Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

 

B1554/09

JUDGEMENT   of   SHERIFF WILLIAM HOLLIGAN   in the petition of   SAFRAZ MAHMOOD (also known as Safraz Mahmood Rathore), residing at 32 Dreghorn Link, Edinburgh   Petitioner   For the appointment of a judicial factor on the estates of the dissolved firm of Khan, Vohra, Uddin and Mahmood

 

 

Act: Walker, Advocate, Gillespie Macandrew

Alt: Thompson, Advocate, Brodies LLP

 

30^th September 2010

The sheriff, having resumed consideration of the cause, repels the petitioner's third plea in law; quoad ultra allows parties a proof of their respective averments on dates to be afterwards fixed; Reserves all questions of expenses and assigns 9.30 am on 25^th October 2010 within the Sheriff Court, 27 Chambers Street, Edinburgh as a diet therefor.

 

Introduction

 

[1] In this action the petitioner craves the court to appoint a judicial factor on the estates of what he avers is the now dissolved firm of Khan, Vhora, Uddin and Mahmood (which I will describe as "the partnership"). The petition was served upon the first three named members of the alleged partnership and I will refer to them as the respondents.

 

[2] Put in general terms, the dispute between the parties concerns certain interests they have in premises at 79 Buccleuch Street, Edinburgh ("the property"). Certain factual matters are not in dispute. Title to the property is held by the parties to the current action in the following proportions: 12.5% to the petitioner; 37.5% to the first respondent; 25% to the second respondent; 25% to the third respondent ("the title"). The purchase price therefor was £100,000. The monies, or part thereof, were lent to the parties pursuant to a loan agreement entered into between them and the Clydesdale Bank ("the loan agreement"). The loan agreement was entered into by the parties as individuals. The parties granted a standard security over the property in favour of the Clydesdale Bank in security for their borrowings. The loan from the Clydesdale Bank has now been paid off. The parties granted a lease of the property to a third party which lease is dated 11^th and 13^th December 2000 and registered in the Books of Council and Session on 24^th January 2001 ("the lease"). The property is operated as a restaurant known as the "Kings Balti" ("the restaurant"). Parties were agreed that reference could be made to certain of the productions. There was a bank account headed "the Partners Kings Balti" and copies of various statements were produced. Also produced were certain accounts described as "Property Accounts" for several years together with entries therein. Reference was also made to certain correspondence exchanged between the then solicitors for the parties in 2005, 2007 and 2008 respectively. It is a matter of agreement that there is no contract of partnership or other single document evidencing a partnership amongst the parties. The pursuer avers that the partnership was constituted orally as a result of certain discussions said to have taken place involving the parties or their agents. No issue as to agency is taken. The petitioner avers that on 21^st November 2007 he served notice of his intention to dissolve the firm with effect from 22^nd November 2007. It is not disputed that, whatever the correct legal analysis of the relationship between the parties is, that relationship has broken down. Put shortly, the pursuer avers there was a partnership amongst the parties: the respondents' position is that the true relationship between the parties is that of owners in common of heritable property.

 

 

Submissions for the respondent

 

[3] For the respondents, Mr Thompson invited me to sustain his first plea in law and dismiss the action or, in the alternative, to exclude certain averments from probation. Mr Thompson began by taking me through the pleadings in some detail. His submission comprised five elements.

 

[4] His first submission was that, as there is a bona fide dispute as to whether there was a partnership between the parties, that ought not to be determined in the present proceedings and the action should be dismissed. In support of his proposition Mr Thompson referred to the cases of Wallace v Whitelaw (1900) 2F 675 and McNab v McNab 1912 SC 421. I shall refer to both these authorities in some detail later. In short, both cases involved petitions brought in the Court of Session for the appointment of a judicial factor. Both were dismissed. In Mr Thompson's submission the rationale for the decisions was that contentious matters should be dealt with as ordinary actions. That rationale remains good law. It is not a case of historic rules of procedure which are no longer relevant. In the present case the petitioner ought to have raised an action seeking a declarator that the partnership existed. Drawing an analogy with a winding up petition, if the petition succeeded in the present case, the respondents would find out that there was a partnership at the same time that a judicial factor is appointed. It would not be open to the respondents to give an accounting pursuant to section 39 of the Partnership Act 1890 ("the 1890 Act"). Where they dispute the existence of the partnership itself there was no obligation to give an accounting. The issue is one of relevancy. The appointment of a judicial factor is an equitable remedy of last resort. If it were thought that the decisions in Wallace and McNab were purely historical one would not expect to see them referred to in modern texts. Mr Thompson referred to Miller, Partnership( 2^nd edition) at page 485 and the Stair Memorial Encyclopaedia, Partnership, volume 16 at paragraph 1093. The reference in the texts to these authorities is sufficient answer to the proposition that both cases concern peculiarities of Outer House procedure.

