to be respected and observed. In summary:

Sections 170-177 summarise and list the directors’ duties and who will be regarded as a director and to who those duties are owed to.

Section 171 requires directors to act within powers as directed by the constitution defined at Section 257.

Section 172(1) provides directors “must” exercise those duties in a way to promote the company. So, for a seller the reason for selling, the price and when. If this is to be an asset disposal.

Section 190(1) then the following sections 192 to 194, apply to “Substantial Property Transactions” (so selling the biggest asset in value or profit out of the company or buying in).

Section 252 relating back to 191-194 require thought and compliance where there is a sale to a “connected person”.

A risk of non-compliance may be to make the resolution to sell or purchase and the terms voidable.

With the sole director company there is an immediate check of the Articles of Association to check it allows a sole director to sell. If not changes must be made. Regulation 14 Model Articles, section 190 Companies Act 2006

If a sale of assets a check that those selling have the power to sell through the company at the price. A check that the sellers understand their Fiduciary Obligations under the Companies Act

Loans, quasi-loans, mortgages and credit transactions

The sale of a company’s substantial asset may well involve an asset covered by a Debenture. That may require the holder to release or confirm payment to the company will not be challenged and so a Subordination Deed before any money is paid.

Some assets are potentially unprofitable without licenses (with a boat quota on top). They might be held by the company or being borrowed or controlled separately.

Where there is a sale by a company to one of its existing shareholders, then a further level of internal company arrangement approved by a Board and undefeatable under the Insolvency Act need to be done.

Either on an asset sale or purchase or the purchase of the company, there will be the question of debts and repayment and the trigger event a sale produces.

There will in most small companies be Directors Loan Accounts the amount in which and method of repayment will on a purchase of the company need to be negotiated and agreed. Often without them the company would not have been able to trade.

A buyer of a company must recognise he is buying potential risk and obligations at common law and under the CA.

The purchase is two-fold:

(a) the company which enables his acquisition of

(b) the asset.

Employees

There is an issue of Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). The very seller of the company might be director with an employment contract and rights. Conversely, those employees might be regarded as true “human resources” desperate to the purchase and provision needs to be made.

These will include, unless careful on a company sale, the very directors selling.

Warranties

Most buyers will be looking for warranties to be safe. Whether with Contract of sale or a purchase of shares.

Different sales and purchases justify differing warranties. Usually they will be split between:

(a) general warranties over the shares, information about the company, insurance, compliance by the company for a sale, confirmation there are no disputes or impediments to the sale, the shares can be sold at the agreed price and finance guarantees etc.

(b) tax warranties

(c) specific warranties to the particular transaction, such as licenses needed, intellectual property rights, title to the assets, employees contract determined, this to be extended, continuing contracts.

Limitations

If a selling shareholder is granting warranties, it would be common to limit the extent or value of risk. Often to the value of the price to be paid. The secondary issue, if that term will be full and final or leaves the buyer to choose that or any separate common law rights on top.

Tax

When buying an asset from the company you pay your money to the company. It then must pay any tax and declare the sale. Then the company directs in dividend payment what is left to the relevant shareholders.

In contrast, if you are buying the company the shareholders are selling their shares at a price. The tax treatment will depend upon the shareholder’s personal tax permission. With a large asset such as the hotel or the fishing boat that might trigger CGT and entrepreneurs’ relief. Whatever, it is neither the holding company nor the buyer’s concern.

The buyer must consider though ensuring the current directors’ loans and investments are paid out. The debenture holders (often banks and private lenders) are paid out from the purchase price together with other specific liabilities or have that risk valued and reflected in the price paid up to the £1 purchase.

Scoping

Each potential transaction tends to be bespoke to the deal, dependent on market forces and tax. The above is itself just a starting point and offered on that basis.

Contact at
David Hassall LLM, MSc (Distinction).
If we can help, please email enquiries@hassall.law or call 01548 854878

21.3.23.

1. Introduction

This Guide is about some of the legal points to consider when buying a boat specifically built, converted, or restored for you and your intended use.

An existing boat can be examined, surveyed, tested and its ownership checked at the Shipping Registry. The applicable law in the UK is our common law, the Misrepresentation Act 1967, Sale of Goods Act 1979 or Supply of Goods and Services Act 1982. Perhaps the Unfair Contract Terms Act 1977.

They have their moments when sold “as is” or “where is” in Hirtenstein and Another v United Marine Limited [2014] EWHC 3537. Waiving a sea trial in Dalmare SpA Union Maritime Limited [2012] EWHC 3537 or those “light bulb moments” as in Jones below.

In recent years common issues to watch for are;

1. Surveying under the water line and sonar checks:
2. Engines, capacity, size, and actual hours used:
3. Electrics:
4. Payments, how and to who:
5. The use of standard terms:
6. Jurisdiction and applicable law (not always the same):
7. Before the contract misrepresentations:
8. Post first build alterations:
9. Moorings or licences not included.

Ordering your new build, or conversion or restoration vessel for work or for pleasure can be a little more challenging.

2. Using a Company, buying the boat owning company or its assets?

Existing vessel or new build. This may possibly be one of the most important purchases you make. Afforded through (a) shared ownership of those 64 parts just like the venetian merchants of old: (b) partnership or “shared ownership”: (c) joint venture: (d) corporate purchase often: (e) alongside a ships mortgage.

