Scottish Court of Session Decisions

On 20 September 1991, the defenders entered into a written partnership agreement whereby they agreed to carry on business together under the name of Hillfoot Cars. By a supplementary minute of partnership dated 13 October 1993, the defenders and the pursuer agreed that the pursuer should be assumed as a partner in the business. However, difficulties arose and the business relationship between the pursuer and the defenders came to an end on or about 10 January 1994. In July 1995, the pursuer, who had contributed a sum of £17,500 as capital in the business, raised the present action against the defenders in the Sheriff Court at Dumbarton. The action is an action of accounting and the first crave seeks an order ordaining the defenders to produce the whole books and accounts of the firm and a full account of their intromissions with the assets of the firm so that the true balance due to the pursuer

may be ascertained; and alternatively craves payment of the sum of £20,500 with interest. After sundry procedure, which it will be necessary to examine in detail, the sheriff, on 25 April 1996, granted decree against the defenders for payment to the pursuer of the sum of £15,662 together with certain sums as interest. The defenders appealed to the sheriff principal who on 5 September 1996 allowed the appeal and on 26 September 1996 made certain findings as to expenses. The pursuer now appeals against the sheriff principal's interlocutors.

Two provisions of the partnership agreement are of importance. Firstly, clause 5 provides:

Secondly, clause 17 of the partnership agreement provides inter alia:

On 7 July 1995, the Sheriff Court fixed 25 July 1995 as the last date for lodging defences; 15 September 1995 as the last date for adjustment and 29 September 1995 as the date for an options hearing. On 24 August 1995, the sheriff allowed defences to be received, although late. The interlocutor proceeds:

A set of accounts for the period 1 October 1993 to 10 January 1994 were prepared by the auditors, Messrs Walkers. These accounts were lodged in process by the agents acting for the defenders and the document bears the court stamp with the date of lodging given as 28 September 1995. These accounts brought out a sum due to the pursuer of £15,662, the sum for which the sheriff later granted decree. On the following day, 29 September, the sheriff, on joint motion and on cause shown, continued the options hearing to 27 October 1995. The effect of that order, in terms of Rule 9.8(1) of the Ordinary Cause Rules was to permit adjustment of the parties' pleadings until 14 days before 27 October. A record of the pleadings was made up and lodged on 20 October 1995. The document bears the description "first amended record" but it does not appear that there had been any previous record or any amendment and the document appears to be simply the record of the pleadings as adjusted, under the Ordinary Cause Rules. The defenders' answers, as contained in that record, include reference to clause 17 of the partnership agreement and averments that there were no net proceeds of realisation of the partnership assets after settlement of all the obligations of the partnership. The defenders' first plea-in-law in the record lodged on 20 October was a plea that the action should be sisted to await the outcome of arbitration. In addition, before the continued options hearing, the defenders lodged a note of the basis of their preliminary plea, in accordance with Rule 22.1: the note added nothing of substance in regard to the preliminary plea but did indicate that the defenders intended to insist on their plea in regard to arbitration.

The options hearing took place on 27 October 1995. The interlocutor was in the following terms:

On 7 December 1995, the pursuer made a motion for summary decree which was refused by the sheriff. On 22 December 1995 the record was closed. A procedural hearing was thereafter fixed and took place on 19 January 1996. At that hearing a diet of debate was assigned for 8 March 1996. On that date, the sheriff allowed a minute of amendment for the defenders to be received and thereafter made avizandum: he did not allow the pleadings to be amended. On 25 April 1996, the sheriff granted decree for the previously mentioned sum of £15,662.