 

[5] In support of the second chapter of his argument Mr Thompson made reference to sections 1 and 2 of the 1890 Act. If all the petitioner offers to prove is an agreement to own heritage and share rental income then, as sections 1 and 2 make clear, that would not of itself create a partnership. Mr Thompson then referred to page 60 of Miller. When one looks at the averments of the petitioner one does not see the "extra" factor which would change what is ownership of property in common into co-ownership in partnership. That is particularly the case where, as here, the money itself was borrowed by the parties as individuals. It is not averred that the money was borrowed by the partnership. Any documents which do make reference to the word "partnership" and "capital" are not conclusive of the issue (pages 52 and 53 of Miller). An express declaration by the parties that they are partners, although obviously a matter deserving considerable weight in deciding the question, will not be given effect to if the other terms on which the parties have agreed are not consistent with the subsistence of the legal relationship of partnership. It is not sufficient to create a partnership that property be owned in common and rental income shared. Something more is needed and in this case the petition does not disclose enough. If, according to Miller, the parties' declaration that there is a partnership is not, on its own, enough, then that is even more to the point here where there is no written agreement.

 

[6] Mr Thompson then referred to the title. The parties are allocated certain percentage shares in their favour and their "executors and assignees". The petition initially avers that the partnership purchased the property. There is no challenge taken to the terms of the title. One might therefore expect the title to record the parties holding the property in their capacity as partners and as trustees. That is not the case and no explanation is given as to why that is the position. Mr Thompson accepted that in itself might not be determinative and that there could be averments that the true situation was otherwise but there is no attempt to do so in the petition. It is averred by the petitioner that "the firm" let the property to a tenant. When one looks at the lease there is no mention of the firm or a partnership. He accepted there are other documents which do make mention of a partnership but the two formal documents (the title and the lease) say nothing about the partnership. The loan agreement was entered into between the bank and the parties as individuals and not as partners nor is the partnership itself a party to the loan agreement. The petitioner avers that by "necessary implication" the funds deriving from the loan are funds of the firm. The question arises as to why there is such necessary implication. Indeed if it had been agreed all along that the loan agreement was a liability of the partnership it would not have been necessary to have such an implication. The pursuer avers that the property is deemed to have been bought on account of the firm and reference is made to section 21 of the 1890 Act. Given that the money was originally lent to the parties as individuals, ownership thereof must have passed from the individuals to the firm. If so, by what means does the implication arise and what is the basis of the necessary implication? If indeed it was the position that the loan funds were partnership money it is all the more surprising that the title is in the name of the individuals and not as partners and trustees of the firm. The averments are not a relevant application of section 21 of the 1890 Act. Mr Thompson then made reference to page 401 of Miller. The general rule is that any title and interest to heritable estate which belongs to the partnership devolves in trust for the persons beneficially interested in the land. In the present case the share of an individual partner devolves to his or her executor and not as one might expect to other partners. There is therefore no relevant averment that the property is partnership property. The reference to "necessary implication" is used as a way to fill a gap in the petitioner's case. As the sole asset of the alleged partnership is the property it would follow that the action should be dismissed.

 

[7] In relation to his fourth submission, if parties do own property in common there is no need to have resort to the appointment of a judicial factor. The petitioner ought to raise an action of division and sale. Reference was made to Upper Crathes Fishings Ltd v Bailey's Executors 1991 SC 30. There is no suggestion in the petition that the petitioner has lost the right to a division and sale. Reference was then made to Varney (Scotland) Ltd v Lanark Town Council 1974 SC 245 and Gloag and Henderson, The Law of Scotland (12^th edition) paragraph 43.01. In short, if the petitioner has an absolute right to a division and sale he cannot have recourse to what is an equitable remedy, namely the appointment of a judicial factor.

 

[8] In relation to his fifth submission Mr Thompson referred to the petitioner's averments at the end of article 3 which make reference to protracted discussions between the parties. The petitioner avers that such discussions amounted to representations. Such averments are wholly inadequate to found any plea of personal bar. There were no averments about reliance on such representations. Personal bar is a shield not a sword.

 

[9] Finally, Mr Thompson submitted that so far as disposal at debate was concerned there were clear issues of relevancy which could be determined on the pleadings alone. It would be unfair to put the respondents to a defended proof. By reference to the cases of Nunn v Nunn 1997 SLT 182 at page 185E and Mitchell v Glasgow City Council 2009 SC(HL) 21 at paragraph [12] the matter could and should be disposed of at debate.

