Scottish Court of Session Decisions

The pursuer and the defender are solicitors who formerly carried on practice in partnership together under the firm name Forrest & Hendry. The firm was dissolved on 31 March 1998. This action is the second of two arising out of the dissolution. Since the issue which came before me for debate involves discussion of both actions, and since the present pursuer was the defender in the previous action, I shall, for the avoidance of confusion, refer to the parties by name, as "Mr Forrest" and "Mr Hendry. In this action Mr Forrest concludes for payment to him by Mr Hendry of the sum of £59,929.93, with interest thereon at the rate of 8% a year from 31 March 1998 until payment. He avers that he sues as "the continuing partner" of the dissolved firm. In the previous action (CA5/14/1999) Mr Hendry concluded for payment to him by Mr Forrest of the sum of £117,034 with interest at the rate of 8 % a year from 31 March 1998 until payment. In that action decree was granted on 18 June 1999, in respect of a minute of tender and acceptance, for payment by Mr Forrest to Mr Hendry of the sum of £85,000. In the present action Mr Hendry pleads inter alia as follows:

5. In respect that the respective rights and liabilities of the parties arising out of the dissolution of the former partnership have been determined by the Decree pronounced on 18 June 1999 in favour of the Defender in the previous action between them (CA5/14/1999), the liability of the Defender to the Pursuer for the sum sued for in the present action is res judicata, and the Defender should be assoilzied."

Mr Forrest responds by stating two pleas-in-law, his second and third, challenging the relevancy of the defences. In the present action Mr Forrest's claim relates in part (i.e. to the extent of £19,929.93) to fees and outlays said to be payable in respect of the period prior to the date of dissolution by clients taken over, following the dissolution, by Mr Hendry; and in part (i.e. to the extent of £40,000) to a claim for the value of the goodwill in respect of those clients. When the present case called before me for a continued preliminary hearing on 24 September 1999, it was intimated that the parties were in discussion in relation to the aspect of the case dealing with fees and outlays. The part of Mr Forrest's claim relating to goodwill was not, however, the subject of negotiation. The case was therefore appointed to debate in respect of Mr Hendry's plea of res judicata (so far as relating to the claim for goodwill) and Mr Forrest's pleas to relevancy (so far as bearing on the averments of res judicata).

There was little dispute between the parties as to the test which should be applied in determining whether the plea of res judicata has been properly invoked. In this case as much as in the one in which the observation was first made (Grahame v Secretary of State for Scotland 1951 SC 368, per Lord President Cooper at 387), "... the difficulty ... is not in stating the principle but in applying it". It is therefore convenient to discuss that test before turning to the question of its application to the circumstances of the present case.

Mr Kennedy, who appeared for Mr Forrest, submitted that five requirements had to be satisfied before a plea of res judicata could succeed, namely ¾

1. there must have been a prior determination by a court of competent jurisdiction;
2. the prior determination must have been pronounced in foro contentioso;
3. the subject matter of the two actions must be the same;
4. the media concludendi must be the same; and
5. the parties to the second action must be identical with, or representative of, the parties to the first action, or have the same interest (Macphail, Sheriff Court Practice, Second Edition, §§ 2.104 - 2.109).

He accepted that in the present case there had been a prior determination by a court of competent jurisdiction, namely this court; and that that prior determination, albeit a decree pronounced in terms of a minute of tender and acceptance, was a decree in foro. The issue therefore turned on whether Mr Hendry had relevantly averred identity of subject matter, of media concludendi, and of parties.

There was some discussion in the course of the debate about the respective scope of the requirements that there be identity of subject matter and of media concludendi. Reference was made to Hynds v Hynds 1966 SC 201, per Lord Cameron at 203; Short's Trustee v Chung (No. 2) 1998 SLT 200 (OH), per Lord Johnston at 202; Grahame v Secretary of State for Scotland, per Lord President Cooper at 387; Edinburgh and District Water Trustees v Clippens Oil Co Ltd (1899) 1 F 899; and Glasgow and South Western Railway Co v Boyd & Forrest 1918 SC (HL) 14, per Lord Justice Clerk Scott Dickson at 19-20. The matter has most recently been considered in Short's Trustee v Chung 1999 SC 471 (IH), where the following observations were made (at 476F - 477H):

Mr Howie, who appeared for Mr Hendry, submitted that I should follow that guidance in the present case, and I did not understand Mr Kennedy's ultimate position to be substantially different. I take the view that it would be right for me to adopt that approach.