In brief, the pursuer's argument, which the sheriff accepted, was that the pursuer was entitled to accept the sum which was brought out as due to him in the accounts lodged on behalf of the defenders and that the defenders were not entitled to challenge the sum brought out in these accounts: and, in particular, that the defenders had not timeously stated a plea that any issue should be referred to arbitration. The sheriff accepted that, as a general rule, where parties have agreed that their disputes should be settled by arbitration, a court has no discretion to refuse to allow arbitration, if the plea is stated in limine. The sheriff narrates that the defenders accepted at an early stage that they were under an obligation to provide an accounting to the pursuer and that an accounting had been carried out which brought out a sum due to the pursuer. The solicitor acting for the defenders acknowledged, before the sheriff, that the defenders had not expected that that would be the outcome of the accounting. The sheriff says that the defenders now seek to refer matters raised by them on record to arbitration and describes that as a belated effort to establish that actings on the part of the pursuer have caused loss. He continues:

The sheriff goes on to note that he has been unable to find any authority that any procedure can take place after an account has been produced, other than that either the pursuer accepts the accounting, in which case he is entitled to payment, or he rejects it, in which case he lodges a note of objections.

The argument before the sheriff took place before the decision in Presslie v. Cochrane McGregor Group Limited and David Morran (Buildings) Limited (1996) S.C. 289 was available. Detailed reference was, however, made to that and other authorities in the argument before the sheriff principal and in his note to the interlocutor of 5 September 1996 the sheriff principal examines the authorities in some detail himself. The essence of the sheriff principal's decision is, however, briefly expressed in the following paragraph:

The sheriff principal also referred to the amendment which had been lodged but said that in his view, and subject to any further observation by the parties, the appropriate course was to sist the cause for arbitration without incurring further expense in litigation. That part of the sheriff principal's note was not objected to at the hearing on 26 September 1996 nor in the course of the appeal.

In the argument before us, both parties accepted that the fundamental rule is that if parties have agreed that disputes should be resolved by arbitration, that agreement must receive effect unless the right to insist on arbitration had been abandoned or waived. Both parties accepted what was said in Presslie supra as authoritative. Reference was made in particular, to the opinion of the court delivered by Lord Morison at page 292 where it is stated:

Reference was also made to a passage at page 293 where it is stated:

These passages make it plain that the question whether the right to insist on arbitration has been abandoned or waived is one which depends on the whole circumstances of the case, and that there is no absolute rule that the right is lost even by a failure to state the plea before the record is closed.

It was, however, submitted on behalf of the pursuer that, in an action of count reckoning and payment, the rule that the plea must be stated in limine must mean that it must be stated before the accounts were lodged. Presslie was an action of reparation in which issues of liability and quantum arose, neither of which could be decided before the record was closed. In the present case, the question whether there was a liability to account had been decided in August and the quantum due was settled when the accounts were lodged. The situation could be compared with the lodging of a tender in a reparation action. Once the defenders had lodged their accounts, they could not dispute them. There was nothing in any authority to suggest that once a party had lodged accounts he was entitled to challenge what was brought out in those accounts, in the absence of some new factor such as a challenge by the other party to their accuracy or the discovery of some previously unknown factor. Reference was made to Hobday v. Kirkpatrick's Trustees 1985 S.L.T. 197 and it was submitted that nothing in that case gave support to the view that the party who had lodged accounts could challenge them. In Polland v. Sturrock 1952 S.C. 545 it had been indicated that the procedure after accounts were lodged allowed the pursuer to attack and the defender to defend those accounts. If the defenders wished to raise any issue, whether or not by arbitration, they should have done so before the accounts were lodged. The sheriff principal had substantially reached his conclusion on the ground that arbitration could be insisted in because the record had not been closed before the arbitration plea was stated. He had failed to take into account the significance of the stage of lodging accounts under this procedure. Once the accounts had been lodged and the pursuer accepted them, there was nothing left to dispute and nothing to go to arbitration.