 

Submissions for the petitioner

 

[10] Mr Walker began his submission by reference to a number of authorities on the general issue of specification and relevancy (McDonald v Glasgow Western Hospitals 1952 SC 453 at 465; McMenamy v James Dougal and Sons 1960 SLT (Notes) 84; Avery v Hew Park School for Boys 1949 SLT (Notes) 6 at page 7; McPhail Sheriff Court Practice (3^rd edition) paragraphs 9.29 and 9.33). In short, the purpose of pleadings is to give fair notice to the other party of the case to be advanced and the whole record requires to be looked at to see if the requirement of fair notice is satisfied. Before a court will dismiss an action for lack of fair notice it is up to the other party to show he cannot prepare his case properly. An action will not be dismissed as irrelevant unless it must necessarily fail, even if all the pursuer's averments are proved.

 

[11] Responding to Mr Thompson's submissions in the order in which they were presented, Mr Walker began by reference to the issue raised by the cases of McNab and Wallace. In Mr Walker's submission that particular case law is no longer relevant. Modern practice regularly allows petition procedure to be utilised where there are fundamental factual disputes. There can even be a proof where there is a contentious winding up. Mr Walker referred in detail to the opinions in both cases and also to the Distribution of Business (Scotland) Act 1857 which, he submitted, was one of the principal issues in both cases. In relation to the modern texts referred to, all that the passage in Miller does is to report McNab without giving any analysis of the decision itself. The same can be said in relation to the passage in Stair. The only rule one can take from McNab is that if there is an inexpediency then it may not be appropriate to proceed with a petition. If the respondents are right then the current petition would require to be sisted in order to allow an ordinary action seeking a declarator to be commenced. The inquiry would be no different from that in the petition and all that would happen is that, following the outcome of such proceedings, the current action would require to be reactivated. That would just be a duplication. There would be nothing to prevent the court allowing a preliminary proof on the existence of a partnership. There was no inexpediency in the present case. The court can always control its own procedure. By way of an analogy, the court will sometimes make a declarator as to the existence of a contract and then, in the same action, make an award of damages. Reference was then made to certain dicta in Steven v Broady 1928 SC 351 at 360 in relation to the general purpose of procedure. There was accordingly no absolute rule of procedure which must lead to dismissal of the petition.

 

[12] In relation to Mr Thompson's second argument, whether a partnership exists and whether property is a partnership asset, the issue is fact sensitive. Mr Walker referred to pages 44, 46 and 49 of Miller. The wording of section 2 of the 1890 Act suggests that these rules are not conclusive ("have regard to"). The court needs to look for other indicators as to the existence of a partnership. The evidence of the partners' themselves that they are in partnership is admissible. That would be one of the indicators, along with the statutory rules, which help in relation to determining whether there is a partnership (pages 52 and 53 of Miller). In this case it was averred there was an express oral agreement to form a partnership, to take a loan and to buy property which was a partnership asset. All of that was done. The agreement is the basis of the partnership. There were partnership accounts which included the value of the property which was described as a partnership asset and the individual sums paid for the property by the partners were shown in their capital accounts. The partnership also held a bank account to administer the income and the outgoings relating to the property. So much was not really in dispute. Mr Walker then made reference to entries in what was described as the partnership bank account and the Property Accounts from 1995 to 2000. These accounts had been signed by each of the partners. This was not a "one off" event but comprised five years of partnership accounts. These were very strong indicators. Reference was then made to certain correspondence from agents then acting for the parties in which there were clear references to the existence of the partnership. It was a reasonable inference that the agents wrote the letters on instructions of their clients. The statements of the parties may be used as part of the overall circumstances. Mr Walker then made reference to sections 1 and 2 of the 1890 Act. By reference to rule 2 he submitted that the petitioner was pleading a share in profits and not gross returns. The rules do not stand on their own. In this case common ownership is not the only indicator relied upon to establish the existence of the partnership. Mr Walker then made reference to section 20 of the 1890 Act. Section 20(2) covers a situation in which, as here, title to the property may be held in a capacity other than that of a partner. Section 20(2) provides that the property may yet truly be partnership property. Section 20 covers a situation where property is "brought in" to the partnership. It does not matter in what capacity the property is held. Returning to the rules in section 2, they do not decide anything unless nothing else is relied upon. Put another way what some of the rules in section 2 provide is what is not enough, on its own, to constitute a partnership. Pages 59-63 of Miller supported his position as to the existence of additional indicators relevant so as to establish the existence of a partnership. As I understood him, Mr Walker submitted that section 20 was important having regard to the intention of the parties (see pages 391-2 of Miller). By reference to section 21, the money used was given by the partners as capital and the money became the property of the firm. Section 20 also extends to acquisitions on account of the firm for the purposes and in the course of the partnership business. In the present case the property was acquired in the course of the partnership. Page 393 of Miller makes clear that the existence of the feudal title can be disregarded where there is evidence to the contrary. It was therefore impossible to say that the court would not conclude there was a partnership and it was also wrong to say that the pleadings only aver joint ownership of property. There was more than just the title and the lease.