It is therefore necessary to examine the pleadings in the previous action to see what was litigated and what was decided in it. The summons and the defences in it are respectively Nos. 6/8 and 7/83 of process in the present action. No adjustment took place. Those two documents therefore contain the whole pleadings. Since the decree followed on a tender and acceptance, there is no reasoned decision of the court, and the pleadings are therefore the only material upon which to judge what was litigated and what was resolved by the decree. Neither party was designed as suing or being sued in any special capacity. The substantive conclusion, as I have already noted, was for payment by Mr Forrest to Mr Hendry of the sum of £117,034, with interest.

In article 2.1 of the condescendence, averments were made about an earlier partnership in which a Mr Marshall as well as the present parties was a partner (Marshall Lohoar & Co), and 1 November 1991 was identified as the date of commencement of the partnership between the present parties (Forrest & Hendry). In article 2.2 it was averred that there was no written partnership agreement, but that the oral agreement, which was reflected in the annual accounts, was that profits would be shared equally, that the sum at credit of the parties respective capital accounts in Marshall Lohoar & Co would be carried forward into their capital accounts in Forrest & Hendry, and that interest would be credited to the capital accounts before profits were shared. In article 2.3 it was averred that in the annual accounts certain accounting policies were applied. The balance sheet included the sum of £15,000 for goodwill. The profit and loss account included as turnover only fees actually received. The balance sheet contained a sum for work-in-progress, calculated (on the basis of advice from the firm's auditors as to what would satisfy the Inland Revenue) by reference to the cost to the firm of work for one and a half months. It was further averred that it was implicit in the parties' agreement that those accounting policies would be applied only while the firm was continuing, and that there was no agreement that they would be applied on its termination. In answer 2.3, after admissions relating to the sum included in the balance sheet for goodwill and the basis of calculation of work-in-progress, and a general denial, averments were made in support of contentions which may be summarised as follows:

1. the parties had agreed to value work-in-progress in the manner averred, not only when the firm was continuing, but also on dissolution of the firm;
2. esto the market value of the work-in-progress at the date of dissolution was more than appeared in the draft dissolution accounts, Mr Hendry was personally barred from contending that the higher figure should appear in the accounts; and
3. esto Mr Hendry was entitled to insist on the higher figure entering the dissolution accounts, all other assets should be similarly revalued, and the value of work-in-progress at the date when Mr Hendry joined the firm should be similarly adjusted, the increase from any such re-valuation being ascribed solely to Mr Forrest.

In article 3.1 the parties' agreement to dissolve the firm with effect from 31 March 1998 was noted, and it was averred that it was agreed that Mr Forrest "would carry on the Firm's business by purchasing [Mr Hendry's] share in it". In answer 3.1 the date of dissolution was admitted, but it was averred that Mr Forrest "agreed that he would ingather or acquire most of the firm's assets and would pay to [Mr Hendry] the sum brought out as the balance of [Mr Hendry's] capital account in the firm's final accounts". There then followed an averment that "It was further agreed that [Mr Hendry] would be permitted to take with him to his new firm ... certain clients of the firm and their files without the normal requirement that fees and outlays outstanding at the date of transfer would be paid before release of the files. [Mr Hendry] agreed that he would account to the dissolved firm for these outstanding fees and outlays as at 31 March 1998 when these were subsequently billed by the new firm". There followed averments to the effect that that agreement was implemented until 9 July 1998, when Mr Hendry intimated that he would instead take such fees received to account of the capital due to him. It was further averred that in terms of the parties' agreement, Mr Hendry acquired a proportion of such goodwill, if any, as existed in the firm as at the date of dissolution; that he is under obligation to pay "to the dissolved firm" the value, if any, of that goodwill; and that he is also under obligation to pay "into the dissolved firm" the fees and outlays outstanding as at the date of dissolution applicable to the clients taken to his new firm, representing the work-in-progress element of that part of the firm's business that he has acquired.