For the defenders it was submitted that the sheriff principal's conclusion was correct. There was nothing to suggest that a plea of arbitration was too late, in an action of this character, if it was taken at the adjustment stage. It had been clear all along that the defenders were not conceding that anything was due to the pursuer. The arbitration point was raised in the proceedings before the continued options hearing and in proper time. There was no authority to suggest that the production of accounts on 28 September had closed the matter. The defenders had lodged accounts but the accounts lodged had no special status: they had not been approved by the court and there had been no proof. The purpose of the proceedings was to ascertain the true balance due to the pursuer; reference was made to Cunningham Jardine v. Cunningham Jardine's Trustees 1979 S.L.T. 298. There was no authority that the defenders must be treated as bound by accounts lodged on behalf of the partnership in circumstances such as these. There were unresolved matters in the pleadings and while it might be rare for defenders to seek to object to accounts which they had lodged this was an illustration of a case in which they must be entitled to do so. The accounts had been prepared by the auditors in accordance with the partnership agreement and the defenders had not had an opportunity to dispute them and must be entitled to such an opportunity. The procedure followed by the defenders had not been inconsistent with the preservation of their right to go to arbitration. Reference was also made to D. & J. McDougall Limited v. Argyle & Bute District Council 1987 S.L.T. 7 and Inverclyde (Mearns) Housing Society Limited v. Lawrence Construction Company Limited 1989 .S.L.T. 815.

As Lord Maxwell observed in Cunningham Jardine's Trustees supra, the procedure in an action of count reckoning and payment is in some respects cumbersome. This case illustrates the procedural difficulties which may arise. However, as Lord Maxwell also observed in the same case, the purpose of the procedure is to get an account before the court and focus, by that means, the issues in dispute between the parties, so that the true balance can be ascertained. In the present case, the defenders properly conceded at a very early stage that they were under an obligation to account. In the ordinary course, as is explained, for example, in Macphail: Sheriff Court Practice 21-09 and following, once such an order has been made, the accounts are lodged, objections, if any, are also lodged in due course and a record is then made up on the accounts and note of objection and answers, if any. It is assumed, in the ordinary case, that there will not be any further adjustment of the initial record, the summons and defences, and that further procedure will be initiated by the pursuer stating objections to the accounts. In this case, however, parties went on adjusting the record notwithstanding the order for accounts and the lodging of accounts. It is also assumed, in the ordinary case, that the accounts lodged will represent the defenders' own position in relation to any issues which may arise. However, the key to the present situation is, in our view, found in the provisions of the partnership agreement. In accordance with that agreement accounts were to be made up by the parties' auditors and these accounts were to be binding on the parties in the absence of objection. What the defenders apparently did was to obtain accounts made up by the parties' auditors and these were the accounts which they lodged. We do not see how it could be said that the defenders acted wrongly or incorrectly in following that course. However, it had the consequence that the accounts which were lodged were not accounts which had been prepared by the defenders themselves or which the defenders need be taken to have accepted and agreed. Given that the accounts lodged were prepared by the auditors, under the partnership agreement, it seems to us to be elementary that some means must be available, within the procedure, for the defenders object to those accounts, as they are entitled to do under the partnership agreement. In any event, we do not think it can be the case that the mere lodging of accounts of the character of the accounts lodged in this case must be taken to be a step which prevents the defenders from raising any dispute about them. The position might have been clearer if the defenders had gone back to court to explain the nature of the accounts which they were lodging before they did lodge them. If they had done so, provision might have been made for the defenders, as well as the pursuer, to object to those accounts. There is no authority in which it has been held that it is competent for a defender to act in this way but, on the other hand, there is no authority to the contrary, nor any authority dealing with accounts prepared by an independent person such as the auditors in the present case. Since the underlying object of the procedure is to focus the dispute between the parties and ascertain the true balance, it seems to us, as we have indicated, that there must be some means by which both parties can challenge accounts prepared by a third party if the process is to achieve its object. We therefore see no reason why in an appropriate case, such as this, provision should not be made for objections by the party who lodges the accounts as much as by any other party.

In this case, what happened was that both parties continued to adjust their pleadings, and the question of a reference to arbitration was raised in the course of adjustment. The essential question, therefore, is whether in these circumstances the lodging of the accounts should be taken to have the extreme effect which the pursuer's argument sought to give it, namely that it amounted to an abandonment of the right to refer disputed matters to arbitration. In our view, it would be going much too far to hold that in the circumstances of this case there had been any such abandonment.

In our view, therefore, the sheriff principal reached the correct conclusion and the present appeal must be refused.