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Finlayson v. Turnbull & Ors [2003] ScotCS 82 (21 March 2003)

OUTER HOUSE, COURT OF SESSION

A2129/01

OPINION OF LORD EMSLIE

in the cause

ARCHIBALD FRASER FINLAYSON AND OTHERS

Pursuers;

against

ROBERT WHITE TURNBULL AND OTHERS

Defenders:

(Schedule 28)

________________

Pursuers: Haddow, Q.C.; DLA

Defenders: Stewart, Q.C., Di Emidio; Lindsays, W.S.

21 March 2003

The Background to the Litigation

The individual parties to these proceedings are all solicitors. Prior to 28 August 1992, they were collectively the partners of a firm known as A.F. Finlayson & Co which carried on business from various offices in Glasgow. As at that date the first, second and third pursuers were equity partners, and the fourth pursuer and each of the three defenders were salaried partners. The offices from which the defenders worked were situated in the Parkhead and Dennistoun areas. Much of the work done from these offices was criminal legal aid work, but some civil work was also undertaken. The partnership was constituted at will. On 28 August 1992, without any prior warning to the pursuers, the defenders resigned from the partnership and effectively abandoned the Parkhead and Dennistoun offices, taking with them certain members of staff and a total of between 1,000 and 1,500 client files. Almost immediately they commenced business on their own account through the medium of a new partnership known as Turnbull McCarron. As a result of these events, the partnership of A.F. Finlayson & Co (hereinafter referred to as "the former firm") was dissolved.

Shortly thereafter, the pursuers raised the present action against the defenders, concluding inter alia:

(1) for declarator that, in acting as they did, the defenders were in breach of fiduciary duties owed to the pursuers as their co-partners in the former firm;

...

(3) for count and reckoning for the defenders' intromissions with the estate of the former firm in respect of fees earned but not received by that firm prior to the date of its dissolution, and for payment by the defenders to the pursuers of the balance found due; and

(4) for payment of substantial damages in respect of the loss and damage sustained by the pursuers as a result of the defenders' breach of contract.

In May and June 1995, a proof before answer took place before Lord Milligan on the pursuers' claims for declarator and damages. By Interlocutor dated 1 March 1996 his Lordship pronounced decree of declarator as first concluded for, and awarded damages to the pursuers in the sum of £78,000 together with interest thereon from the date of citation. By Interlocutor dated 28 May 1996, Lord Milligan altered this interlocutor on the question of interest. No appeal against the composite effect of these interlocutors was taken.

On 9 May 1995, at the commencement of that earlier proof, Lord Milligan pronounced an interlocutor whereby, in respect of the pursuers' third conclusion, and of consent, he ordained the defenders to produce accounts within 4 weeks; allowed the pursuers to state any objections within 4 weeks thereafter; and allowed the defenders to lodge answer to the same within a further period of 4 weeks. By Interlocutor of 8 July 1998, following the lodging of the defenders' account No. 50/1 of Process, Lord Milligan appointed the pursuers to lodge a Note of Objections thereto within 8 weeks; allowed the defenders to lodge Answers thereto within a further 6 weeks; and allowed a period of adjustment thereafter. It was not, however, until 5 December 2000 that the Court finally closed the Record and allowed parties a proof before answer on their respective averments in the original Record and in the relative Note of Objections and Answers. This proof was assigned to take place on 16 October 2001 and the ensuing 7 days.

When the proof called before me on 16 October, it was immediately apparent that there was no prospect of its being completed within the 8 days assigned. The defenders' revised Account of Charge and Discharge comprised some 40 numbered principal and subsidiary entries, each of which bore to reflect multiple receipts, claims, retentions or entitlements arranged in different categories. The pursuers' Note of Objection addressed each of these composite entries, and in addition sought to identify 16 further categories of receipts, claims, retentions or entitlements for which the defenders had allegedly failed to account. This Note was supplemented by incorporation of 41 numbered Schedules running to a total of 69 sheets. Some of these Schedules bore to relate to only a small number of the client files which had been appropriated by the defenders in August 1992, while others bore to relate to several hundred. The defenders' Answers were similarly supplemented by incorporation of extensive numbered Schedules. It was clear from a cursory examination of these various documents that the parties' dispute was wide-ranging and concerned inter alia the detail of fee accounts and other documents contained within individual client files. Not surprisingly, the productions lodged by the parties for the purposes of this proof were extremely voluminous.