In article 3.2 it was averred that after reaching the agreement mentioned in article 3.1, the parties held negotiations as to the price at which Mr Forrest should purchase Mr Hendry's share in the firm; that draft accounts were prepared which, subject to their treatment of goodwill and work-in-progress, set out the financial position of the firm at the date of dissolution; but that the parties neither before dissolution nor since had reached agreement on the price which Mr Forrest should pay. In answer 3.2 Mr Forrest averred that the draft accounts required to be adjusted in certain respect, namely (i) the balance due by clients fell to be reduced from £29,918 to £20,000 to make realistic provision for bad debts, and (ii) provision in the sum of £2000 fell to be made for a professional negligence claim against the firm; the effects of which adjustments were (a) to reduce net assets from £153,918 to £142,000, and (b) to reduce the sum at credit of Mr Hendry's capital account from £70,935 to approximately £65,000.

In article 3.3 Mr Hendry averred that on 31 March 1998 he joined his new firm, and thereafter completed his current work. When he rendered a fee, he remitted to Mr Forrest's new firm the amount attributable to work done before the dissolution. The rest of the business previously carried on by the firm was carried on by Mr Forrest's new firm. In answer 3.3 those averments were admitted under reference to Mr Hendry's letter of 9 July intimating his intention of ceasing to remit pre-dissolution fees, and of retaining them instead to account of his capital entitlement. There followed an averment of Mr Forrest's belief that Mr Hendry had failed to account to the dissolved firm for fees and outlays due by clients taken over by him in respect of work done before the dissolution. The answer continued in the following terms:

In article 4.1 of the condescendence Mr Hendry averred that in the absence of agreement on the price for his share, it was implied as a matter of law that Mr Forrest would pay a reasonable price. The remainder of articles 4.1 to 4.5 then set out the calculation supporting the sum concluded for. The starting point was the draft accounts, which showed (i) an opening balance on capital account of £78,605, (ii) profit share for the period of £12,726, and (iii) interest on capital of £2067, making a total of £93,398, from which drawings of £22,463 had to be deducted, leaving £70,935 at credit of Mr Hendry's capital account. Two adjustments were said to be required. The first was in respect of goodwill which was said to be worth £50,000. The second related to certain claims for payment from the Scottish Legal Aid Board totalling £42,198. When his half share of these two items was added to the balance at credit of Mr Hendry's capital account, the sum to which he was entitled as a reasonable price for his share of the firm rose to £117,034, the sum sued for. In answers 4.1 to 4.5 Mr Forrest made a number of points about the calculation of the sum to be paid to Mr Hendry. He averred first that Mr Hendry's entitlement was to the sum brought out in the draft accounts prepared in accordance with the same accounting practices as had been applied to the accounts of the firm while it was continuing. He then put forward the contention that esto there was to be any revaluation, everything should be re-valued, not merely those items the revaluation of which would increase Mr Hendry's entitlement, instancing that the realisable values of furniture and fittings and the office library were respectively £5000 and £4600, whereas their net book values were £19,754 and £26,218. He then made averments in support of the contention that the value of goodwill was nil. He also made averments in support of the contention that it was inappropriate to depart from the previous approach to the valuation of work-in-progress, and on that basis sought to resist any uplift to the value of Mr Hendry's interest by reference to the legal aid claims, with an alternative contention that if there was to be a revaluation of work-in-progress, there should also be a revaluation of work-in-progress at the date of the commencement of the firm, with the uplift at that date credited solely to Mr Forrest.

Mr Hendry's sole plea-in-law was to the effect that having sold his share in the former firm to Mr Forrest, he was entitled to a fair value for it, which the sum sued for represented. Mr Forrest's pleas included one challenging the "sufficiency" of the averments of a contract of sale of Mr Hendry's share in the firm, and one challenging the competency of the action on the basis that it ought to have been an action of accounting rather than of payment.

For the purpose of the comparison which the plea of res judicata requires to be carried out, it is also necessary to examine what is put in issue in the present action. As already noted, Mr Forrest avers that he sues "as the continuing partner in the former firm". He concludes for payment of £59,929.93.

