Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 143
	OPINION (No. 2) OF LORD MALCOLM in the cause FINDLAY MacDONALD and PETER McLEAN Pursuers; against WILLIAM LIVINGSTONE and another Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: G MacColl, advocate, MacRoberts LLP

First Defender: Connal QC; Pinsent Masons LLP

4 September 2012

[1] The parties are the former partners of a firm of chartered accountants who, since its dissolution in February 2008, have been unable to agree dissolution accounts and a scheme of division. The pursuers seek various declarators with a view to completing the winding up of the business and the affairs of the now dissolved firm. The action was raised in 2010. In the course of 2011 the parties agreed to remit the whole matter to an expert to reach a decision on the accounts which, save in the case of manifest error, would be final and binding. For the reasons expressed in an earlier opinion (2012 CSOH 31) I refused an attempt by the first defender (who alone entered appearance) to challenge part of the expert's decision. (Subsequently I refused a motion for leave to reclaim.)

[2] The pursuers have now enrolled a motion asking the court to order the first defender to pay to the pursuers the sum of £49,323, to reflect the expert's decision that his capital account is in deficit to that extent. The pursuers seek interest thereon at 5% per annum from the date of dissolution. The motion also asks for decree in terms of the second conclusion of the summons, which relates to various orders required in order to facilitate the sale of the premises of the former firm. In the light of certain undertakings given on behalf of the first defender (now fulfilled), that part of the motion was dropped. Initially Mr MacColl said that, even after payment of the said sum, and depending upon the price ultimately obtained on the sale of the premises, the pursuers may seek further sums from the first defender, and wished to reserve their position on that matter. However, after taking further instructions, Mr MacColl indicated that, so far as the present proceedings are concerned (and under reservation of the position should any final interlocutor be reclaimed), the only outstanding matters are payment of the said sum plus interest and a motion on behalf of the pursuers for the expenses of the cause.

[3] For the first defender Mr Connal QC confirmed the undertakings and indicated that, at least so far as the proceedings at first instance are concerned, he wished to say nothing regarding the motion for payment of the sum of £49,323 to the pursuers. However he did address the court on the issue of interest on that sum, and in response to the motion for expenses. I shall deal first with the question of interest.

The submissions on interest

[4] Mr MacColl accepted that the expert was not asked to deal with interest. In the initial scheme of division put forward by the pursuers, interest was sought on the overdrawn balance at 5% per annum from the date of dissolution. Both parties approached the issue on the basis that interest would not be due unless and until the sum of £49,323 was wrongfully withheld by the first defender. Mr MacColl submitted that this occurred at the date of dissolution. He referred to Carmichael v Caledonian Railway Company (1870) 8M (HL) 119, 131 per Lord Westbury. Notwithstanding the terms of the motion, he suggested that the judicial rate of interest would be appropriate. Mr Connal pointed out that there is no specific financial claim in the conclusions of the summons. This was a partnership at will. There was no agreement as to the payment of interest on any account and deficit. After the dissolution, the pursuers carried on business from the former premises. In practical terms the issue was resolved by the decision of the expert, which was achieved thanks to the mutual agreement to remit the dispute to him. Mr Connal submitted that there should be no award of interest, there having been no wrongful withholding of the sum of £49,323.

Decision on interest

[5] Mr MacColl indicated that one possible date for the running of interest is the date of the raising of a judicial demand. In Gaelic Assignments Limited v Sharp 2001 SLT 914 Lord Hamilton held that a specific financial conclusion is not necessary for these purposes. In any event, in the original scheme of division lodged with the summons, the pursuers made it clear that their position is that monies are due by the first defender to the pursuers. In Elliot v Combustion Engineering Limited 1997 SC 127, after a careful consideration of the authorities, an Extra Division confirmed the general rule that interest runs on contractual debts from the date of a judicial demand. In my view this rule should apply in the present case. Thus, standing the rate specified in the motion and in the original scheme of division, I shall award interest on the sum of £49,323 from the date of citation at the rate of 5% per annum.