Schedule 14

In these circumstances, the parties moved me, of consent, to allow a proof restricted to only one of the disputed Schedules, namely Schedule 14 which related to legal aid fees due or claimable in respect of pre-dissolution work undertaken for some 17 named clients. In the exercise of my discretion under Rule of Court 36.1, I granted that motion and appointed a proof on Schedule 14 alone to proceed separately from, and in advance of, any proof on any other Schedule. My Opinion at the conclusion of that proof was issued on 14 November 2001, and relevant interlocutors were pronounced on that date and on 21 November 2001.

Schedule 28: General

In the same interlocutor of 21 November 2001, a further restricted proof was, of consent, allowed on Schedule 28. In its final embodiment as No.92/1 of Process, that Schedule concerned legal aid and private fees and outlays alleged by the pursuers to be due or claimable in respect of work undertaken on more than 200 client files in the period prior to the dissolution of the former firm. The common feature of these files was that they were not reflected in any part of the accounting hitherto produced by the defenders. On 12 June 2002 and the ten succeeding days, I heard evidence bearing on these matters. Further evidence was led on 4 February 2003, and thereafter I heard parties' submissions over the remainder of that week. Put shortly, the pursuers sought to prove (i) that as at the date of dissolution, the files in question were live in the former firm's Dennistoun office, and were among those removed by the defenders at that time; and (ii) that the defenders were accordingly bound to account for the pre-dissolution value attributable to such files irrespective of the level of any recovery achieved by the defenders themselves. For their part, the defenders maintained that all aspects of the pursuers' claim under Schedule 28 were ill-founded, and that in any event the claim was significantly overstated and should not include VAT.

Fortunately, a measure of agreement was achieved between the parties which materially reduced the scope of the dispute. In particular, the defenders conceded that more than 60 files, which came to be known as the "produced files", had in fact been in their possession following the dissolution, and accordingly required to be brought into the accounting. These files were listed in the defenders' production No.96 of Process. Subject to certain exceptions, the pursuers dropped their claim in respect of many "Caroline Thomson" files, discussed later in this Opinion, and also in respect of certain files for which they had already received payment. Moreover, agreed values, from £250 down to zero, were placed on many other files as the proof progressed. And at the conclusion of the proof, the parties agreed that the defenders' liability with reference to fees and outlays on the "produced files" should be stated at the aggregate sum of £4,000 exclusive of any VAT to which the pursuers might be held entitled.

The remaining dispute between the parties concerned the "non-produced files", that is, files which could not be traced and which the defenders denied having taken at the time of the dissolution. Those files were listed in the defenders' production No.97 of Process, under five broad groupings as follows:

I Miscellaneous cases which might have been funded under the Advice & Assistance Scheme administered by the Scottish Legal Aid Board;

II Apparent Advice & Assistance ("AA") cases;

III Apparent civil legal aid cases;

IV Apparent criminal legal aid cases; and

V Cases whose fee classification, whether legal aid or private, could not readily be ascertained.

During the proof, much of the evidence was led by reference to these broad groupings, and the same was true of the parties' final submissions. I therefore propose to follow the same approach in framing this Opinion, although for convenience the groupings will be treated in a different order. By reference to the authority of Smith v Barclay 1962 S.C. 1, it was accepted that the onus lay on the pursuers to prove that "non-produced" files were live, and taken by the defenders, in August 1992. Thereafter, as pointed out by the Lord Justice Clerk in that case, every reasonable presumption should operate in the pursuers' favour.

Before discussing particular files, or particular groupings of files, it will be convenient if I record my findings and impressions regarding the general evidence led at the proof as to (i) what took place in the Dennistoun office at the date of dissolution; and (ii) the sources from which the status of files at that time might be inferred. In the first place, I accept the evidence led on the pursuers' behalf to the effect that essentially the whole contents of the Dennistoun filing cabinets were cleared out by the defenders when they left the former firm to set up on their own account at the end of August 1992. Both William Finlayson, the third pursuer, and his wife Mrs Joan Finlayson confirmed that, when they visited the premises on the following Monday, no files remained. I did not understand their evidence on this matter to be seriously challenged or contradicted, and indeed on Days 9 and 10 Kevin McCarron, the second defender, confirmed that, with the exception of files already rendered for payment, all live files in the filing cabinets and on the principal desks were removed. I therefore start from the premise that whatever files were in the relevant filing cabinets prior to 28 August 1992 were taken by the defenders at that time. Many hundreds of such files have been identified and physically retrieved, and now appear in this and other Schedules for the purposes of the present litigation. But the "non-produced files" in Schedule 28 are not available for examination, and the main issue between the parties was whether or not those files were proved to have been in existence, as live files, in the cabinets at the relevant date. Perhaps not surprisingly, there was no contemporaneous record of what the cabinets actually contained, so in seeking to make good their position on Schedule 28 the pursuers adduced evidence from a variety of (mainly documentary) sources which, it was said, demonstrated on the balance of probabilities that the files in question were live, and were taken by the defenders, at the time of the dissolution.