It should trigger, if only for tax, thinking about a holding vehicle beyond your personal name. An unexpected jurisdiction or Port of Registration (for a recent yacht example) see the facts in Jones and Ludlow v McCarthy [2022] EWHC 2186 (Ch). A case involved a swop of “The Biggest Buzz” owned by a Welshman through and registered in the British Virgin Islands subject to a mortgage, moored in Spain sold under Spanish contract, resolved in Cardiff.

Your ultimate ownership might be via a “one ship company”. Few will contract with a newly formed company without assets. The new company would normally expect to provide third party guarantees. Their lenders a separate Legal Charge or Ships Mortgage, Fixed and Floating Debenture, Secured Loan Agreement with the company. Directors joining in and/or Subordinate Deeds from the directors who may also have placed funds in the company as part of the build costs.

There are separate issues when existing companies own existing vessels or holding the benefit of contracts for new builds;

1. buying the company or shares in the company:
2. buying and assigning assets like the vessel itself:
3. any Quota or operating licenses needed to run it.

In any of these positions if doing so whilst also being a director or shareholder of the seller. A further specific guide to follow. Though see Assignments below.

3. Successful, Positive Outcomes and Solutions

The lawyer’s task is to enable, through the chosen words, the transaction to proceed on time, within scope accepted prices, limit risks to achieve intended outcomes.

4. That Law

Often a symmetry involving;

1. Our common law:
2. The special rules of Equity which in practice many clients need to have explained. Usually, it produces the same result as the common law would but not always:
3. Statute or Statutory Order. Some are simple codifications of the common law, others like the Misrepresentation Act amount to statutory intervention: then
4. Increasingly and post Brexit issues of overseas rules so far as they affect the new build. With applicable law and jurisdiction.

5. Standard Terms

Purchase and sale is just a contract. Like many areas in life buyer or seller depending upon their bargaining position often want to amend or qualify the common law or statute by seeking to impose its contract terms. These might be; (a) standard to them: (b) by admission into the contract of a trade organizations suggested terms: or (c) an amalgamation or copy of a bit of both. Whilst some are good many are not. There is a risk in not checking, reading, understanding or accepting the salesman’s words “they are just standard terms”.

With land construction that might be on the JCT terms though they are often modified for each job. In shipbuilding the BIMCO Newbuildcon Standard Form. They are often aimed at larger international constructions whilst the British Marine Terms for much smaller works. Many clauses are similar and so decided cases in one type of construction used by analogy.

With restorations or conversion’s, few of these ”standard” terms may truly fit. A bespoke will often be better.

6. Dovetailing and Scope

Most new builds, conversions or restoration contracts will involve several constituent parts all with different Scopes. Each capable of misunderstandings. It is better to recognize the potential for error so to avoid it. Linking the connection within each contract;

1. The Ships Architect, or more commonly used word in commercial vessels, its Marine Designer:
2. The Propulsion Designing or installing Engineer:
3. The agreed subcontractors nominated or not their intended tasks and duties and potential liabilities and warranties:
4. The main engine manufacturers of the ship’s engines for guarantees and contact terms:
5. Increasingly the electronics and VMS manufacturer, provider and installer:
6. The Regulatory Authority and in the contract the agreed compliance to satisfy them and if different the:
7. Certifying Authority:
8. The requirements of the chosen Flag State for approval and registration purposes:
9. The chosen Yard (some builders will have more than one Yard in which there may be mdifferent skill levels, jurisdictional obligations or languages used:
10. Communication and assessment of the operating and construction requirements required in the place or port the vessel is planned to work out from: and,
11. If relevant the project manager:
12. Any chosen lenders representatives as they may want to check and approve works. There may be more than one with differing expectations: then,
13. The buyer’s representative so when more than one that one person to call or e mail.

Not taking care can and sometimes does raise issues as where there were four builders within the contract in Hyundai v Pournaras [1978] Lloyds. Repeated in Shanghai below.

7. Misrepresentations and Collateral Warranties

With every contract there are things said and done before a contract which may lead to the contract though not contained in the written words of the contract. These may enable remedies or not. Misrepresentations. Under the Misrepresentation Act 1967 as in Howard Marine & Dredging v Ogden and Sons [1978] 1 Lloyds or at common law as with the yacht in Mason v Wallasea Bay Yacht Station [1939].

Or Collateral Warranties (enforceable if broken). John Helmsing Schiffahrts KG v Malta Drydock Corp [1977] 2 Lloyds 444.

Neither just “sales talk” Ecay v Godfrey [1947] Lloyds (sale of a motor cruiser) which should not be relied upon.

8. Express Terms and Implied Terms

There are in each contract Express Terms or conditions and Implied Terms. Terms expressly in the

contract, incorporated by reference, implied at common law or statute.

Express terms are just terms which go to the root of the contract Photo Production Ltd v Securicor Transport Ltd [1980] Lloyds at page 553. They themselves may rank in importance from very bad if broken to “drop dead” terms McDougall v Aeromarine [1958] 1 WLR 1126. In some contracts labelled “Remedial Breaches” then “Irremediable Breaches”.

