Alexander Charles Reid And Others V. Norna Forsyth Crabbe
| Jurisdiction | Scotland |
| Judge | Lord Brailsford,Lord Carloway,Lord Hardie |
| Judgment Date | 12 November 2009 |
| Neutral Citation | [2009] CSIH 81 |
| Court | Court of Session |
| Docket Number | XA39/08 |
| Published date | 12 November 2009 |
| Date | 12 November 2009 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Carloway Lord Hardie Lord Brailsford | [2009] CSIH 81 XA39/08 OPINION OF THE COURT delivered by LORD CARLOWAY in causa ALEXANDER CHARLES REID and others Pursuers and Respondents; against NORNA FORSYTH CRABBE Defender and Appellant: _______ |
Alt: Party
12 November 2009
1. Facts
[1] The parties are solicitors and were formerly partners in West Anderson & Co., Glasgow. They entered into an agreement, headed "Minute of Retiral", whereby the three pursuers would retire from the partnership on 31 January 1998 ("the retiral date"). The defender was to continue the business under its existing name as a sole practitioner. In settling the accounts of the firm, the Minute provides as follows:
"(THIRD) ACCOUNTS
(a) Accounts for the business for the year to [4 February 1997] have been prepared by [the Accountants] and have been approved by the [defender and the pursuers] as is confirmed by their respective signatures to a copy of the said Accounts...
(b) (i) For the period from [5 February 1997] to the retiral date Accounts for the business will be prepared by the Accountants on the same basis as in previous years but subject to work in progress as at the retiral date being brought in...and with the profit or loss being shared between the Partners in the same proportions as set forth in the Accounts to [4 February 1997].
(ii) Copies of the said Accounts to the retiral date are to be produced in draft by the Accountants and intimated to the Parties, who will be entitled to make representations, qualifications or enquiries regarding the said Accounts. Said representations, qualifications or enquiries shall be intimated within a period of 14 days following the receipt of said Accounts, after which date, the Accounts will be deemed to be final as between the parties hereto unless palpable or manifest error be thereafter discovered. Without prejudice to the foregoing generality, any representations, qualifications or enquiries which are not agreed by the parties will fall to be dealt with by means of arbitration...
...
(iv) Following on the approval of the said Accounts as aforesaid the [defender] shall remit to the [pursuers] the balances due to the [pursuers] under said Accounts and that within fourteen days of the Accounts being approved...".
It has been the interpretation and application of these few clauses that has resulted first in arbitration and secondly in litigation spanning the last ten years.
[2] On 26 January 1999, the accountants produced draft accounts for the period to the retiral date. The defender made representations concerning the accounts. These were not agreed and certain issues, in the form of five claims on the defender's part ((a) to (e)), were referred to arbitration. One of the claims was settled by joint minute. Following legal debate in February 2002, two of the claims were deemed irrelevant, but the two remaining claims were subject to an enquiry leading to a final decree arbitral on 5 June 2003. This decree did not, however, directly settle the figures to go into the accounts. Rather, it took the form of allowing certain elements of the defender's claims. The positive elements of the decree were as follows:
"1. Allows Head 7(1)(a) of claim...to the extent that Debit balances totalling £2333.64 are due to the Claimant by the Respondents...
...
3. Allows Head 7(1)(b) of claim for Delivery Fees to the extent £3322.47 which are due to the Claimant by the Respondents.
4. Allows Head 7(1)(c) of claim for expenses for [BG's] redundancy to the extent of £470 which is due to the Claimant by all parties as partners of the former firm...".
With the exception of a small sum of £148.91, paragraphs 1 and 3 did not require any alteration to the figures included in the draft accounts, since they were matters involving direct payment by the pursuers to the defender. However, the redundancy payment in paragraph 4 did require some adjustment.