The principal source of evidence relied on by the pursuers in this respect was the former firm's computerised Legal Aid Register, maintained at the head office in Bath Street. For each individual account, this listed information under inter alia client name, office file number, nature of work, commencement date, and legal aid reference number. Printouts of the Register were available for 28 August 1992 (No.81/106 of Process) and for a later date, probably in 1997 (No.81/104 of Process), and it was the pursuers' contention that this Register went a long way towards demonstrating what files were extant at and after the dissolution date. As the third pursuer put it on Day 6, Schedule 28 was largely based on inferences to be drawn from entries in the Legal Aid Register. Both he and his wife accepted, however, that the Register was "not infallible" or "not 100% reliable", and in that context there was a considerable amount of evidence, principally from the defenders' witnesses, as to significant deficiencies in the administration and record-keeping of the Dennistoun office in the period prior to 28 August 1992. In addition, there was evidence from both parties' witnesses identifying errors, omissions and discrepancies in the Register with reference to particular files, and by comparison with other sources of information. By way of illustration, there were cases where no office file number, or no legal aid reference number, appeared on the Register opposite a client's name. There were legally aided clients whose files did not appear on the Register at all, or appeared in one printout but not the other. There were legal aid files, including many of those produced in this and other Schedules, which still appeared on the Register in August 1992, and may well also have been in the filing cabinets, when they were no longer live by that date. For example, the third pursuer gave evidence on Days 4-6 of a number of files in the Register where payment had already been received by the pursuers; on Day 11 the second defender gave evidence of a number of bad debt cases among the "produced files" still in dispute; and, of the 18 "produced files" whose value was agreed at zero during the course of the proof, 11 appeared in the Register.

This was all explicable on the basis that the inputting of data at Bath Street was inconsistently carried out by office juniors, but in addition it was revealing to note the disagreement between Mr and Mrs Finlayson as to the stage at which a case would be entered in the Register. Mr Finlayson began by asserting, with apparent conviction, that this step would only be taken when legal aid certificates were actually issued, but on being shown multiple entries without certificate numbers he altered his position to say that criminal and AA cases, but not civil, might be entered at the stage when the relevant application was made. Mrs Finlayson, on the other hand, maintained that only AA cases could be entered prior to a full certificate being received. The risk here was of course that cases, once entered on the Register, were liable to remain there even if the relevant application was subsequently refused. By contrast, entries delayed until full certificates were issued would give rise to the risk that the latter event might not lead to registration of a file that was already open in the office.

However, the most significant potential for errors and discrepancies in the Legal Aid Register arose, not at the initial entry stage, but at the stage where the pursuers' interest in a file came to an end, for example on payment of fees and outlays being sought or received, or on a file being transferred to other solicitors. Significantly, the problem at this stage did not relate to the Register alone. On the evidence before me, the former firm did not have any effective system in place in 1992 for ensuring the consistent treatment and/or recording of terminated files. If a Closed File Book was kept at the Dennistoun office, as Mr Finlayson believed, this was not available as a production at the proof. According to the second defender, the Closed File Book at Dennistoun was in fact discontinued several months before the dissolution date, and essentially no record was then kept of terminated files. Office juniors were supposed to remove closed files from the filing cabinets and place them in cupboards for storage and eventual disposal. However, this task was not performed consistently, and closed files would not infrequently remain in the filing cabinets long after they had ceased to be live. And whether removed to storage or left in the cabinets, there was no effective system for ensuring that closed files were appropriately removed from the Legal Aid Register. On Day 6, Mr Finlayson described efforts to try to clear the Register "every six months or so", and acknowledged that dead files might linger there for some time. Significantly, neither he nor his wife could speak to having conducted a search for relevant files within the storage cupboards at any time.