Implied terms may by as implied by the common law or to apply “business efficacy” The Lady Tahilla [1967] Lloyds (motor yacht) or “Commercial Sense” the words used in Neon below by statute perhaps the Sale of Goods Act 1979 as amended or the Sale and Supply of Goods Act 1994. Under the 79 Act the start is usually section 54 and 55, then sections 11,12,13 and 14. Neon Shipping Inc v Foreign Economic 7 Technical [2016] EWHC 399.

One type of implied term is work or materials on Quantum Meruit or “payment for what it is worth”. Once common in constructions in days of handshakes. Increasingly difficult to argue as in the cases involving Programmed Total Marine Services v Ships “Hako Endeavour”, “Hako Excel” [2014] FCAFC 134.

It can all be an issue of the interplay between the common law, statutory provision and the express words of the contract which matter both for the partiers, their draftsman and the courts. Newland Shipping v Toba Trading [2014] EWHC 210 (Comm) read Leggatt J from 49 to 54.

Two misunderstandings with mainly pleasure craft contracts are parties outside the UK, so different provisions as between a Consumer Contract or Commercial Contract. Buyers or builders domiciled either within the UK or beyond. Rasbora Ltd v JCL Marine 1977 1 Lloyds (power boat built for not UK resident).

Underneath the main terms are warranties which in shipbuilding contracts often extend beyond the sea trials. Some given by the Yard others by the subcontractors, equipment manufacturers or providers. Often through “Third Party Warranties”.

Some terms might equally be incorporated by reference to other terms. For example, payment and signature by a lazy draftsman’s reference to other terms such as the Shipsale 22 Form or the former Norwegian terms.

9. Uncertain Times

For decades contract lawyers talked about Frustration of a contract Fisher Renwick v Tyne Iron Shipbuilders [1920], force majeure and boiler plate terms. Often by reference to decided cases arising out of world wars and the depression. The last few years have reignited the actual need for and the careful use of words in these clauses. With an increasing number of cases arising from lack of materials, lack of labor, increased costs, time delays etc. The courts approach seems to be that the words of the contract are as important as the problem which occurs. Before considering the effect, outcomes and proportionate risk. Any parties “best endeavors” to comply with those terms and the effect need to be considered. Hence if payment is in US dollars to ensure payment in amount and on time so a best endeavor of a similar amount in value in Euros to avoid breaking sanctions rules may overcome a force majeure. Illustrated by MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406. A charterparty case with payment in US dollars then sanctions and what reasonable endeavors truly mean. In monthly shipments of bauxite from Guinea to Ukraine where RTI was owned by Russian owners.

10. Regulation

Boat designers, owners and builders cannot ignore ever increasing design, build and use regulations. They may change between vessel or construction, place of registration or use. This may be in original construction where your team will need to check the shipyards compliance, the intended country of registration, the regulations in use. Hence care during construction of the requirements of the Merchant Shipping Acts if in the UK and those provisions applicable to your built vessel and its intended use on delivery. Engine size and, for example, if in the intended port of use the vessel must have electric motors not diesel. The usual named UK controllers are Maritime Coastguard Authority, relevant Ships Registry and Classification Societies. The place of us may also have compliance controls perhaps under byelaws.

11. Protocols

Within the vessel construction industry there are protocols intended to stop disputes and enable each side to understand what is expected of them and when. The use of “Protocol” meaning it is an agreed method of conduct between parties within the industry. For example, we have the “Protocol of Delivery and Acceptance”.

12. Bad Deals

“There is an adage that the courts will not rescue a party from a bad bargain. What this means is that even if the drafting of the contract produces a potentially unfair result the courts will be very reluctant to interfere.”

Whilst there is a limited prospect of equitable intervention under the remedy of “rectification”, it is better to expect your deed will be regarded as your bond. Optimares SpA v Qatar [2022] EWHC 2461.

The lesson being check, read, understand or face the risk.

13. Common Clauses amendments and bespoking

Parties: Making clear who the contractual parties are. Those alone unless you particularly write them in. The Contracts (Rights of Third Parties) Act 1999 is almost inevitably excluded though any lender will insist on “step in” rights. In establishing these some thought needs to be taken for the Refund Guarantees so common in current conditions. Nanjing Tainshun Shipbuilding and Jaingsu Syrun v Orchard Tankers [2011] EWHC 164.

Background: Or a short summary behind the contract which might assist a mediator or judge in the event of dispute to better understand the chosen words and why.

Contract Price: The fine terms will usually extend to deal with variations and agreed additions. When payable in what currency and at what stage of the construction? The old cases of Seath & Co v Moore 1886 11 Ap (Campbell went bankrupt) or Reid v MacBeth 1904 AC (steel paid for by the buyer and marked in the name of the ship but still on the railway yard were not the buyers). Recent cases have been about interpreting Price Variation Terms like Braganza v BP Shipping [2015] UKSC 17 on one side requested by the shipyard. From the buyer and the lender delivery of the completed boat or money back. Often through a Refund Guarantees as in the Court of Appeal case of Gold Coast Ltd v Caja de Ahorros del Mediterraneo 2001 EWCA Civ 1806.