 

[13] In relation to Mr Thompson's third submission it was a matter of fact that, not withstanding the terms of the title, the parties had agreed to treat it as a partnership asset. (Reference was again made to page 393 of Miller). Mr Walker accepted that the loan agreement was not in the name of the partners but it was not of great importance, particularly where the accounts showed that the loan monies were injected as capital. Taken as a whole the partners had borrowed money in their own name and, in furtherance of the partnership, had injected money into the firm. The position between the individual parties and the lender was irrelevant. The issue was the relationship amongst the parties themselves.

 

[14] In relation to Mr Thompson's fourth submission concerning the raising of an action of division and sale, it was not correct to say that, on the pleadings, the petitioner's only interest was in the property. He makes specific averments that he seeks a share of profits. There are also allegations as to intromissions by the respondents with the profits of the partnership. He also wants to evacuate the tenant's right of pre-emption. Reference was then made to the case of Carabine v Carabine 1949 SC 521. That was a case in which the only asset of the partnership was an item of property. The remedy of a court appointed judicial factor was appropriate when the parties themselves cannot deal with the winding up of the partnership. Initially, Mr Walker submitted that the normal method of winding up a partnership was for the court to appoint a judicial factor but I am not certain that he adhered to that submission in quite such stark terms. In relation to personal bar, Mr Walker made reference to McBryde, Contract (3^rd edition) at paragraph 25.08. Here the respondents have represented on numerous occasions, both in the accounts and by the letters from their solicitors, that there is a partnership. They are therefore barred from denying its existence. After some debate Mr Walker moved, without opposition, to amend his third plea in law concerning personal bar to one in which he sought decree de plano.

 

[15] In relation to Mr Thompson's analogy of a winding up order, Mr Walker submitted this was a poor analogy. One should not use a winding up petition where there is a genuine dispute as to the existence of a debt. That was different from the current petition. In the present case neither party says that there is an existing partnership. One says that there was no partnership and the other says that it is dissolved. It is not unusual to have disputes in winding up petitions as to whether there is insolvency. The existence of whether there is insolvency is different from a genuine dispute over a debt. There may be cases in which a party seeks a declarator as to the existence of a contract and at the same time a crave for its implement. There is no suggestion that there is any requirement for a separate action there. In the case of Carabine the court continued the petition for a number of weeks to see if the parties could resolve their differences. Procedure could be flexible.

 

[16] In relation to the petitioner's note of argument, Mr Walker submitted that the defender's averments from after "quoad ultra denied" to the end of answer five ought not to be remitted to probation. What the respondents seek to do is challenge the motivation of the appointment of a judicial factor. What the petitioner may think is of no moment. If there is a partnership then the appointment of a judicial factor must follow. On the authority of Carabine if the parties cannot agree between themselves then there ought to be the appointment of a judicial factor. Even if there is a discretion as to the appointment of a judicial factor the conduct of the petitioner was not relevant to any question of expediency or necessity. In the present case there is deadlock and it is therefore necessary and expedient that a judicial factor be appointed. The averments in answer five to which reference has been made could never be relevant. In summary, Mr Walker submitted that I should allow a proof before answer but if it was felt that there should be a divided proof of some sort then the matter could be put out by order.

 

Reply by the respondent

 