In summary, the former firm had no satisfactory system for keeping the Legal Aid Register fully accurate and up-to-date, either at the stage when new files were commenced, or at the stage when files were closed in consequence of payment or transfer. Steps were sometimes taken to note the rendering and payment of accounts on the Register, and in some cases (especially in the 1997 printout) the annotation "DELETE" might be added to an entry upon payment, leaving actual deletion to a later date. Mr Finlayson began by expressing his belief that such deletion would be automatically effected by the computer, but later agreed that examination of the printout disclosed a large number of cases where such automatic deletion had plainly not occurred. The eventual picture was thus one of fee payments triggering only preliminary moves towards the deletion of an entry. In these circumstances, I conclude that the Legal Aid Register was not a reliably accurate record of live files at any given date, and was on the contrary liable to contain misleading entries suggesting that a file had become live by attracting a grant of legal aid, or that a file remained live and uncompleted, when in fact the opposite was the case. Equally, the Register might omit any reference to files which were still live. In my view it is significant that of the 28 disputed files in this Schedule which were agreed during the proof at a zero valuation, more than half appeared on one or both of the printouts of the Register, and the same is true of more than 80% of the 86 files in No.92/1 of Process which the pursuers reduced to zero before the proof commenced. Against that background, I am not persuaded that I should hold any individual Dennistoun file to have been live at the date of dissolution by reason only of an unsupported entry in the Legal Aid Register. It is perhaps significant that the problem with "missing" files affecting the former firm's other office at Parkhead, where the administration was better and Jacqueline Johnston was employed as book-keeper, appears to have been much less serious.

The other main documentary sources of evidence relied on by the pursuers were (i) the Cash Room Printout of the former firm as at 28 August 1992, (ii) certain lists emanating from the pursuers' law accountants, Messrs Millers, into whose hands certain original and copy files were delivered following the commission ordered by the court on 30 December 1992, and (iii) the File Index Book kept for the Dennistoun office, No.34/5 of Process. Dealing with each of these in turn, the pursuers sought to infer from entries in the Cash Room Printout (No.81/108 of Process) that pre-dissolution outlays had been incurred on particular files but not yet recovered. As is evident from Productions 92/1 and 97, relatively few files fell into this category, and the issue between the parties in this context was whether such recorded outlays reliably showed that the files in question were live at the critical date. Much was made by the defenders of the absence, in almost all cases, of individual ledger cards which would have given greater detail as to the outlays concerned. In my view, however, the real question to be resolved is not what the outlays related to, but whether the relevant files were live as at 28 August 1992. Where recorded outlays were recently incurred, the inference that a file was still live might reasonably be open, but even there (as in the case of several of the files dropped by the pursuers during the proof) the existence of recorded outlays might be consistent with accounts having already been rendered or paid, or with the payment of outlays being irrecoverable or overlooked.

Turning to the Miller lists (No.81/2 of Process), the evidence was not altogether clear regarding their true significance. The second defender spoke of files being sent to the pursuers' Glasgow agents Messrs Bird Semple following the commission, but he was unwilling to comment on Millers' role. The third pursuer described in general terms how Millers had produced lists of original and copy files in their possession, and in cross-examination gave evidence, which was not subsequently challenged, to the effect that all copy files were at some stage returned to the defenders in a van. However, there was room for uncertainty regarding what materials must have been in Millers' hands relative to files listed under the heading "Original Files Required". More importantly, it was not entirely clear what work (if any) Millers did, or were intended to do, on the files which they received, nor was it entirely clear what happened to the files after they had been in Millers' possession. No representative of Millers was adduced as a witness; there was little or no correspondence to be examined in connection with their involvement; and in the end of the day I was essentially left with the unvouched evidence of the third pursuer and the second defender on these matters.

In the absence of reliable documentary or other support, I consider that the evidence of these witnesses on contentious issues must be approached with caution. So far as the third pursuer is concerned. I do not doubt for a moment that he was doing his best to give truthful evidence. However, apparent feelings of bitterness towards the defenders came through strongly on several occasions while he was in the witness box, and I formed the impression that this may have subconsciously coloured his recollection and attitude on various matters. For example, he was in my view unnecessarily reluctant to concede the pursuers' claims on certain files where there was virtually no supporting evidence available, and where it really could not be said with any confidence whether such files were live and/or taken by the defenders on 28 August 1992, or what they might now be worth. At times he seemed inclined to clutch at straws in seeking to bring home liability against the defenders, and in this context I formed the impression that his evidence as to the quality and reliability of the administration and record-keeping in the Dennistoun office prior to the dissolution date was over-optimistic and, in various respects, at odds with the evidence given by Mrs Finlayson, by Jacqueline Johnston and by the second defender.