In article 2 of the condescendence Mr Forrest avers that it was agreed that files for certain clients for whom Mr Hendry had acted would be taken by Mr Hendry to his new firm, on condition that he would pay "to the Pursuer as representing the former firm" all fees and outlays due to the former firm in respect of the period up to the dissolution; that in reliance on that agreement he permitted Mr Hendry to remove those files without the fees and outlays due to the date of dissolution being assessed and paid; that he (Mr Forrest) is entitled to collect all sums due to the now dissolved firm; and that there remain unpaid fees and outlays in respect of the pre-dissolution period due by those clients taken by Mr Hendry amounting to £12,000 and £7929.93 respectively. On the subject of goodwill, he adds the following averments:

In answer 2 Mr Hendry admits that it was agreed that he would take to his new firm files for certain clients for whom he had acted, that he was permitted to do so without payment of the fees and outlays already incurred at that date, and that Mr Forrest is entitled to collect all sums due to the former firm. Although the averments are not set out in this order, Mr Hendry (i) sets out his version of the agreement about how the fees and outlays (legal aid and non-legal aid) due in respect of the period before dissolution by clients whom he took to his new firm would be accounted for to Mr Forrest; (ii) avers that he remains willing to implement that agreement; (iii) makes averments disputing Mr Forrest's averments about the amount of the fees and outlays in respect of the period before dissolution which remain due; and (iv) in any event contends that he is not liable to make payment in respect of items of work-in-progress so long as the relative fees remain uncollected. In addition, he repeats the bulk of the averments which he made in the previous action in support of his claim for payment of £117,034.

In answer 3 Mr Hendry responds to Mr Forrest's formal averment of an unanswered demand for payment by making averments comparing the averments in the present action with those in the previous action. He disputes that Mr Forrest sues the present action as representing the former firm. He asserts that the parties, subject matter and media concludendi of the two actions are the same. In response, in article 3 of the condescendence, Mr Forrest contends that he sues in a different capacity from that in which he was sued in the previous action, and that it was known and understood by both parties and their advisers that the previous action was not intended to dispose, and did not dispose, of the claim, available to him as representing the dissolved firm, for the fees, outlays and goodwill claimed in the present action. He further avers (in article 2 of the condescendence) that the intimation of the tender in the previous action was accompanied by a letter of 22 February 1999 (No. 6/1 of process). He avers that:

Mr Kennedy submitted that Mr Hendry had failed to make relevant averments in support of his plea of res judicata in respect that his averments did not disclose that the parties to, and subject matter and media concludendi of, the two actions were the same.

According to Mr Kennedy's analysis, in the previous action Mr Hendry sought a payment which he characterised as a fair price for his share in the dissolved firm, and which Mr Forrest characterised as the sum at credit of Mr Hendry's capital account as at the date of dissolution. In the present action, on the other hand, Mr Forrest seeks payment by Mr Hendry in respect of assets belonging to the dissolved firm which Mr Hendry has taken, including the goodwill attaching to the clients of the dissolved firm for whom he has continued to act. The sum due by Mr Forrest to Mr Hendry in the previous action fell to be determined by the preparation of accounts of the firm as at the date of dissolution in which an appropriate value was attributed to each asset of the firm, and the disputes focused in the previous action related to the proper treatment of the valuation of various of the firm's assets. In the present case, what requires to be ascertained is simply the value of those assets of the former firm taken by Mr Hendry.

In the previous action, Mr Kennedy submitted, Mr Forrest had made it clear that, although he made averments about the existence of an agreement that Mr Hendry should account for pre-dissolution fees recovered from clients whom he took with him to his new firm and should pay for the goodwill attaching to those clients, those claims were to be the subject of separate proceedings, and were not brought into account in the tender. He pointed in particular (i) to the averments in answer 3.1 to the effect that Mr Hendry "acquired a proportion of such goodwill if any as existed in the firm" at the date of dissolution, and was "under obligation to pay into the dissolved firm the value, if any, of that goodwill", as well as the fees and outlays outstanding as at the date of dissolution by the clients which he took to his new firm; and (ii) to the averments in answer 3.3 stating that he (Mr Forrest) had been advised that he, as representing the dissolved firm, should bring separate proceedings for an accounting for "all sums due to it by [Mr Hendry] in respect of all clients whom he took with him", and specifically reserving "the whole rights and pleas of the Defender [Mr Forrest] and of the dissolved firm". The effect of that reservation, Mr Kennedy further submitted, was reinforced by the terms of the letter from Mr Forrest's solicitors to Mr Hendry's solicitors dated 22 February 1999 (No. 6/1 of process), under cover of which the defences and the tender in the previous action were intimated. In the fourth paragraph of that letter, after reference to answer 3.1 of the defences, and a threat to "raise the action mentioned in Answer 3.1", Mr Forrest's solicitors continued:

The terms of that letter, it was submitted, were such as to remove any misapprehension that Mr Hendry might otherwise have entertained that the tender was offered as a net payment, setting off what was due by Mr Hendry to the dissolved firm against what was due by Mr Forrest to Mr Hendry.

So far as the question of identity of parties was concerned, Mr Kennedy did not maintain that the mere fact that the pursuer in the present action was the defender in the previous action was sufficient to exclude the plea of res judicata. The consideration upon which he did place reliance was that whereas the previous action had been between the partners of the dissolved firm as individuals, the present action was at the instance of Mr Forrest as the remaining partner of the dissolved firm seeking to ingather assets of the dissolved firm. In this action Mr Forrest was exercising his continuing authority under section 38 of the Partnership Act 1890 to complete the winding-up of the affairs of the dissolved firm. In doing so he was acting in a different capacity from the one in which he had defended the previous action. It was that difference of capacity that had prevented Mr Forrest from proceeding with his claim by way of counterclaim or set-off in the previous action.

Mr Kennedy's submission therefore was that for those reasons it could be seen on the face of the pleadings that the plea of res judicata was ill-founded, and that I should therefore repel it and allow a proof on quantum of Mr Forrest's claim.

Mr Howie in his submissions dealt first with whether both actions were between the same parties. He submitted that the distinction which Mr Kennedy sought to draw between the capacity in which Mr Forrest defended the previous action and the capacity in which he pursues the present one was misconceived. The previous action was concerned with the sum which Mr Forrest required to pay to Mr Hendry in respect of Mr Hendry's interest in the dissolved firm. In the present action Mr Forrest was asserting that Mr Hendry was obliged to make certain payments in respect of what were said to be assets of the dissolved firm. Mr Forrest was not, however, truly pursuing a claim on behalf of the dissolved firm. His title to sue the present action was not as representative of the dissolved firm, but as the individual who had acquired the business of the dissolved firm. Mr Forrest had bought out Mr Hendry's interest in the dissolved firm. The whole assets of the dissolved firm now belonged to him. It was therefore to Mr Forrest as an individual that the sum, if any, payable by Mr Hendry in respect of the goodwill residing in the clients taken over by him fell to be paid. The continuing authority of a former partner to gather in the debts due to a dissolved firm was of significance in a question with third parties, but not in a question between former partners. In any event, whatever the formal basis of Mr Forrest's title to sue might be, the substance of the matter was that it was only Mr Forrest, as the acquirer of the business of the dissolved firm, who had an interest in the claim in respect of goodwill which he sought to pursue in the present action. That identity of interest was sufficient for the purpose of the plea of res judicata.

So far as the subject matter and media concludendi were concerned, Mr Howie's submission was that, as in Short's Trustee v Chung, no practical purpose was to be served by analysing these factors separately. What mattered was whether the issue raised in the present case had already been litigated and decided in the previous action. Both cases, Mr Howie submitted, were concerned with the adjustment between Mr Hendry and Mr Forrest of their respective interests in the dissolved firm. The acceptance of Mr Forrest's tender and the decree that followed thereon must be taken as having determined all the issues focused in the pleadings in the previous case. The claims which Mr Forrest made in the present action bore directly on the adjustment of the former partners' interests inter se in the assets of the dissolved firm. They had been asserted in the previous action. They must therefore be taken to have been decided by the acceptance of the tender and the decree that followed thereon. In particular, the question of the proper valuation and treatment of the goodwill of the dissolved firm had been focused in the pleadings in the previous action and must be taken to have been brought into account in the offer which Mr Forrest made by way of his tender in that action.