[17] Mr Thompson did not oppose Mr Walker's motion to amend his third plea in law. In Mr Thompson's submission it made no difference to his submission as to the irrelevancy of the petitioner's averments in relation to personal bar. Mr Thompson took no issue with the authorities relating to specification but his main argument was directed towards relevancy. Mr Thompson disputed Mr Walker's submission that disputes as to the solvency of a company in winding up petitions were regularly contested. If there was a genuine dispute then it could not be resolved summarily by petition procedure. One would not expect a proof in a winding up petition. The very suggestion of the need for evidence suggests the existence of a bona fide dispute. (The exception is a just and equitable winding up.) The analogy of a winding up petition is appropriate. In terms of the insolvency legislation where the debt is not paid the crucial facts in such a winding up petition are that a continuing failure to pay gives rise to an inference that the company is unable to pay its debts. If there is a bona fide dispute as to the debt then the de quo for the inability to pay debts is not satisfied. It is not that the company cannot pay its debts, it is that the debt is not due. There is no inference as to inability to pay. So far as the appointment of a judicial factor is concerned it cannot be the normal course to appoint a judicial factor. In the present case the argument is that there has been a dissolution of the partnership and that the respondents are wrongfully refusing to give the petitioner the accounting to which he is entitled. They are not obliged to give him such an accounting because there is no partnership. For the appointment of a judicial factor there needs to be a partnership in existence first, followed by a wrongful withholding of an accounting. One cannot have a proof where there is a dispute over the existence of the partnership unless there is a patent lack of substance in such an argument. In Mr Thompson's submission the test should be similar to that as in a winding up namely the existence of a bona fide dispute. The older cases were a fortiori of the current case. The matter becomes an issue of relevancy because, as a matter of law, the petition cannot be used on these disputed issues of fact. Mr Thompson accepted that there would be no difference in the nature of any inquiry by way of a declarator as opposed to the current petition. Put another way, the petition should be dismissed because there was a bona fide and substantial dispute as to whether the partnership existed and it was not appropriate that it should be determined in a petition seeking the appointment of a judicial factor. Secondly, even if a proof were allowed, there would still be an argument by the respondents that a judicial factor should not be appointed. The alleged failure to give an accounting should not automatically give rise to the appointment of a judicial factor. In relation to Miller and Stair, it was not necessary for the textbooks to give any explanation. All they did was to state what the law is. As to whether the existence of a partnership is a question of fact, the case should only go to inquiry if the petitioner's averments are relevant. The rules in section 2 help to determine the issue. How the parties describe themselves is not determinative. When one analyses what the petitioner offers to prove it only amounts to ownership of property in common and an agreement to let the property out. Just because the parties call themselves partners does not make the petitioner's case relevant. The correspondence is not determinative. When the parties use the word "accounts" all one has is the use of words. It must refer to an agreement and the agreement was not a partnership. In relation to the ownership of the heritable property, the petitioner's pleaded case places reliance on section 21. In other words the property was bought using money belonging to the partnership. However, there are no averments as to how, when and where the loan to the individuals became the property of the partnership. All that is said is that there is a necessary implication. The petitioner's pleaded case says that the partnership intended to buy the heritable property. As a matter of fact the partnership did not. The individuals did. Mr Thompson adhered to his original submissions concerning the purchase of the property and the loan account. So far as Carabine was concerned Mr Thompson submitted that Lord Mackay was in the minority. The opinions of the Lord Justice Clerk and Lord Jamieson showed that the test for the appointment of a judicial factor is whether such an appointment was necessary and expedient.

 

[18] In relation to the petitioner's argument as to the averments at the end of answer five it is the petitioner who founds upon the conduct of the respondents in order to secure the appointment of judicial factor. The respondents must, in fairness, be able to put forward averments as to the conduct of the parties. The appointment of a judicial factor is an equitable remedy. It is plainly relevant to have regard to all of the circumstances in considering whether a judicial factor ought to be appointed. So far as the suggestion that there should be some form of preliminary proof, that does not address the respondents' principal concerns as to the case against them. The only remedy sought is the appointment of a judicial factor. The petitioner should not be indulged by adjusting procedure in this way.

 

Decision

 

[19] I start by considering the authorities of Wallace and McNab which are crucial to the submission of both parties. In Wallace a petition was submitted seeking decree of dissolution of a partnership and also for the appointment of a judicial factor. From the report it would appear that the partnership was trading. The petition was presented in the Outer House but not, as required by the Distribution of Business (Scotland) Act 1857, to the Junior Lord Ordinary. Answers to the petition were lodged. The Lord Ordinary remitted the matter to an accountant to report. The respondent reclaimed (not having objected to the competency of the petition when first lodged). The arguments of counsel before the First Division were all concerned with matters of procedure, including whether the reclaiming motion itself was competent. It was held that because the petition had not been presented to the Junior Lord Ordinary the proceedings were incompetent and such incompetency could properly be considered by the Inner House notwithstanding a limitation against reclaiming motions in petition cases. I set out certain of the dicta of the court as I consider that it is important to set out the issue which was of concern. The Lord President said (at page 678):-

"As [section 35] applies to Scotland as well as to England the term "application" may be held to include any competent proceeding for attaining that object in Scotland, and prior to 1890 this court repeatedly entertained petitions, presented to the Junior Lord Ordinary, for dissolution of partnerships and the appointment of a judicial factor. I do not say that in all, or probably in most, cases under section 35 of the Act of 1890 such a petition would be the appropriate, or even a competent proceeding. On the contrary, there appears to me that an action of declarator would be the proper form wherever the parties are at variance with respect to matters requiring investigation or inquiry - but having regard to the practice which has prevailed both prior and subsequent to the passing of the Act of 1890 I do not think it should now be held that the procedure by summary petition in suitable cases is incompetent provided that the petition is presented to the Junior Lord Ordinary".