The submissions on expenses

[6] Mr MacColl moved that the pursuers should be entitled to the expenses of the cause. The proceedings were required because the first defender refused to participate in an orderly winding up of the firm's affairs. At one stage an interlocutor was pronounced forcing him to set out his position on the proposed scheme of division (interlocutor dated 15 February 2011). Given the outcome of the expert's determination, the balance of success lay with the pursuers. Much of the earlier part of the proceedings was taken up with the issue of goodwill, but, according to Mr MacColl, eventually the first defender accepted the pursuers' position on that issue. Before the proceedings were raised the pursuers suggested a mutual remit to an expert, but this was not accepted by the first defender until after the commencement of the proceedings. No tender was lodged.

[7] In opposing the motion Mr Connal stressed that the first defender had difficulty in obtaining information from the pursuers. They were carrying on the business with little distinction being drawn between the old and the new firm. The pursuers have sought varying amounts over the years, eventually claiming a sum of over £200,000. Much time was spent on matters which ultimately were not critical to the outcome. The pursuers refused to approach the case on a global figure basis, instead seeking to isolate and deal with specific issues. The expert decision involved mixed success, with both sides winning some points and losing others. Given the extra judicial method of resolution chosen by mutual agreement, it would be logical that each party should bear their own costs. It was not accepted that Mr Livingstone had changed his position on goodwill.

Decision on expenses

[8] In determining the question of expenses I have a broad discretion to make such order as seems just and appropriate. This is not the first litigation concerning what has clearly been a bitter and acrimonious partnership break up. In the first action serious allegations were made against the first defender. Throughout, the parties have been in dispute on various matters directly or indirectly related to the proper division of the firm's assets. In all the circumstances it is perhaps not surprising that the winding up did not proceed smoothly. Although both sides are still reluctant to lay their disagreements to one side, it is to their credit that, albeit belatedly, they did resolve to settle matters by a mutual remit to an expert. It is next to impossible now to apportion any culpability. A glance at the pleadings shows each side criticising and blaming the other.

[9] What is clear is that by letter of 4 August 2009 the pursuers' agents offered to have the matter resolved by a final and binding remit to an expert; an offer which was not accepted by the first defender. Rather than accept in principle that proposed method of resolution, the first defender's agents wrote to the effect that he wanted to be provided with draft terms of reference for his consideration. In my view it is understandable that the pursuers would wish some agreement in principle before embarking upon draft terms of reference. The subsequent correspondence indicates that the first defender continued to raise points of objection until the pursuers considered that there was no alternative to the raising of the current proceedings.

[10] In these circumstances I consider that the appropriate course is to award the pursuers the expenses of the action for the period from the date of its raising until the parties resolved to remit their dispute to an expert. Although the joint remit was executed in September 2011, it is clear that before then the case was moving in that direction. Having regard to the terms of the interlocutor and the minute of proceedings for 15 February 2011, and to subsequent correspondence recorded in the minute of proceedings, I consider it reasonable to award the pursuers their expenses up to and including the hearing on 15 February 2011. Thereafter, insofar as not already dealt with, both parties will bear their own costs. It is true that the expert did find that the first defender's account was in deficit, but both parties won on some issues and lost on others. Looking at the whole matter in the round, I consider that, given the pre-litigation correspondence, the first defender can reasonably be held to be responsible for the litigation up to the point when the parties decided to remit the matter to an expert.

[11] The overall result is that I shall grant the motion for payment of the sum of £49,323 by the first defender to the pursuers, with interest at 5 per cent per annum from the date of citation. Expenses will be dealt with as outlined earlier. No issue was raised as to how the said sum was to be apportioned between the two pursuers. It seems unlikely that this will cause a problem, but just in case I will reserve the right of parties to seek an additional order apportioning the sum between the two pursuers.