In my view, the second defender's unvouched evidence on material issues must also be treated with caution. Again, I do not doubt that he was doing his best to give truthful evidence, but I gained the impression that he resented being forced to meet the pursuers' claims for accounting at this late stage, and was therefore subconsciously inclined to overemphasise certain aspects of the defenders' position, notably the extent of Caroline Thomson's improper involvement in AA cases in the period prior to 28 August 1992. In that context, for example, his claim that no one, including himself, could be confident of distinguishing his evolved signature from that of Caroline Thomson appeared somewhat surprising, and the apparent vagueness of his recollection regarding a box of "Caroline Thomson" files which had been kept separate from the other files and records in the defenders' possession also tended to undermine his reliability as a witness. More generally, I was struck by his repeated insistence that none of the disputed files under Schedule 28 had been removed in August 1992, or thereafter discarded, notwithstanding Millers' recorded possession of a number of such files after the commission. Obviously Millers' possession of listed files would be of no assistance in identifying what other files were removed by the defenders at the same time, nor could it conclusively prove the live status of any of the files so removed. Nonetheless, in my view, the lists constitute valuable independent confirmation of the defenders having intromitted with certain files, and it seems to me that where they coincide with relevant entries in the former firm's Legal Aid Register and/or Cash Room Printout, it is open to the court to conclude that live files were indeed removed by the defenders on 28 August 1992.

The pursuers also relied on Production 34/5, the File Index Book maintained by the former firm for the Dennistoun office, as support for the information in the Legal Aid Register regarding client names, file types, commencement dates and office file numbers. It has to be noted, however, that this production covered only the limited period from January 1991 to July 1992, and therefore contained no reference to many of the disputed files within Schedule 28. Moreover, on the evidence before me, there were some client files which did not appear in Production 34/5 at all, and in addition (as shown by Mrs Finlayson's hand-written exercise No.81/103 of Process), it was not altogether unusual for the same file number to be inadvertently allocated to different clients and cases at the same time.

As regards the other witnesses led at the proof, they were, in the main, speaking formally to the presence or absence of documentary records of files at different dates, and I had no reason to doubt their credibility in that connection. Mrs Finlayson confirmed the basis on which she had compiled the pursuers' Production 92/1, and gave evidence as to the sources of certain entries and the reasons why particular claims were or were not being maintained. She also spoke, in general terms, to the figures claimed as fees on some of the disputed files, to the administration and recording systems within the Dennistoun office in 1992, and to certain changes in the defenders' position on disputed files over the years. Jacqueline Johnston, the first witness led for the defenders, also gave evidence of the administration and recording systems within the Dennistoun office in 1992. Beyond that, she spoke to having carried out extensive but unsuccessful searches within the defenders' offices in and after 1995 for files of the former firm, and to having received a separate box of "Caroline Thomson" files from the second defender at about that time. She also confirmed having received information on disputed files from the Scottish Legal Aid Board, and described how accounts were rendered where files included pre-dissolution work in which the pursuers had an interest.

Philip Shearer, a senior representative of the Scottish Legal Aid Board, confirmed the Board's response to the defenders' enquiries regarding files in Schedule 28, indicating that the search undertaken at that stage was focused on whether accounts had been rendered or paid, rather than on whether certificates had been issued or applied for in the first place. He also indicated that at the conclusion of the Board's search, he had sent the defenders copies of the Board's microfiche records of all relevant accounts and correspondence. It is true that these documents were not produced by the defenders, but at the same time the pursuers took no steps to obtain and produce the relevant evidence either. Finally, Gordon Johnstone, C.A., gave theoretical evidence, based on certain assumptions, as to the calculation of work-in-progress within the Dennistoun office as at the dissolution date. The principal assumptions, if I understood his evidence correctly, were that the average life of a Dennistoun file was five months (as the second defender claimed to have calculated), and that the fee value of a file would accrue at a steady rate during its life (a matter on which no evidence was led). Mr Johnstone's calculations brought out figures for work-in-progress, and for the average fee value per file, which seemed low by comparison with other relevant indicators.