Mr Howie further submitted that the reservation expressed in the pleadings in the previous action, and the terms of the letter of 22 February 1999, could have no bearing on the matter. If in substance both actions concerned the same issues, the reservation and the letter could achieve nothing. If the present action was concerned with something different from the issues raised in the previous action, the reservation was unnecessary. If the present action was concerned with the same issues, the reservation was ineffective because it was superseded by the unqualified tender. A fortiori the letter could not detract from the effect of the unqualified tender. The purpose of a tender was to settle, by payment of the sum tendered, the disputed issues raised in the action in which the tender was lodged. Once accepted and given effect by the decree, it could not be deprived of that effect by reference to the reservation or the letter. Mr Forrest's attempt to distinguish between the capacity in which he had settled the previous action and that in which he brought the present action was undermined by the terms of the reservation, which bore to reserve the rights and pleas of "the Defender and of the dissolved firm". If the distinction was valid, there was no room for the reservation of Mr Forrest's own rights and pleas, as distinct from those of the dissolved firm. In any event, the reservation in answer 3.3 of the defences in the previous action was concerned with the claim for pre-dissolution fees paid by clients taken over by Mr Hendry, and not with goodwill in respect of those clients.

It is, in my opinion, particularly important in considering the plea of res judicata in this case to examine the substance of the matter, rather than the form in which the parties have chosen to couch their claims and responses. In my view the way in which the pleadings have been expressed has tended to mask, rather than make clear, the true substance of the issues which have been in dispute. What is clear is that both actions concern aspects of the adjustment of the consequences, for the former partners, of the dissolution of the firm of Forrest and Hendry which took place on 31 March 1998. What requires to be determined now is whether in substance the issue which Mr Forrest seeks to have resolved by this action has already been litigated in the previous action and determined by the decree pronounced in terms of the tender and acceptance on 18 June 1999.

Although in the previous action the parties adopted different ways of describing the claim by Mr Hendry with which that action was principally concerned, the difference is in my view more apparent than real. Mr Hendry narrated that the agreement was that Mr Forrest would purchase his interest in the dissolved firm, and presented his claim as one for the sum representing a fair price for the purchase of that interest. Mr Forrest declined to admit that there had been a sale, but accepted that he was obliged to pay to Mr Hendry the sum at credit of his capital account in accounts of the firm prepared on a proper basis as at the date of dissolution. The common factors in both of these approaches were that it was accepted (i) that the firm had been dissolved, but (ii) that it was agreed between the partners that there was not to be a formal winding-up of the affairs of the partnership. Instead, it was agreed that the business formerly conducted by the dissolved firm was to be taken over and carried on for the future by Mr Forrest through the medium of his new firm, and that Mr Hendry was to receive the value of his interest in cash. It does not seem to me to matter whether or not that is expressed in the language of sale and purchase. The main sub-issues which required to be resolved related to how the accounts of the firm as at the date of dissolution were to be prepared, and in particular whether certain accounting conventions which had been applied in the preparation of the firm's accounts while it continued fell to be applied in the dissolution accounts, and what adjustments, if any, required to be made to the values at which certain assets entered the dissolution accounts. It seems to me that these issues might have been better focused if, as Mr Forrest in his third plea-in-law in the previous action maintained should have been the case, that action had been one for count, reckoning and payment between the partners. But the fact that that was not the form of action which was adopted should not, in my view, hamper the search for what was truly put in issue and determined.