Contract Delivery Date and Place of Delivery: In current times containing in advance appreciated, understandable and allowed delay and then unforgivable delay with penalties to match. So, Permissible Delay and Impermissible Delay. Increasingly towards the back of the contract prolongation, disruption, forfeiture and determination provisions.

Certifying Authorities: The build must comply with. Linked to responses if they do not.

Exclusion or Exemption: Or “not my fault” or we “agree my risk” limitation clauses. With these there is a clear distinction between jurisdiction and/or law of the contract. In the UK the commercial buyer as opposed to the Consumer under Unfair Contract Terms Act 1977 and the still applicable Unfair Terms in Consumer Contracts. Main builder might want to exclude the work of the employers chosen nominated sub-contractor. For new builds Cammell Laird v Manganese Bronze [1934] AC. Recognizing this and similar predate the statutory intervention.

Regulatory Authorities: Who’s expectations must be designed into the contract?

Plans and Drawings: Agreed and then only to be changed on service of notices and why?

Insurance during work and before delivery: Of what and buy who, for who’s benefit?

Intended flag state and vessel registration: Which may determine the quality and contents of the construction.

Liquidated Damages: Anticipating things can go wrong, it is better to agree the appropriate remedy if they do. Including whether that remedy is in addition or instead or separate from any common law or statutory rights for breach Digital Capital v Genesis Mining Iceland [2021] EWHC 2462. They avoid the otherwise inevitable claim of Recission. In law a starting point is often the House of Lords case of British Glanzstoff [1913]. A case about delay so like the common times. Shipyards often cannot work to time as the engines have not arrived or the boat is below the intended speed, uses too much fuel or for some reason fails the MCA inspection requiring design changes. The clauses are equally important to any lender or provider of Guarantees and their termination rights. It seems they are better made clear than implied. One point being when the rights expire i.e. before or after delivery. Recent guidance is in Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 2. These clauses cannot be a punishment or “in terrorem” but a remedy requiring commercial justification. There are many cases on this point. Amongst the many there is a “Prevention Principle”. Jerram Falkus Construction v Fenice Investments [2011] EWHC 1935. That was a case over a JCT, but the principle is the same. Involving a true expected level of loss based upon affixed daily allowance or per diem. For fishermen that might be loss of fishing. For a pleasure yacht use or loss or rental income.

Modification Proposals: With a system to request and consider. Many will involve time, costs, in the UK and the MCA re assessment.

Ownership of Vessel, Material and Transfer: Most new vessels will be built within the shipbuilder’s yard requiring payments in stages. There will be materials and specialist equipment installed along the way. Much of which will be subject to retention of title clauses until that supplier has been paid (Aluminium Industries v Romalpa [1976]). Resulting in the “Romalpa” clauses now common. The risk needs to be insured in some way and until delivery. Considering what happens if either builder or buyer run into difficulties Seath & Co v Moore [1886] HL or through frustration Fisher Renwick v Tyne Iron Shipbuilding [1920] 3 Ll.

Force Majeure Events: “This term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control” McCardie J Lebeaupin v Crispin. Better to set out what events will fall within and those outside the contract. Alongside Frustration, Repudiation, Determination provisions (see para 9).

Remedies: At a time when all sides are content it is time to fear the worst. Agree if there is a breach what each sides remedy will be. If you can level obligations with acceptable solutions rather than ask a court to do it for you. These can be split between; (a) buyers’ remedies Hyundai v Pournaras [1978] 2 Lloyds: and (b) builders remedies Admiralty Commissioners v Cox & King [1927] (motorboat built later than agreed). Separately or collectively considering the roles of the other parties such as the architect. The “Step In” rights to who and what extent? One common method, just like any other significant contract, is for the parties to agree.

Sea Trials: Have both a practical and legal importance. They are the buyer’s big chance to check and test often before final payments. At a venue where any problem can be identified and fixed. If that opportunity is ignored in a rush to get out to sea it is that much harder for lawyers to get works done or recover. A new boat purchase is not the same as buying a new car which has in prototype then trials before offered to the buyer. For the risks of ignoring the right to a sea trial Dalmare SpA v Union Maritime Ltd [2012] EWHC 3537.

Subcontractors: These may be selected as they have skills and chosen by the parties. Appointed by the builder or specially by the employer or nominated contractors.

Warranties: Many types including the builders’ warranties, those of the sub-contractors, then the Performance Guarantee Warranties for the builders to be sure they will get paid. The common guaranteed liability clauses often require instant notification of fault. Clear wording needed for all Shanghai Shipyard v Reignwood Int [2021] EWHC Civ 1147. Main third parties like the Bank will want to ensure they can “step in”.

Buyers and Builders Modifications: Clauses to say why and what would be allowed in advance. They may change or be determined by the parties and the nature and reason behind the construction of the vessel. Each construction change should trigger a need to check the construction and safety requirements and costs, so contract wording to enable.

