Scottish Court of Session Decisions

Green v. Moran &Ors [2002] ScotCS 131 (10th May, 2002)

OUTER HOUSE, COURT OF SESSION
A226/97	OPINION OF LORD MACFADYEN in the cause MARCUS ISADORE GREEN Pursuer; against GERALD MORAN and OTHERS Defenders: ________________

 

 

Pursuers: MacNeill, Allan McDougall & Co, S.S.C.

First Defenders: Francis, Campbell Smith, W.S.,

Second Defenders: Ross, Shepherd & Wedderburn, W.S.,

Third Defenders: Creally, Morison Bishop

10 May 2002

Introduction

1. The pursuer is a former partner in the firm of Turner MacFarlane Green & Company, Solicitors, Glasgow. He avers that he resigned from the firm on or about 15 July 1992. The first and second defenders were, at the date of the pursuer's resignation, the other equity partners in the firm. The remaining partners continued the business of the firm after the pursuer's resignation until 28 June 1994, when the firm was dissolved. The third defender was appointed judicial factor on the estates of the dissolved firm. In this action the pursuer sues the defenders jointly and severally for the sum of £66,752.
2. All three defenders plead that the pursuer's averments are irrelevant and lacking in specification. The action was appointed to the procedure roll on those pleas. When the case called before me on that roll, counsel for each defender moved for dismissal of the action.
3. The pleadings include a counterclaim for the third defender in which he seeks decree against the pursuer for the sum of £26,377. The pursuer pleads that the averments in support of the counterclaim are irrelevant and lacking in specification. The third defender pleads that the pursuer's averments in answer to the counterclaim are irrelevant and lacking in specification. Those pleas were not debated on the procedure roll. It was a matter of agreement between the pursuer and the third defender that, whatever happened to the principal action, a proof before answer should be allowed in respect of the counterclaim.

The Pursuer's Pleadings

4. The essence of the pursuer's claim is very concisely stated. He avers in article 2 of the condescendence:

"On or about 15 July 1992 the pursuer resigned from the firm. As at said date of resignation, the value of the firm's work in progress was about £180,000. The value of the right to use [the] name of the firm was about £23,000. The pursuer's tax reserve account amounted to about £24,344. The pursuer's current account with the firm was in deficit to the extent of £25,259 or thereabouts. The pursuer's one third share of work in progress plus his one third share of the value of the right to use the firm's name plus the sum at credit in his tax reserve account less the sum of debit in his current account amounts to £66,752, which is the sum sued for."

5. The pursuer's plea-in-law is in the following terms:

"The sum sued for representing the pursuer's entitlement out of the assets of the said firm on his resignation, decree for payment thereof should be pronounced as concluded for."

The Defenders' Submissions

6. Mr Francis for the first defender submitted that the claim formulated by the pursuer did not reflect any possible measure of his entitlement. In the absence of any averments about the partnership contract it was to be inferred that the pursuer's case was that there had been a partnership at will. It was accepted by the pursuer that his resignation or retiral (both expressions being used in the pursuer's pleadings) did not effect a dissolution of the firm, and that the firm continued to exist after his resignation from it. He averred that, after his resignation in July 1992, the firm continued to trade until it was dissolved in June 1994. Again in the absence of averment to the contrary, it was also to be inferred that the pursuer's position was that there was no specific agreement at the time of his resignation regulating the payment to which he should be entitled in respect of his interest in the firm. His entitlement was therefore to be determined by reference to the general law, including:

"the principle that a share of a partner is nothing more than his proportion of the partnership assets after they have been turned into money and applied in liquidation of the partnership debts".

(Lindlay and Banks on Partnership, seventeenth edition, paragraph 19-15; see also Bennett Miller on Partnership, second edition, page 199, quoting a similar formulation from an earlier edition of Lindlay and Banks). In the context of a resignation without dissolution, the retiring partner's entitlement was accurately set out by Goff J (as he then was) in Sobell v Boston [1975] 1 WLR 1587 at 1598D-E:

"In my judgment, what he is entitled to is the value of his share at the date of his retirement, including, of course, the then goodwill, the ascertainment of which must at all events normally be a matter of inquiry, accounting and valuation, not sale. Once that conclusion is reached then sections 42 and 43 of the Partnership Act 1890 do apply, and whatever is due to the plaintiff, whether under section 42 or on the general account, is a debt due to him from the continuing partners. Accordingly he is merely an unsecured creditor...".

