Heather Capital Limited (in Liq) Against Levy And Mcrae And Others
| Jurisdiction | Scotland |
| Judge | Lord Woolman |
| Neutral Citation | [2015] CSOH 115 |
| Court | Court of Session |
| Published date | 25 August 2015 |
| Year | 2015 |
| Date | 14 August 2015 |
| Docket Number | CA207/14 |
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 115
CA207/14
NOTE BY LORD WOOLMAN
In the cause
HEATHER CAPITAL LIMITED (IN LIQUIDATION)
Pursuers;
against
LEVY & McRAE AND OTHERS
Defenders:
Pursuer: Lord Davidson of Glen Clova QC; Shepherd & Wedderburn LLP
Defenders: Clark QC, J Brown; Simpson & Marwick
14 August 2015
Introduction
[1] Heather Capital Ltd (‘HC’) was incorporated in the Isle of Man in 2005. Prior to its liquidation in 2010 it had received investments exceeding $400 million. The present action has been raised in its name by the liquidator. The first defender is the firm of Levy & McRae. The other defenders are eight individuals, who were partners in the firm in the period from 1 January 2007 to 31 December 2008.
[2] The liquidator contends that the company was defrauded of a sum of about £90 million. The scheme involved the transfer of funds to companies incorporated in Gibraltar that were owned or controlled by one of HC’s directors, Gregory King. A firm of solicitors in Gibraltar, Hassans, acted in these transactions.
[3] According to the liquidator, in early 2007 HC’s auditors raised queries about these transactions. Subsequently, Mr King sought to conceal their true nature.
[4] One of the transactions concerned a company called Westernbrook Properties Limited. On 4 January 2007 the sum of £19 million was paid into the first defender’s client account. It was paid out 5 days later to an account with HSBC Private Bank in Monaco held by a Panamanian company. On 24 January the sum of £9.412 million was paid into the first defender’s client account. It was paid out on 28 March to the client account of Hassans.
[5] On 23 December 2008 a payment of £200,000 was made to the eighth defender, Mr Peter Watson, from Hassans’ client account.
[6] The liquidator pleads that HC was the client of the first defender at the material time. Accordingly, the defenders owed HC certain fiduciary duties, together with an obligation to exercise the knowledge, skill and care of reasonably competent solicitors.
[7] It is also important to notice the terms of the pursuer’s ninth plea-in-law. It states:
“the pursuer having suffered loss, injury and damage by reasons of the defenders’ dishonest assistance of Gregory King in the latter committing breach of his fiduciary duties owed to the pursuer … decree should be pronounced”
[8] The liquidator seeks to recover the sum of £28.4 million from the defenders. He intimated the claim on 23 June 2013. There followed extensive pre-action correspondence before the summons was served on 23 October 2014. During that period, the liquidator did not request clarification of the membership or constitution of the firm of Levy & McRae as it existed from time to time.
[9] The summons called on 10 February 2015. The defences were lodged a week later. They stated that three of the defenders had been wrongly convened, because they had been assumed as partners after June 2007. They are Mr Alasdair Gillies (1 July 2007), Mr Andrew Sleigh (1 December 2008), and Mr Gary Booth (1 January 2011).
[10] The defenders raised this matter at the preliminary hearing on 5 March, and the continued hearing on 8 May. They said it involved significant reputational damage to those three individuals. They asked for early disposal of this discrete issue.
[11] I fixed a hearing to take place on 13 August. About a week before the hearing, the liquidator enrolled a motion to allow a minute of amendment. It sought to add five further individuals as defenders, on the footing that they had been partners in the first defender in the period from 4 January 2007 to date.
[12] The liquidator gave the following reasons in support of his motion:
“The pursuer’s agents wrote to the agent for the defenders on 7 May 2015 and 7 July 2015. In those letters, the pursuer’s agent requested:
- confirmation that the defenders had adequate insurance cover in place to meet the pursuer’s claim if it was successful;
- copies of the partnership agreements for each defender that the defender’s agents maintain have been wrongly convened; and
- details of each defender’s capital contribution to the firm
The defenders have failed to provide any of this information to the pursuer. The pursuer has identified a further 5 current and former partners of the firm who require to be convened.
Without confirmation that the defenders have sufficient insurance cover, or evidence as to why the defenders do not incur personal liability (which depends on the circumstances of each case), the pursuer seeks to convene these partners and former partners to the action as they may be jointly and severally liable for the debts of the firm.” (emphasis added)
Liability of new partners
[13] The liability of new partners is governed by section 17(1) of the Partnership Act 1890:
“A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner.”
[14] In their Joint Consultation Paper on Partnership Law (2000), the Law Commission and the Scottish Law Commission state in relation to Scots law (at 10.65):
“Where the business taken over is substantially the same as the old firm, and where that business is continued without interruption, there appears to be a general presumption that the new partnership takes over the whole liabilities as well as the assets.”
[15] Lord Hodge considered this point in Sim v Howat & McLaren [2011] CSOH 115 at [31]:
“The presumption does not arise unless there are facts and circumstances which bring it into play. The continuation of substantially the same business without interruption is necessary for the presumption.”
He suggested a number of other relevant facts and circumstances. They included whether the new partner had made a substantial capital contribution, whether he had paid or acknowledged any of the prior debts, and whether separate accounts were kept for the new and the old firm.
[16] Lord Hodge determined at paragraph [29] that the appropriate test was whether a new partner had “accepted liability either expressly or tacitly” for the claim.
[17] Who is responsible for averring those facts and circumstances? The answer is clear. In Thomson Balfour v Boag & Son 1936 SC 2 Lord Fleming stated (at p16) that “it was for the pursuers to prove” that a new partner had accepted liability for the debts of the old business.
[18] Similarly in Miller v Macleod 1973 SC 172 Lord Justice Clerk Wheatley stated (at p183):
“whether in the circumstances the pursuer has established by presumption or by proof of facts and circumstances that the new firm agreed to adopt the old debts and become liable for them. Of course, the establishment of the presumption itself is dependent upon sufficient facts being proved to sustain it, and this in my opinion entitles the Court to look at all the facts, whether they occurred before, at or after the establishment of the partnership.”
[19] In the present case, the liquidator does not offer to prove such facts and circumstances. Instead, he states in condescendence 1:
“the defenders have been called upon, but failed, to provide to the pursuer the evidence (including a copy of the relevant partnership agreement(s) and copies of the accounts showing capital contributions made by the partners joining the partnership after December 2008) that any new partners who...
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