Guarantees: Increasingly wanted by different participants. The Builder or Yard to ensure they will get paid on time. The buyer to ensure those stage payments have rights for the money and items paid for. This can extend to the subsidiary parties to the contract and the warranties given. So, the construction or “fix it” guarantees. In which there will be thought of “repairable” problems, requirements which must “absolutely and unconditionally” be observed and what happens if they are not. Recently considered with the “performance guarantee” issued by parent company to buyer in Shanghai Shipyard v Reignwood [2021] EWCA Civ 1147. Often mentioned by reference in the main contract they perhaps should be part of the full package so all can understand the importance, risk and expectations. Interpreting these guarantees may well involve consideration of what they are given and for what. In the poor workmanship of the subcontractor triggering claims as in Black & Veatch Corp v Kazstroyservice Global BV [2021] EWHC 2104 (QB).

Assignments: These can often apply each way and extend to subcontractors. The issue is who can assign what rights or obligations to who and in what circumstances? The notion behind this is you may choose a particular ships designer or engineer or a particular yard where the skill levels are understood and no others. That yard may be content to work for a particular buyer at that price but not a replacement. In times like the present lawyers argued this out in Linden Gardens Trust Ltd v Lenesta Sludge Disposals [1994] 1 AC 85 (look at the date and when the cases events occurred). A return to “clear words” to assign and on what, a main contractor and sub were considered referring to Linden Gardens in Energy Works v MW High Tech Projects 18 [2020] EWHC 2537.

14. Conversions and Restoration’s

Whilst in London they deal in large tanker conversions. Around the coast older boats for new purposes. Restoration to changing types of fishing activity. New engines and new I.T. for different purposes. There is for bigger jobs a BIMCO Repair 2018 form but the terms do not seem to work for these smaller jobs. Consequently, individual contracts for specific purposes and the points listed above to consider.

15. Mistake

There is a world of difference between the common understanding of making a mistake and the legal level required to seek relief due to a mistake. “Non est Factum” or not my deed is a hard test to meet. The law of mistake in contract has needed revision of years. Since Bell v Lever Brothers [1932] and more recently The Great Peace [2002] EWCA12.

16. Entire Agreement Clauses

Are common in commercial contracts. The intention is to avoid “side deals” or “promises” along the way possibly limiting the allegation of Misrepresentation. It is perhaps as a result that in new builds it is common for there to be a clear variation, construction changes and additions provisions. If not in the contract, then the likelihood is that it is not enforceable.

17. Good Faith

Since the Napoleonic Code there is a notion in the EU of contract acts of “Good Faith”. Whilst there is such a notion in the Companies Act 2006 and within fiduciary duties under the law of Trusts, there has only been a very limited existence in Anglo-Saxon contract law unless made express in the contract. Even if such a duty is inserted in the contract it will be limited and dependent on very clear words. Bates v Post Office Ltd [2019] EWHC 606 and Candey Ltd v Bosheh [2022] EWCA Civ 1103. Recent cases merely confirm that made clear years ago through Interfoto Picture Library v Stiletto [1966] 1 AER at 352-53 and Walford v Miles [1992] 2 AC 138.

This Guide may be just your starting point to recognize the problems of the past to ensure your successful outcome.

Contact David Hassall LLM MSc (a former Cadwallader student) or Charlotte Hassall LLM (Maritime Law Southampton), MSc

email to enquiries@hassall.law

No guide is any substitute for specialist advice on a specialist job and as such the above is offered

without acceptance of liability. David Hassall LLM MSc, Solicitor.

14.2.23
Copyright of the above is in the name of Hassall Law.

Introduction

Much of our English law of nuisance developed during our Industrial Revolution when times and attitudes to property rights were rather different. “What would be a nuisance in Belgrave Square would not be a nuisance in Bermondsey” [Sturgess v. Bridgman [1879]].

That was in the days before:

1) The Law of Property Act 1925

2) Planning, although planning itself is never a defence. Coventry (TARDC Promotions) v. Lawrence [2014] UKSC 13) or

3) Human Rights and the protection of rights the UK signed up to under that.

This area of law is also slowly developing. A frequent conflict as space in England and Wales becomes so precious in an increasing population between (a) ”my room with a view” against (b) “I want to be alone” or at least more privacy than the participants in Love Island.

The Tate

In Fearn & Others v. Board of Trustees of the Tate Gallery [2023] UKSC 4. The two collided which in the ultimate analysis was people had “two much of a view”. The case started with a request for an injunction under the law of nuisance to prevent customers in the Tate’s Blavatnick Building of ten floors using its viewing platform. The applicants were the flat owners opposite built mainly of steel and glass so it was said all could be seen. By the Tate from its viewing platform which also had panoramic views across that part of London. The Tate receives about 500,000 to 600,000 customers a year. This case has been long running from the decisions in the High Court at 2019 EWHC 328 then the Court of Appeal at 2020 EWCA Civ 104. There have been arguments about the Human Rights Act along the way. The latest and final decision was by a five-judge court and a majority decision of 3 to 2. The majority view was that it is no answer to legal nuisance for the offending landowner to say he is using his land with planning and in the public good. That could not ignore the slowly developing common law of Nuisance. The test and standard is the assessment by the ordinary person, whether there is a substantial interference. The viewing platform was not an ordinary use but an invitation to view. The ordinary person would consider the level of intrusion and if a substantial interference with the ordinary user and enjoyment of the flat owner’s homes. They were entitled to an injunction and in the alternative substantial damages. The Court of Appeal had given a lot of thought to the old case of Victoria Park (below). That case was considered one which did not address visual intrusion para 99. In the Australian case of Victoria Park Racing & Recreation Grounds Co Ltd v. Taylor [1937] 58 CLR 479. The racecourse owners sued. The Defendant had erected on purpose a tower deliberately to look over the track so that when racing took place it could broadcast for financial gain to the racetrack owner’s detriment the horse racing. By a 3:2 majority the claim by the racecourse owners was dismissed. As Latham CJ said “any person is entitled to erect a higher fence”. In the Tate the argument was put up curtains.