Lord McLaren said (at pages 678/679):-

"When the facts on which dissolution is sought are capable of instant verification... I should say that it was convenient and not incompetent to combine a prayer to this effect with a petition for the appointment of a judicial factor to wind up the business of the co-partnery. But if the partnership is in existence and its business is prosperous, and there is no apparent cause for a dissolution, except a desire on the part of one of the partners to get rid of a co-partner, to say that a dissolution of a partnership could be entertained by a means of a summary petition and on the report of an accountant from whose conclusions there is practically no appeal would be to sanction a procedure so monstrous that I do not think a parallel to it could be found in any legal system that I know of".

McNab was a petition seeking dissolution of a partnership, also apparently still trading. The grounds for seeking the dissolution were prejudicial conduct on the part of a partner and that it was just and equitable that the partnership be dissolved. It would appear from the opinion of the Lord Ordinary (Lord Hunter) that there was no application for the appointment of a judicial factor, only a petition seeking dissolution. The petition was opposed. Answers were lodged. In short, the factual disputes centred around whether the respondent was of intemperate habits and his conduct towards the petitioners. The Lord Ordinary viewed the issue as "whether summary application is the proper procedure or not". Lord Hunter referred to the opinions of the Lord President and Lord McLaren in Wallace and concluded that the averments in the present case were not of such a character that they could be instantly verified but would require a protracted inquiry. He dismissed the petition. The Second Division upheld the decision of the Lord Ordinary. The Lord President also considered that the question was whether application by petition is or is not the proper procedure. He accepted that the petition was competent but, referring to Wallace, the "form of procedure is not expedient here". He considered that there was an absolute necessity for a proof. Lord Dundas concurred, stating that the matter should be considered as to what was "appropriate and expedient". Lord Guthrie concluded that the suitable procedure in the "special circumstances of this case is not by petition, but by ordinary action".

 

[20] As I have said, the principal focus of these cases was whether the respective firms ought to be dissolved. Although Wallace contained a prayer seeking the appointment of a judicial factor reference was made both in it and McNab to section 35 of the 1890 Act. I say that because it is not wholly clear to me whether the present petition is presented at common law or on some, and if so which, provision of the 1890 Act. It may be that nothing turns on that. Both cases held that petition procedure for such applications in the Court of Session was a competent procedure. In my opinion, McNab is authority for the proposition that the court may dismiss a petition seeking dissolution of a partnership when to proceed would be inappropriate or inexpedient. In giving substance to appropriateness and expediency it is necessary to examine the concerns of the members of the court. In Wallace the Lord Ordinary had referred the whole matter to an accountant to report. As I have said, in that case, the partnership was still trading. The factual basis of the petition was clearly in dispute. It is clear that it was the procedure and its implications which most concerned Lord McLaren. On the report of the accountant "from whose conclusions there is practically no appeal" the court would be asked to make a decision. He described petition procedure as being "administrative" as opposed to contentious. He also went on to say that an ordinary action would allow an opportunity to challenge the relevancy of the averments or of the form in which a proof is to be taken. Similar concerns are evident in the opinions of McNab. The Lord Justice Clerk quoted the passage from the opinion of Lord McLaren which I set out above. Lord Guthrie commented on the need for full and detailed averments from both parties so that any questions can go to proof "in proper shape". In relation to the passage from Miller to which I was referred (at page 485) I do not read it as seeking to establish any particular proposition beyond a general narration of the facts and conclusion of McNab. The passage in the Stair Memorial Encyclopaedia (paragraph 1093) does go further and concludes, inter alia, by reference to Wallace and McNab that if parties are at variance over matters requiring further investigation or inquiry the appropriate process is an action of declarator.

 

[21] In relation to the present petition the starting point is the power of the sheriff court to appoint a judicial factor on the estates of a partnership. It was not disputed that this court now has the power to appoint a judicial factor. The power of the sheriff court to appoint a judicial factor is conferred by statute, namely section 4 of the Judicial Factors (Scotland) Act 1880 Act ("the 1880 Act"). (As to the competency of such a proceeding at common law see Pollock v Campbell 1962 SLT (Sh Ct) 89). Section 4 of the 1880 Act was amended by section 14(b)(ii) of the Law Reform (Miscellaneous Proceedings) Scotland)Act 1980 (See the commencement order SI 1726/1980) so as to confer the relevant power. It follows that passages in certain text books to the contrary are not correct: see para 27.309 of MacPhail (but cf para 11.07); page 474 of Miller; the passage at para 275 of the Stair Memorial Encyclopaedia, volume 14, Trusts, Trustees and Judicial Factors is correct.

Section 4 of the 1880 Act provides:-

"The sheriff shall have the same powers to appoint judicial factors as have the Court of Session and he shall have and may exercise over and with regard to judicial factors appointed in the sheriff court the same powers and authorities that under the recited Act either division of the Court of Session or the lord ordinary respectively have...

(1)   Proceedings for appointment of judicial factors in the sheriff court shall commence by petition to be presented in an appropriate sheriff court as nearly as may be in the form in use in ordinary actions in that court...