It is evident from both parties' pleadings that there was more to their agreement than the simple proposition that Mr Hendry would receive the value of his interest in the firm in cash. There was an arrangement that Mr Hendry would take over certain existing clients of the dissolved firm, and would continue to act for them. I do not understand there to be any real dispute that that was agreed, or that it was agreed that Mr Hendry would at some stage account for the fees and outlays which the dissolved form had earned from, or incurred on behalf of, those clients as at the date of dissolution. I see the arrangement as essentially a pragmatic one. Rather than have the dissolved firm make immediate claims for payment of the sums due by those clients at the date of dissolution, the fees and outlays were to be recovered in due course along with the fees and outlays due to Mr Hendry for the post-dissolution part of the business, and accounted for by him. The dispute in relation to this aspect of the present action seems to be confined to the amount of the fees and outlays in question, and the question whether Mr Hendry can be made to account for them before he has himself recovered them. It is unnecessary to examine this aspect of the present action in more detail for its own sake, since it is the subject of negotiation between the parties. It does, however, in my view go some way towards explaining why Mr Forrest presents his claims in the present action as claims made by him as representing the dissolved firm. The claim for fees and outlays would, if presented at dissolution as a claim against the clients in question, have been a claim on behalf of the dissolved firm. It seems to me, however, that the claim which Mr Forrest now makes against Mr Hendry in respect of those fees and outlays is not a claim on behalf of the dissolved firm. He has acquired the assets of the firm, having paid out to Mr Hendry the value of his interest in the firm. Those assets include the claims for fees and outlays in respect of the former clients. What is contemplated, and has been made the subject of agreement between the two former partners, is that Mr Hendry will recover those from the clients along with his own fees for the post-dissolution element of the work. In so far as Mr Hendry recovers from the clients fees and outlays which had been earned or incurred as at the date of dissolution, he does so in effect as agent for Mr Forrest, who now owns the business of the dissolved firm, including those elements of work-in-progress. Mr Forrest's claim against Mr Hendry in respect of those fees and outlays is founded not on the clients' liability to the dissolved firm, but on the contract between Mr Forrest and Mr Hendry in terms of which Mr Hendry agreed to recover those fees and account for them. In substance, therefore, Mr Forrest's claim is in this respect a claim which he makes as an individual, not as representing the former firm. He as an individual will take the benefit of any such recovery.

Although the claim which Mr Forrest makes in the present action for the value of the goodwill resting in the clients taken over by Mr Hendry is not of precisely the same nature, I am of opinion that it is equally mistaken to regard it as a claim made by Mr Forrest on behalf of the dissolved firm. The agreement by which Mr Hendry took over certain clients of the dissolved firm must, in its nature, have been an agreement between the two partners of the dissolved firm, rather than an agreement between Mr Hendry and the dissolved firm. It may or may not be right that expressly or by implication that agreement placed a liability on Mr Hendry to make a payment representing the value of the goodwill attaching to those clients. If, however, there was such an obligation, it was in my view an obligation owed to Mr Forrest as an individual, not an obligation owed to the dissolved firm. The fallacy which in my view underlies the way in which Mr Forrest seeks to present the capacity in which he makes this claim is to be found in the attempt to equiparate the claim against Mr Hendry with a claim against a third party who had taken an asset of the dissolved firm. No doubt if a third party acquired an asset of the dissolved firm and did not pay what he ought to have paid for it, the claim for payment would fall to be made by the partners of the dissolved firm on its behalf. But claims by and against the partners inter se are of a different nature. If the partners are agreed that on dissolution there should not be a full formal winding-up of the affairs of the partnership, but that each partner should take over some part of the assets and that there should be an appropriate balancing cash payment by one partner to the other, to ensure that each receives, in cash or in assets, his proper share of the partnership property, the agreement is between the partners. The dissolved firm is not party to it. Any payment that one partner is to make in respect of an asset which he has taken over is thus a payment which he makes to the other partner, not to the dissolved firm. It follows, in my view, that there is no substance in Mr Forrest's attempt to argue that the claims which he makes in the present action are made by him on behalf of the former firm, and therefore made by him in a different capacity from that in which he made the tender which resulted in the decree against him in the previous action. I am therefore of opinion that Mr Hendry's plea of res judicata does not fail for want of identity of parties.

The question which remains is whether the claim in respect of goodwill which Mr Forrest makes in this action formed part of what was put in issue, and must be held to have been determined by the decree, in the previous action. The question of the capacity in which the claim could be made spreads over to affect this aspect of the matter as well. That is because part at least of the argument to the effect that the present claim was not in issue in the previous action is founded on the proposition that it could not have been so put in issue because it was a claim which Mr Forrest required to pursue in a different capacity from that in which he was defending the previous action. That too is the express basis of the reservation made in answer 3.3 - separate proceedings required to be brought to make the claim on behalf of the dissolved firm. It does not seem to me to matter, however, that the argument is presented in that erroneous way. It does not follow, because the present claim could have been put in issue in the previous action, that it was in fact put in issue and determined in that action. In my view, since the claim in respect of goodwill now made by Mr Forrest in the present action was in reality his own claim rather than the claim of the dissolved firm, he could, if he had chosen to do so, have brought this claim into account in diminution of the sum which he had to pay to Mr Hendry for his share of the firm, by counterclaim if necessary. But if in substance Mr Forrest succeeded in keeping the present claim out of the matters in issue in the previous action, it does not in my view matter that he did so on the mistaken basis that he had no alternative to doing so.