It was more than time for our senior court to look at the moving common law of nuisance. They made a start under the headings “Overlooking” at 100-109, “Planning” 109-10, “Invasion of Privacy” 111-113 and the general argument over injunction or damages 111-113.

Conclusion

The need for a carefully and well-argued case concerning real issues of nuisance in the modern world was overdue. Though a case with specific facts it will be our new baseline on which to consider similar nuisance cases in the future.

This is my reading of the cases above offered as a starting point. If I can help further, please contact us at
enquiries@hassall.law

This article is the copyright of Hassall Law

3.2.23

Introduction

Succession Planning might be:

1. whilst in work but preparing for change. This might start with bringing in a second or further generation. A point mentioned later but the object of a different work
2. as you prepare for retirement or handing over
3. on retirement
4. the forced change due to circumstances
5. planning for that last journey and
6. by your executors or trustees after your passing to comply with the law whilst carrying out your chosen wishes.

Full Article
This work is part of a full work in two Parts. Part 1 dealing with succession planning. Containing the annex which we use in succession planning so that clients can see the costs and advantages of anything which we suggest. Part 2 an equally large guidance on the main applicable taxes – capital gains tax and inheritance tax. In order to ensure that the tax amounts and guidelines are correct at the time of release. We keep the full content off the web so that we can ensure when released they are to the best of our knowledge up to date at the time of release. They are available on request at enquiries@hassall.law

Ring Fencing
When considering or implementing a Succession Plan one is essentially attempting to protect and possibly enlarge the pot, then “ring fence” assets for you and your family. Perhaps in modern terms “geo-fence”. Whilst some cases mentioned below indicate how you might proceed safely. The majority are for reading and lessons to learn.

Cases in our Courts are mostly stories of mistake in ring fencing from which we can learn. Cases take.

1. time
2.  emotion
3. legal cost, also
4. as all senior cases tend to be reported available on the internet. The risk of each case is that your life and problems become public on the internet for the world to see.

There are no winners in Court, just one loses more than the other. Legal cases should be looked at that way.

Learning from others:

1. There is an area of Equity or Chancery Law called “Proprietary Estoppel”. It can affect succession planning both lifetime and on death. I placed in May 2022 an article on the site I called “False or Broken Promises and Bad Partnerships”. Within that reference to “The Cinderella” case of Davies v. Davies [2017] 1 FLR 176, Habberfield v. H 2019 22 ITELR 96. All quite recent cases. All involving family unhappiness following decisions made by parents. It included a reference to what was then the most recent cases including Guest v. Guest. In it to the first instance, then Court of Appeal decisions. The Supreme Court later reported its decision in October this year under 2022 UKSC 27 or 2020 EWCA Civ 387. For the present it is an expensive area of law. Ensure you in your succession planning avoid but learn the lessons
2. There is the Inheritance (Provision for Family and Dependents) Act 1975. Potential rights under this Act simply cannot be ignored although maybe often avoided, for example the problems behind Sargeant v. Sargeant [2018] EWHC 8 (Ch)
3. The opposite of (i) and (ii) is perhaps sadder. Illustrated by the case of Ham v. Ham [2013] EWCA Civ 130 a Court of Appeal case which in 2016 returned to the High Court. So, a case in not just one but three parts; (a) first instance (b) Appeal Court and then back to (c) the High Court. It involved a 400 acre farm on the tip of Dartmoor with a large milking herd established by Mr and Mrs Ham senior over their working lives. In October 1997 they introduced their son into the partnership believing he would take over their farm on their succession. They had a traditional Partnership Deed which was signed with annual accounts also signed. However, in February 2009 their son had had enough and wanted a different life. That triggered an end of the partnership and with that he sought his share out of the partnership just at a time, when with his parents age, they could not afford. Nor was it as planned or believed by them when they admitted their son into partnership. There was no argument that son was entitled to something on leaving. The initial issue was whether that should be at the asset value within the accounts or the “open market” value which would be much more. This was viewed as open market value. But as Lord Halsham had said in Johnson v. Moreton [1980] AC 37 “to build up a herd of dairy cattle between whose conception and first lactation at least three years must elapse takes time and planning whilst to disperse the work of a lifetime of careful breeding is but the task of an afternoon by a qualified auctioneer”. Before the Court of Appeal, it was accepted that the son might gain a “windfall profit”. But a share of “capital and profit” in the accounts was not the same as owning the assets used by the partnership. Whilst still a blow to the parents the fact was the land had already been owned by the parents as was the herd when the partnership was first entered into. That being decided the case then turned as the Court was asked to consider open market on what? The fact the farm was mentioned in the accounts did not necessarily mean the farm was a jointly owned farm asset. The lesson is that whilst succession planning may well involve an introduction of the next generation into the business it is wise to include in any agreement and accounts a “Land Capital Account” in the names of those owning the land. They can then gift on death or earlier their individual assets. If they are to family on death APR and BPR should apply
4. Within a business relationship or in a trust there are obligations called “fiduciary duties”. A person or organisation looking to operate with apparently discretionary powers often held in trust for another in circumstances. They may give rise to a relationship of trust and confidence. A recent example with a hint of the problems can be found in JSCM Bank v. Pugachev [2017] EWHC 2426 (Ch)
5. When considering your succession planning you may want, and perhaps should have advice from your Accountant, Solicitor, IFA, trusted friend, or family member. You must recognise, as they may not, whether there is a “conflict of interest” in the delivery of any advice they may offer you. What can be a conflict is explained by Lord Hoffman in the House of Lords in Hilton v. Barker, Booth & Eastwood [2005] UKHL 8. Your advisor may not see the risk
6. Succession planning often means tax changes. There is a line not to be crossed between “tax evasion” which is illegal and “tax avoidance” which is allowed, even if sometimes questions are raised by the Revenue. The established cases being Furniss v. Dawson [1982] and W.T. Ramsay Ltd v. IRC [1982]. Though for a more recent example see The Glasgow Rangers case RFC [2012] PLC (In Liquidation) formerly the Rangers Football Club and Advocate General of Scotland [2012] UKSC. Then, Barker v. Baxendale Walker Solicitors [2017] EWCA Civ 2056
7. “False understandings” and false assumptions. In practice there are three immediately to mind:
   (a) the effect of ”taper relief”;
   (b) “open market value” so Duke of Buccleuch v. IRC [1967] (see below);
   (c) agricultural value and Lloyds TSB as PR’s of Antrobus v Inland Revenue [2002]
8. All planning has consequences, some good some bad. Like an operation, some may involve immediate pain. It is important that the plan works for you and those around you. When it does not read Sargeant v. Sargeant (above).
9. Lawyers often refer to two legal words in Latin “lex posterior” meaning where there are two rules one older the other more recent which seem to be at odds then the latest should be applied. Then “lex special” where some rules are standard and would usually be applicable but in certain circumstances there is a specific rule for that particular purpose. Then the specialist will apply [see Oxford]. This is one of those areas where both may apply.

