John Kennedy Forster V. Messrs. Ferguson And Forster+macfie And Alexander And Others
| Jurisdiction | Scotland |
| Judge | Lady Dorrian,Lord Marnoch,Lord Clarke |
| Neutral Citation | [2010] CSIH 38 |
| Court | Court of Session |
| Published date | 30 April 2010 |
| Year | 2010 |
| Date | 30 April 2010 |
| Docket Number | XA190/08 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Clarke Lady Dorrian Lord Marnoch XA190/08 | [2010] CSIH 38 OPINION OF LORD CLARKE in the Appeal by the defenders and cross appeal by the pursuer in the commercial action JOHN KENNEDY FORSTER Pursuer & Respondent; against MESSRS FERGUSON & FORSTER, MACFIE & ALEXANDER & OTHERS Defenders & Appellants: _______ |
Pursuer & Respondent: Bartos; Burness WS
Defenders & Appellants: Dunlop; Drummond Miller LLP (for Charles Hennessy & Co, Glasgow)30 April 2010
Introduction
[1] This is an appeal from a decision of the Sheriff Principal of Glasgow and Strathkelvin by the defenders in a commercial action. The respondent was a qualified solicitor who, from 12 May 1997 until March 2000, was a partner in the firm of Messrs Ferguson and Forster, MacFie and Alexander who are the defenders in this action along with the two remaining partners of the partnership. On 3 December 2003, the respondent appeared on indictment at the High Court in Glasgow charged with eighty one counts of embezzling clients' funds and fourteen contraventions of the Bankruptcy (Scotland) Act 1985, Section 67(6). He pled guilty to thirty five of the charges of embezzlement and six breaches of the Bankruptcy Act, Section 67. He was sentenced on 14 March 2004 to a period of five years' imprisonment in respect of the embezzlement charges and eighteen months' imprisonment in respect of the breaches of the Bankruptcy Act, the latter period to run concurrently with the five year sentence imposed in respect of the embezzlements. Twenty three of the crimes of embezzlement took place during the currency of his partnership with the appellants which, as has been noted, commenced on 12 May 1997 in terms of a partnership agreement of that date. The other embezzlements had taken place when the respondent was a partner in a differently constituted partnership.
[2] In the present action the respondent seeks implement of a provision of the partnership agreement. The first crave in the Initial Writ is in the following terms:
"To ordain the defenders to implement their obligation to pay the pursuer a pension in terms of clause FIFTEEN(e) of the Partnership Agreement dated 12 May, 1977 (sic) by which the parties, being partners of the firm of Ferguson & Forster, MacFie & Alexander, agreed that on inter alia the retirement of the pursuer, the pursuer may elect to receive in lieu of any sum due to him or his estate in respect of the goodwill and work in progress of the said partnership a pension for the period of ten years, payable to him equal to one quarter of his average income calculated on the previous three years gross income."
The second crave proceeds to seek payment of the sums claimed to be due to the respondent in implement of the foregoing obligation. The second crave is in the following terms:
"For payment by the defenders to the pursuer of the sum of ONE HUNDRED AND NINETY SIX THOUSAND SIX HUNDRED AND FIFTY FIVE POUNDS STERLING (£196,655), with interest thereon at the rate of eight per cent a year from the date of the Interlocutor to follow hereon until payment; and for declarator that the defenders are bound to pay to the pursuer each year commencing on 24th March, 2004 and until the 24th March, 2011, an annual sum of THIRTY NINE THOUSAND THREE HUNDRED AND THIRTY ONE POUNDS STERLING (£39,331) with interest thereon at the rate of eight per cent a year from the time same shall become due and payable and remain unpaid".
The provision of the Partnership Agreement, relied upon by the respondent is clause FIFTEEN(e) which is in the following terms:
"On the death or retirement of the First Partner he or if he shall have died his personal Representative, may elect to receive in lieu of any sum due to him or his estate in respect of the goodwill and work in progress of the Partnership a Pension for the period of 10 years, payable to him or if he had died to his wife or representatives equal to one quarter of the First Partners average income calculated on the previous three years gross income."
The Partnership Agreement defined 'The First Partner' as the respondent.
It can be seen that clause FIFTEEN(e) is a provision which is for the benefit of the respondent alone. None of the other partners had such a benefit conferred in their favour.