7. The way in which the pursuer set out his claim, Mr Francis submitted, did not attempt to approach the matter in that way. Instead, it "cherry picked" certain assets of the firm, and the balances at credit or debit of the pursuer's accounts in the books of the firm, but plainly failed to take full account of all the assets and all the liabilities of the firm. For example no account was taken of the VAT that must have been owed by the firm at the date of resignation. In effect, the pursuer had chosen the wrong remedy. It would have been open to him to raise an action of count reckoning and payment. If he had done that, there could have been no dispute over liability to account. In such an action, once liability to account was admitted or established, it would have been for the defenders to prepare accounts, and the pursuer would have been able to lodge objections to them. The dispute between the parties would have been focused in that way. In the event, however, the pursuer had chosen to sue for a specific sum. It was not incompetent for him to do so, but if he chose to follow that course it was for him to present his claim on the proper legal basis, and to make sufficiently specific averments quantifying his claim. The pursuer had failed to do these things.
8. Mr Ross for the second defender adopted Mr Francis' submissions, and added further observations on the lack of specification of the computation of the component elements in the pursuer's claim. He concentrated in particular on the claims in respect of work in progress and the value of the firm name. No explanation was offered by the pursuer of the factual basis for the bare assertions of value. Particularly in relation to the claim in respect of the value of the firm name, which might be regarded as a species of goodwill, a number of approaches to valuation might be adopted (cf. Lindlay and Banks at paragraphs 10-175 to 10-179), and no fair notice was given of the basis for which the pursuer contended. Moreover, there was no explanation in the pleadings of why only those assets mentioned were brought into account. Finally, the pursuer sued for a precise sum on the basis of four amounts, each of which was, in averment, qualified by the word "about" or "thereabouts". That could not be sound.
9. Mr Creally for the third defenders adopted the submissions made by Mr Francis and Mr Ross, but did not add to them.

The Pursuer's Submissions

10. Mr MacNeill for the pursuer submitted that a proof before answer should be allowed in the principal action. His response to the criticisms of the pursuer's pleadings was a short one. He submitted that the averments which the pursuer had made amounted to an offer to prove that the value of his interest in the firm at the date of his resignation was the aggregate of one third of the value of the work in progress, plus one third of the value of the firm name, plus the balance at credit of his tax reserve account with the firm, less the debit balance on his current account with the firm. To ask for more specification of the manner in which the valuation of the work in progress and the firm name was carried out would be to demand the pleading of evidence.

Discussion

11. I approach the pursuer's averments on the basis that, in the absence of averments to the contrary, (1) the partnership was a partnership at will, and (2) there was no specific agreement as to the pursuer's entitlement on resignation. In that situation, the pursuer's entitlement is in my opinion to payment of a sum equal to the value of his interest in the firm at the date of resignation (Sobell v Boston per Goff J at 1591D). That in my view inevitably involves a valuation of all the assets of the firm and all its liabilities at that date, and the calculation of the net value of the firm, so as to reach the value of the pursuer's one third share.
12. It was open to the pursuer to have raised an action of count reckoning and payment. If he had done that, and liability to account had been admitted or established, it would have been for the defenders to produce accounts. The pursuer, however, has chosen not to raise an action of count reckoning and payment. Instead he has sued for payment of a specific sum. By choosing to proceed in that way, the pursuer has, in my view, assumed the burden of making relevant averments addressing the proper measure of his entitlement, and sufficiently specific averments giving fair notice to the defenders of the way in which he contends the valuation of assets should be undertaken.
13. In my view the pursuer's pleadings do not measure up to the necessary standard in either of those respects. They do not, in my opinion, address the proper approach to the pursuer's entitlement by bringing into the calculation the value of all of the firm's assets and liabilities at the relevant date. Instead they simply "cherry pick" (to adopt Mr Francis's phrase) certain assets, and take no account of liabilities which must have existed. Nor, in my view, are the averments which are made about assets of sufficient specification. It will not do, in my view, simply to say: "the value of the firm's work in progress was about £180,000" or "[the] value of the right to use [the] name of the firm was about £23,000". Some indication of the approach to valuation is necessary for the purpose of fair notice. To desiderate such detail is not, in my view, to require the pleading of evidence.
14. To allow the pursuer's pleadings as they stand to be admitted to probation would, in effect, turn this into an action of count reckoning and payment without a conclusion for an accounting. It would force the defenders to put forward their computation of the pursuer's entitlement without having had notice of how he computes it. Although it is clear that in principle the pursuer has a claim for the value of his interest in the firm at the date of retiral, whatever that may truly be, it was his choice to proceed as he has done and to assume responsibility for setting out his claim specifically. He has chosen not to take advantage of the less demanding approach which would have been adopted in an action of count reckoning and payment. It is now almost ten years since the pursuer retired, and almost five years since the action was raised. The time has come, in my view, at which the pursuer's pleadings must be judged as they stand. The fact that no motion for leave to amend was made at the hearing on the procedure roll perhaps reflects a recognition that that is so. For the reasons which I have given I am of opinion that the pursuer's pleadings neither address the relevant measure of his entitlement, nor give fair notice of his approach to the valuation of those assets to which reference is made. In those circumstances I am of opinion that the action must be dismissed.

Result

15. I shall accordingly sustain the first plea-in-law for each defender and dismiss the principal action. In respect of the counterclaim, I shall allow a proof before answer.