Dovetailing
All succession should dovetail in conjunction with other decisions and plans including:

1. a Lasting Power. Your succession planning may start in poor health. You might need to think about personal Attorney’s as opposed to professional Attorney’s. They may have different functions and require different skills
2. you should be considering what is already set out up in your partnership, shareholders agreement and articles of your company’s association. It may be too late once you become ill
3. the above may specifically affect assets, shares or cash within any Family Limited Partnership, Family Investment Company, or a similar vehicle
4. when considering the above you need also to think in whose names your property is. Is there a Trust, or within your business and are any subject to that old bank guarantee you forgot about? That includes more than real estate. It could include your portfolio of stocks and shares, then
5. your Will should also dovetail perhaps confirmed by a letter of wishes
6. there may have already been exercised care and skill in setting up a lifetime succession plan. The risk is that the second without careful examination of the first may destroy that which is in operation [Luke 23.34].

The Numbers
With your plans Lawyers or Accountants should estimate for you:

1. the effect off an immediate succession that day, with no change both on you and your family based on your gross and net assets and taxes arising
2. the tax implications of any changes in your lifetime or you’re passing
3. the likely cost of changes suggested based on your ideas (typically capital gains tax or SDLT)
4. potential benefits.

Starting Points

1. For the rural client, warning words include “actively farming”. Usually based on hours put in, “effectively retired” meaning business reliefs are lost [HMRC v. Executors of Atkins [2011] UKWT] “distributions to shareholders” meaning money which will be taxed. Then the special rules where they exist, for example, the herd basis of valuation, single/basic payment entitlements and profit averaging for farmers. The word farmer is used recognising the risks of being classed as a “hobby farmer” [Lloyds (P.R’s of Antrobus) v. STC [2002]
2. For those in Scotland or Wales and considering a land transfer within the family, they have to consider what was once SDLT, what is now is the Finance Act 2016 a land and building transactions tax (they may not be the same).

Whether asset rich but cash poor or the opposite you should:

1. protect your life partner and yourself first
2. accept some tax is a consequence of life or when passing more sensible if at the right rate than a plan based only on tax avoidance

Comparing gross with net asset values against present income tax allowances is a fair start.

You should think about establishing your plan. It may not be you finishing it. Although a decision about the correct operation of a family trust. The Privy Council’s recent decision in Wen-Young Wong v. Grand View Private Trust Dec [2022] UPC 47 suggested six questions or points which Trustees might consider and follow. For the same reason the settlor might want to consider them when considering what he wants his successors to plan. As you may have passed before your Plan ends. The Privy Council’s good guidance to the very you might want to take in personally then with your lawyers when drafting being;

1. “Central Importance” what are you truly seeking to achieve and as not all aim will be of equal importance to you, can you list them so your executors or trustees can follow?
2. “The Substratum Rule” or behind the chosen words, what are the foundation or corner stones in your plan and can they be understood?
3. “Overriding Principles” often so easy in a charitable trust as the principles are usually within the name. However, for the private trust what do you want as overriding principles or objectives your executors or trustees to follow?
4.  “Acting within scope”. If you want or can allow your trustees to act, expressly authorise them to make you aims clear not just to them but also your intended beneficiaries if you can
5. “Fraud on Powers”. Few trustees intend to commit a fraud. In most fraud cases the fraud alleged was a mistake. Think and set out the powers and obligations of your intended trustees
6. “Proper Purpose Rule”. That will enable first your draftsman then your ultimate trustees or executors to follow the proper purpose rule and your executors to see why.