[3] Before this court it was contended, on behalf of the appellants, that the respondent by his repeated acts of embezzlement carried out during the duration of the partnership, had been in material breach of the obligation of utmost good faith which was owed by each of the partners to each other and which is of the essence of any partnership agreement. That, it may be said, was not ultimately disputed by counsel for the respondent, but before this court, as was the position in the courts below, it was argued, on the respondent's behalf, that he was not thereby disentitled from recovering payment of the significant sums sought in the second crave in terms of the partnership agreement.
The Decisions Of The Courts Below
[4] The sheriff, at first instance, Sheriff Peebles, (as he then was) dismissed the respondent's action. He did so by finding that the respondent had been in material breach of his contract with the appellants and that, by operation of the doctrine of mutuality of obligations, he could therefore, not sue on the agreement. In his decision regarding expenses of 4 December 2006 the sheriff (appeal print page 42) stigmatised the respondent's case as being "wholly unstateable". Before the Sheriff Principal, however, a different view was taken of matters. The Sheriff Principal, in particular, repelled the appellants' third plea-in-law which is in the following term "the pursuer being in material breach of contract with the defenders is not entitled to enforce the contractual obligation provided in the Partnership Agreement and the action should be dismissed" and deleted certain of the appellants' averments, including averments regarding material breach of the partnership agreement. The Sheriff Principal's approach to the case was, apparently, driven by the view he took of the combined effect of clauses TWELVE and FIFTEEN when read together. Clause TWELVE is in the following terms:
"If any Partner shall
(a) become apparently insolvent or enter into any composition or arrangement with or for the benefit of his creditors generally;
(b) commit any act of gross professional misconduct;
(c) do any act of a serious nature prohibited by Paragraph 11;
(d) grossly neglect the Partnership business;
(e) fail to account for and pay over or refund any monies for which he is accountable to the Partnership within seven days of being requested in writing to do so by any Partner;
(f) act in such a way as to bring his name or the name of the Partnership into disrepute;
(g) act in any respect contrary to the provision (sic) of this Agreement (not being a trivial nature (sic)) or to good faith between the Partners;
then in any of these events, the other Partners may expel the Partner concerned with effect from such date as they shall specify in a written notice given by the other partners or such Partner and the partner so expelled shall be deemed to have retired from the Partnership on such date. Save that in the event of any matter alleged under sub paragraph (f) or (g) hereof the other Partners shall first give the offending Partner notice requiring him to rectify any matter capable or (sic) rectification and/or that any such conduct may lead to notice being given under this clause and the other Partners shall only be entitled to give such notice in the event of the offending Partner failing to comply with any such notice to rectify any matter capable of rectification and/or repeating the alleged act or other act of a similar nature."
(It should be noted that while the discussion in the lower courts and in this court focussed on the respondent's conduct amounting to breach of the duty of utmost good faith among the partners, it seems that it could also be regarded as gross professional misconduct and involved actings which would bring his name and the name of the partnership into disrepute. Accordingly the operation of clause TWELVE could have been, in my opinion, brought into play having regard to the provisions of TWELVE(b) and (f) as well as by TWELVE(g)). The remaining provisions of clause FIFTEEN, apart from FIFTEEN(e), are as follows:
" Each Partner shall: (sic)
(a) The death or retirement of any Partner shall not necessarily determine the Partnership among the others.
(b) On the death or retirement of any of the Second, Third or Fourth Partners the First Partner shall have the option to acquire that deceased or retiring Partner's interest in the Partnership for a consideration equal to his interest at the date of death or retirement as determined by accounts drawn to that date. The foresaid option shall be exercised by the First Partner within three months from the date of death or retiral.
(c) On the death or retirement of the First Partner each of the Second, Third and Fourth Partners shall have the option, to be exercised in writing within three months from the date of death or retirement of the First Partner, to acquire his interest in the Partnership in accordance with a set of accounts to be drawn as at the date of death or retirement incorporating.
(i) Any heritable property at the then open market value with vacant possession.
(ii) The goodwill and work in progress at a combined value which will be a sum equal to one third of the annual gross fee income of the firm for the three preceding years.
(iii) The whole other assets of the firm including all furniture, fixtures, equipment, stationery, text books at their net value on a written down value for tax purposes
(d) In the event of the option contained in paragraph 16c (sic) hereof not being exercised as to the entirety of the first partners interest in the Partnership the Partnership shall be...
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