(4) Subject to such rules as may from time to time be made by Act of Sederunt... the whole provisions of the recited Act... shall apply as nearly as may be to judicial factors appointed in the sheriff court:"

 

Read short, the Act of Sederunt (Judicial Factors) Rules 1980 (SI 1803/1980) provided that procedure in the sheriff court should follow that of the Court of Session. That was changed by the Act of Sederunt (Judicial Factors Rules) (SI 272/1992) ("the 1992 Rules"). By paragraph 4 thereof an application for the appointment of a judicial factor shall be by way of summary application. The present application is described as a petition although allocated a "B" number by the sheriff clerk, the usual procedure for a summary application. I have before me a record which contains a crave together with a number of pleas in law on behalf of both parties. When pressed, Mr Thompson properly conceded that, as far as any averments of fact are concerned, it is unlikely that an action seeking a declarator would be any different from the record before me. There is no procedural bar to prevent the hearing of a proof of the current averments and, rather obviously, matters of relevancy are capable of debate. Subject to one important proviso to which I shall return shortly, from a pragmatic point of view, unless compelled by authority to the contrary, I struggle to see any purpose to be served in either sisting this action or dismissing it, just to allow the same issues to be resuscitated in a process which is unlikely to bear any material difference to the present record. Subject to two qualifications, the power of the sheriff court to appoint a judicial factor given to the sheriff court carries with it the existing law and practice of the Court of Session with regard to judicial factors. Firstly, and rather obviously, there cannot be a literal importation into the sheriff court of the practice of the Court of Session. It requires to be adjusted to take account of the procedure in this court. Secondly, as with all procedure, it needs to be kept under review so as to satisfy modern conditions and modern practice. With those qualifications in mind, section 4 refers to "petition", however, in general terms, proceedings in the sheriff court are commenced by way of an initial writ. Section 4(4) grants power to provide for procedure in the sheriff court and that has been done by the 1992 Rules. There is, to my knowledge (and it was not suggested otherwise), no such thing as petition procedure in the sheriff court. Accordingly, any specialities of Court of Session petition procedure, particularly that in force in 1900, seems of doubtful relevance to summary applications in the sheriff court now. I accept, following McNab, that this court has power to dismiss an application on the grounds that it is not appropriate or expedient to continue. However, given what I apprehend as the real basis for the exercise of such a power, I am not inclined to do so here. There are no relevant limitations in terms of the pleadings, mode of inquiry or appeal which would make pursuit of the application inappropriate or inexpedient. The type of issues of concern in the Wallace and McNab cases do not appear to me to be of concern here.

 

[22] I return to the proviso I averted to above and it relates to the remedy which the petitioner seeks, namely the appointment of a judicial factor. If I am correct in my analysis of Wallace and McNab, the issue as to whether a judicial factor should be appointed was not part of the reasoning of either Division. However, in my opinion, Mr Thompson has raised a point of some importance. What I understand him to say is that where there is a bona fide dispute as to the existence of the partnership itself then the respondents should not find themselves with an inquiry as to the existence of the partnership because the only remedy sought by the petitioner is the appointment of a judicial factor. If a partnership is found to exist then all the court can do is to appoint a judicial factor. That deprives the respondents of an opportunity to give an accounting to the petitioner. In my opinion, the answer to this particular issue lies in the power of the court to appoint a judicial factor. Mr Walker seemed to suggest that if the court found in favour of the petitioner as to the existence of the partnership then it would be bound to appoint a judicial factor. Mr Thompson submitted that such a proposition was not correct and that the court has a discretion as to whether to appoint a judicial factor. Both counsel submitted that Carabine v Carabine remains good law. Unlike McNab or Wallace, Carabine concerned a case in which it was accepted that the partnership had been dissolved. The petitioner sought the appointment of a judicial factor both at common law and pursuant to section 39 of the 1890 Act. The Lord Ordinary refused to appoint a judicial factor. The petitioner successfully reclaimed against that interlocutor. In the course of his opinion the Lord Justice Clerk (Lord Thompson) described the relevant test as to whether to appoint a judicial factor as one of necessity or expediency (the Lord Ordinary used the words "highly expedient"). Lord MacKay took a different approach. In his opinion, the Lord Ordinary was incorrect in the formulation of the test and that the appointment of a judicial factor is the "ordinary method" employed by the court and that the appointment by the court of a judicial factor was "not as the Lord Ordinary's disposal would appear to assume, a highly exceptional or violent means". Lord Jamieson concurred in the result but I confess I am not clear as to his basis for reaching it. In my opinion, whether to appoint a judicial factor to the estates of a partnership is a matter within the discretion of the court. It is not possible to prescribe all the circumstances in which a judicial factor may be appointed. Each case turns on its own facts. One can detect from the opinions in Wallace and McNab a reluctance to interfere with the operation of a continuing business. The cost and disruption associated with a judicial factor may be another factor. On the other hand, as in Carabine, there may be no option other than the appointment of a judicial factor because of the refusal of one of the parties to adhere to his obligations on an admitted dissolution. As was done in Carabine, the court may adjourn proceedings to allow parties an opportunity to resolve matters themselves. I do not intend to prescribe any checklist, merely to point out certain factors which may arise and to illustrate the discretionary nature of the remedy. I do not accept Mr Thompson's proposition that the existence of a bona fide dispute as to whether there is a partnership is sufficient of itself to lead to the dismissal of the petition at this stage. However, neither do I accept Mr Walker's submission that a court would be bound to appoint a judicial factor if it held that a partnership existed. The petitioner has chosen to base his case upon the grant of a single remedy. If I am correct as to the discretionary nature of the remedy, even if he proves all that he avers as to the existence of the partnership, it still remains within the discretion of the court as to whether a judicial factor should be appointed. It follows from that analysis, the respondents' averments from "quoad ultra denied" in answer 5 may be relevant to the consideration as to whether a judicial factor should be appointed and I am not inclined to delete them.