Not Got What You Are Looking For?
Our detailed client guide explains the tax regime together with how better to use for the rural client woodland, stables, taking in hand assets, lifetime gifts, pensions, let property, personal allowances, overseas property and assets and rather importantly taper relief. They are available by email free on request. Just contact us at enquiries@hassall.law

Our assessment of current tax reliefs and understanding of the cases is no substitute for specific legal advice although the content of this article is copyright of Hassall Law.

16 January 2023

“To build up a herd of dairy cattle, between whose conception and first lactation at least three years must elapse, takes time and planning, whilst to disperse the work of a lifetime of careful breeding is but the task of an afternoon by a qualified auctioneer” [Lord Hailsham in Johnson v Moreton 1980 AC 37 at 59]

The Farm Business Platforms Used
Beyond freehold and/or leasehold ownership of land farm business has developed using “platforms”. Many farmers have been introduced into operating platforms on the farm. Law is no different. Different platforms suit different people, their farm, farming practice or their Business Plan.

They include:

1. The Sole Trader. Owning your own place and business answerable to no one save the bank, taxman, planners and the environment agency to mention a few. If too much a task for one person there is always an ability to “Hire in” or “Contract Farm”. The obvious problems include the amount of cash needed, borrowing as a sole trader from the bank, ill health with no succession plan;
2. The Farm Partnership. One still potentially controlled by the Partnership Act 1890 (see below). This old Act has seen the passage of time, but it is a fall back. Apart from illegality and obligations to third parties the Act’s clauses offer presumptions which can be varied either by express agreement or implied though only applicable by proof of agreement between the partners [Harvey v Drake [2011] EWCA Civ 838 where Section 19 was considered and then rejected on the facts of that case]. This paper is about this platform alone which also involves a thought to the old Common Law and Chancery or Equitable Rules such as “good faith”. The starting point under the Act though is that unless agreed to the contrary profit, loss and effort is under Section 24 to be divided equally;
3. The Private Limited Company which involves the operation of the Companies Acts of 2006, 2013, 2014 and 2016. The main Act being the 2006 Act which introduced a complete modernization and simplified corporate law. In places codifying some older provisions affecting directors, benefitting shareholders at both Common Law and in Equity. Within this Act and since we have the concepts of the quasi partnership or effectively a partnership by agreement using the company platform and the protection of minority shareholders all the object of a different work, then;
4. The more recent legal concepts of the LLP or limited liability partnership which itself requires a separate article.

1. On top of any of these legal platforms we can, as each farm and the farmers needs vary, add:
2. The Trust;
3. Contract Farming or Share Farming with sometimes more than one on one holding;
4. Leases and Licenses;
5. Joint Ventures, to mention the main ones all of which justify their own works.

With that background and limited to the farm partnership itself.

The Farm Business Plan
It might be wise before instructing either Accountant or Lawyer to at first think what will be your:

1. matters of Central Importance to you and you all
2. some may never be met. So, what are your minimum plans and needs so your “substratum rules”
3. what each of you can or are expected to do in the partnership. In other words, your “scope”
4. then before anything wrong occurs, what would you regards as “Reprehensible Conduct” which would trigger a forced retirement or dissolution?

For the farming client where land and assets are so expensive against reward and time is needed to develop a farm;

1. what is to be put in, by who and what is to happen with those assets at the end of the partnership or removed in part?
2. as usual one or more partners own the land. If the bank want a charge on it is the landowner happy with that, for how much and is the risk covered? Usually the debt will be a first Charge on income but what about loss?
3. has the intended farming method been agreed? The best partnerships are between partners who set out to farm in a particular way;
4. as usually one or more will work more than others if there are profits or losses who is going to stand them and in what %?
5. how are meetings to take place and where with what voting rights?
6. what happens to new assets purchased or existing assets improved either out of farm profits or should one or more partners and not the others?
7. can new and/or additional partners join? If so, how does that affect existing holdings, and entitlements? Who can admit and who can object?
8. what happens on retirement voluntary or otherwise, that could be ill health, personal insolvency, criminal conviction, divorce, death, succession?
9. if any one occurs, will there to be a right of the survivors to buy out the ones leaving and at what rate under what terms?
10. will this be a new business arrangement and partnership replacing the old? If so, will the old terms be “written off” on the signing of the new Partnership Deed. Especially a Bank may well dictate what they want to see as a pre-condition of any borrowing they are willing to make.

This is a part of a larger work specifically looking at the Farm Partnership. Available on request though. Please contact enquiries@hassall.law

David Hassall, Solicitor, LLM, MSc (Dist) Fellow of the Agricultural Law Association.