[3] By letter dated 13 June 2003, the first pursuer requested the accountants to produce "Final Accounts". However, this request did not relate solely to revisals brought about by the decree arbitral. Other "adjustments" were mentioned, including changes to the work in progress figure, "write offs" in debit balances and a credit to a named individual ("[MH]") said to have been agreed by the parties. The accountants took little time in incorporating these matters into what they described as a "final version" of the accounts, which was sent to the first pursuer by letter dated 20 June 2003. These accounts were not sent to the defender until mid August. She responded by letter dated 21 August 2003, complaining first of the treatment of the payment to [MH]. She went on to take issue secondly with the figure included for the accountants' fees, which had been increased from the £9,000 in the original accounts to £10,480, the latter figure incorporating additional fees for work on the accounts after preparation of the original draft accounts. Thirdly, the defender raised the absence of a provision in respect of a potential professional negligence claim. Fourthly and finally, she complained about the work in progress adjustment proposed by the first pursuer in relation to one named client ("[JQ]"). The first pursuer responded to these complaints by letter to the accountants dated 16 October 2003.
[4] On 21 November 2003, the accountants produced a further "final" version of the accounts. This accommodated the defender's comments on the treatment of the credit due to [MH], retained the additional accountants' fees of £1,480, and took heed of the defender's point about [JQ's] work in progress (but cf the defender's pleadings infra). No specific financial provision was made for the potential claim for professional negligence in the figures, but a Note was appended identifying the potential liability. By letter dated 5 December 2003, the defender intimated to the accountants that she did "not accept the accounts".
2. The Action in the Sheriff Court
[5] In about August 2004, the pursuers raised an action against the defender in Glasgow Sheriff Court for payment of sums due in terms of the "final" November 2003 accounts. The case proceeded as a commercial action. The defender averred that:
"...the minute of retiral confers no authority upon the accountants to "deem" the accounts final. The accounts can only be finalised by agreement of the parties or by decree arbitral. The defender has not departed from the objections intimated to the draft accounts. These objections have not been ruled upon by the arbiter. The arbiter has pronounced no interlocutor declaring any set of accounts to be final or conclusive. The pursuers have no contractual right to payment of any sums until the accounts are finalised".
The defender's complaints related to three matters: the accountants' fees; the treatment of the professional negligence claim; and the work in progress relative to [JQ], which ought to have been written off as a bad debt. Since the accounts had not been "approved" in terms of Clause "THIRD(b)(iv)", no amount was due to the pursuers.
[6] By interlocutor dated 11 January 2005, pronounced after a debate, the Sheriff granted decree de plano in the pursuers' favour. The focus before the Sheriff, on pleadings which were to change subsequently, was on whether there could be more than one arbitration in terms of the Minute of Retiral. The Sheriff held that there could not. Thus, although it was accepted at the debate that the issue of professional negligence provision had been raised timeously by the defender, her failure to have it included in the Deed of Submission to the arbiter was fatal to raising it afresh after the decree arbitral. That disposed of the third matter raised by the defender in her letter of 21 August 2003. However, the Sheriff also held that, in relation to the other matters raised in the letter, the parties were agreed that the first point concerning the payment to [MH] had been properly dealt with in the accounts. The fourth point was not argued by the defender and was presumably also agreed as having been adequately treated. The third matter had been properly dealt with anyway and had caused no alteration to the accounts. The Sheriff decided that the accountants' fees could not have been challenged in any fresh arbitration. Since the Sheriff thereby held that there was effectively nothing to go to arbitration, even were a second arbitration to have been deemed competent, decree de plano based upon the November 2003 accounts had to follow.
[7] For reasons which will become clear (infra), the Court considers that the Sheriff's decision to grant decree de plano was the correct one. However, the action took a different course. The defender appealed to the Sheriff Principal. On 12 June 2006, the Sheriff Principal allowed the appeal and recalled the interlocutor of the Sheriff. He allowed a proof before answer on three narrow issues, viz.: "(1) the extent to which the accounts relied on by the pursuers differ from the original draft accounts; (2) the extent and timeousness of objections by the defender to the draft accounts; and (3) the extent of rulings by the arbiter appointed to deal with such objections". The Sheriff Principal recognised, as was indeed the case, that the dispute ought to have been resolved long before his involvement in it (para 18), but he considered that there was a "danger of injustice to the defender unless there is some further element of investigation". He accepted a submission from the defender that the Sheriff's focus on the number of arbitrations intended by the Minute of Retiral had been misplaced and that the real issue was the construction of the words "approval of the said accounts as aforesaid"; being the trigger mechanism in clause "THIRD (b)(iv)". The Sheriff Principal held (para 20) that once "disputed entries in the accounts have...
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