 

[23] I turn now to the issue of the partnership itself. It is important to bear in mind what it is the petitioner offers to prove. In summary, the petitioner offers to prove that the partnership was constituted by oral agreement in or about December 1994. This is not a case in which the court looks, with hindsight, at the actions of various parties over a period of time and decides whether they were, in truth, acting in partnership rather than some other form of business arrangement. The material upon which each party relies points in different directions. Some of it is consistent with ownership of property in common; some of it is consistent with the existence of a partnership. The business of the partnership was to be the ownership of the property, its renting out and management. There was, and is, no written partnership agreement. Title to the property is in the name of the parties as individuals. The loan agreement was also so named. The lease is in the name of the parties as individuals. The Property Accounts were described as "the Partners Kings Balti". Rent paid by the tenant was lodged in this account and funds transferred to the term loan agreement to ensure payment thereof. On the other hand, "the Property Accounts" for the years 1995 to 2000 use terminology one would normally associate with the existence of a partnership such as "partnership capital accounts", "drawings" and "partners' approval". The accounts for the various years bear to have been signed by the parties under the heading "partners' approval". However, if one goes back to the petitioner's pleadings the agreement was said to have been reached before the relevant documentation was executed. What the petitioner offers to prove is the conclusion of an agreement over a particular and specified period. On that analysis, all that followed is material which, if admissible at all, goes to proving the existence, or otherwise, of the antecedent agreement. As I have said, it seems to me that the real issue is whether the petitioner has pled a relevant case as to the oral agreement concluded by December 1994. If he fails to prove it then there is no partnership. On that view, it may be the case that the rules contained in section 2 of the 1890 Act have somewhat less application to a case as the present. It also seems to me that similar comments may be made about the application of sections 20 and 21. Again, I do not say that they are necessarily irrelevant but the question may be their application to the particular case which the petitioner offers to prove. In my opinion the petitioner has pled sufficient as to the constitution of a partnership to warrant inquiry. If I am wrong on my understanding of the petitioner's case, and the evidence as to the constitution of the partnership does encompass all the competing material I do not consider it would be appropriate to dismiss the petition on these averments. As the passages referred to in Miller make clear, disputes as to the true nature of a commercial relationship amongst parties are not that uncommon and often involve an inquiry into a number of matters.

 

[24] I deal now with the attack on the petitioner's averments as to personal bar and the supporting plea in law (as amended). Most of the petitioner's averments relate to correspondence exchanged between the then agents for the parties. It is not disputed that some of the correspondence, including that from the respondents then agents, includes a reference to partnership. The petitioner's third plea in law is to the effect that the petitioners are personally barred from denying the existence of the firm. In my opinion, Mr Thompson's challenge is well founded. I cannot see that the correspondence could ever amount to personal bar so as to prevent the respondents from advancing a case that there never was a partnership. Apart from anything else, the establishment of the partnership, for which the petitioner contends, is said to have taken place in 1994, years before the correspondence was written. As Mr Thompson says, there are no relevant averments as to reliance on any representations. In any event, I cannot see how I could give effect to Mr Walker's amended plea in law (decree de plano). I see no purpose in allowing that plea to remain. I was not asked to delete the particular averments relating to this issue. Given my conclusions, I do not consider I need to deal with Mr Thompson's submission as to division and sale.

 

[25] Accordingly, I shall repel the petitioner's third plea in law. Having regard to the whole matter, quoad ultra, I shall allow parties a proof before answer. I shall reserve all questions of expenses.