It is no doubt the case that in the previous action Mr Forrest made averments about the existence of the present claim. I do not consider, however, that he put this claim in issue in that action. In answer 3.1, having averred that it was agreed that Mr Hendry would take over certain clients, he went on to say that in terms of the agreement Mr Hendry acquired a proportion of such goodwill as existed in the firm as at the date of dissolution, and that Mr Hendry is under obligation to pay "into the dissolved firm" the value, if any, of that goodwill. Elsewhere, in answer 4.3, he set out his position as to how goodwill ought to be treated in arriving at the sum due to Mr Hendry in respect of his capital account at the date of dissolution. He denied Mr Hendry's averment that the market value of the firm's goodwill was £50,000. Primarily, his position was that goodwill should remain in the accounts at the existing book value of £15,000, but if there was to be revaluation he maintained that the value of goodwill should be reduced to nil. He did not, as I read the pleadings, anywhere aver that in the calculation of the sum which he should be found liable in that action to pay to Mr Hendry in respect of his interest in the firm there should be any allowance or reduction to reflect the value of the goodwill attaching to the clients taken over by Mr Hendry.

It is not, in my view, necessary to rely on the reservation expressed in answer 3.3 or on the letter of 22 February 1999 in reaching that conclusion. Each of these, however, reinforces the conclusion, and can in my view legitimately be taken into account to that effect. In answer 3.3 it was averred that Mr Forrest had been advised that he, as representing the dissolved firm, should bring separate proceedings against Mr Hendry for "all sums due to it" by him in respect of clients whom he took with him. By reference back to answer 3.1, it can be seen that the reference to all sums due to the former firm was intended to include the claim for the value of any goodwill attaching to the clients which Mr Hendry took with him. The reservation expressed in the last sentence of answer 3.3, while somewhat inconsistent with what has gone before in so far as it bears to reserve Mr Forrest's rights and pleas as well as those of the dissolved firm, in my view makes it clear that it was not Mr Forrest's intention to bring the claim now made in the present action into issue in the previous action. The letter of 22 February 1999 serves, in my view, to underline further that the claim made in the present action was not intended to be brought into issue in the previous action and settled by the tender in that action. That is, in my view, clear in particular from the indication in the letter of Mr Forrest's willingness to entertain a counter-proposal for a net settlement figure. That statement would make no sense if the tender was itself intended as a net settlement of both Mr Hendry's claim and the claim now made by Mr Forrest in the present action. This case is not, in my view, concerned with whether a tender can be qualified by an extraneous statement. What must be determined is what issues the tender was intended to settle. It must necessarily be taken as settling the whole claims stated by the pursuer in the conclusions in respect of which it bears to be made. But it will, in my view, only be taken as settling a counter-contention capable of being advanced as a separate claim if that counter-contention was put in issue. Whether it is or not depends primarily on the terms of the pleadings. Where a reading of the pleadings leads to the conclusion that a particular counter-contention has not been put in issue, it is in my view legitimate to have regard to correspondence which reinforces or confirms the soundness of that reading.

My conclusion is that the goodwill aspect of the claim which Mr Forrest seeks to advance in the present case was not put in issue in the previous action. I base that conclusion on the terms of the substantive parts of the pleadings in the previous action, but find confirmation of its soundness both in the terms of the reservation in answer 3.3 and in the terms of the letter of 22 February 1999. I am therefore of opinion that, although this action is between the same parties as was the previous one, what Mr Forrest seeks to litigate and have decided in the goodwill aspect of this action was not litigated and decided in the previous action.

I shall therefore sustain the pursuer's second plea-in-law to the extent only of excluding from probation the defender's averments in answer 3 in support of the plea of res judicata, That done, I shall repel the defender's fifth plea-in-law, the plea of res judicata. Although in that situation, it seems likely that a proof before answer will require to take place, further preliminary procedure may be required before such a proof is allowed. I shall accordingly put the case out By Order for discussion of future procedure.