William John Sim V. David John Howat+bridget Mary Mclaren
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2011] CSOH 115 |
| Date | 05 July 2011 |
| Docket Number | CA56/10 |
| Court | Court of Session |
| Published date | 05 July 2011 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 115 | |
| CA56/10 | OPINION OF LORD HODGE in the cause WILLIAM JOHN SIM Pursuer; against DAVID JOHN HOWAT and BRIDGET MARY McLAREN Defenders: ________________ |
Pursuer: Logan; Campbell Smith WS
Defenders: Wallace; Morisons and HBM Sayers
5 July 2011
[1] The pursuer ("Mr Sim") and the defenders ("Mr Howat" and "Ms McLaren") practised law as partners of the firm of Pattison & Sim, solicitors. A dispute has arisen out of an agreement which the parties entered into in about October 2005 when Mr Sim proposed to retire from the partnership. The agreement provided for payment to Mr Sim of £175,000 in monthly instalments of £2,916.66 to purchase his capital and interest in the firm. The defenders initially paid the instalments but on becoming aware of a potential liability of the firm to the Scottish Solicitors' Staff Pension Fund ("SSSPF") they have withheld further payment. This action, in which Mr Sim seeks declarator of the existence of the agreement and payment of certain sums, has resulted.
[2] In an attempt to determine the dispute in an economic way, the parties agreed (a) to enter into a substantial Joint Minute of Admissions, (b) each to produce evidence in the form of an affidavit and (c) to debate the issue of who was liable to the SSSPF for the periods 2001-2005 and from 2005 onwards. From the agreed information as to the constitution of the partnerships, which was made available at the debate, it became clear that the references to 2001-2005 and 2005 onwards should have been 1999-2006 and 2006 onwards. I proceed on that basis in this opinion.
Factual Background
[3] The firm of Pattison & Sim employed Mr Ronald Barr between 1970 and 1998. He was a member of the SSSPF between 1974 and January 1998 when he ceased to be employed. The various partnerships which traded under the firm name of Pattison & Sim contributed to the SSSPF throughout that period. Pattison & Sim made no further payments after Mr Barr's departure until Mr Sim responded to a request by the SSSPF by paying it £1,416 on a partnership cheque in December 2004.
[4] Mr Sim was assumed as a partner in Pattison & Sim on 1 January 1972. At that time the partnership included Mr Sim's father, his uncle and Mr Archibald Crawford. The parties have agreed in 7/11 of process the composition of the various partnerships from 1972 to date. I summarise only the relevant matters. Mr Sim's father and uncle retired from the partnership in 1979 and 1983 respectively and thereafter the partnership paid them annuities. Mr Howat was assumed as a salaried partner on 1 June 1991. Between 1995 and 1999 the firm comprised Mr Sim and Mr Howat. Ms McLaren was assumed as a salaried partner in 1999 and became an equity partner in 2002. She paid £20,000 into the partnership as capital in 2000 in compliance with an agreement which she entered into in 1999 when she became a partner. The partnership's accounts to 31 May 1999, which Mr Sim and Mr Howat agreed in 2000, which valued at cost the principal assets, namely land and buildings, fixtures and fittings and motor vehicles, showed the net assets of the partnership at that date at £258,417. Ms McLaren refused to contribute to the annuities of Mr Sim's father and uncle and thereafter, when Mr Howat also declined to contribute, Mr Sim alone of the three paid those annuities out of his share of the partnership profits.
[5] Between 1 June 1999 and 31 May 2006 Mr Sim, Mr Howat and Ms McLaren practised in partnership without a formal partnership agreement. From 2002 to 31 May 2006 each partner received an equal share of the profits.
[6] When Mr Sim proposed to retire in 2005 the parties entered into negotiations with the intention that Mr Howat and Ms McLaren would acquire Mr Sim's interest in Pattison & Sim and continue to practise under that name. They had lengthy discussions concerning his capital account. It was the practice of the various partnerships known as Pattison & Sim, whenever possible, to assume and retire partners at the end of the partnership's financial year so that the year-end accounts became the final accounts of the former partnership. Those accounts formed the basis of the discussions between the outgoing partners and the continuing partners and various adjustments were made. Mr Sim took advice from Mr Bob Dallas, an accountant and Mr Howat and Ms McLaren consulted Mr Jim Hamilton, who also was an accountant. It was agreed that Mr Howat and Ms McLaren would purchase Mr Sim's interest in the partnership for £175,000 and that that sum would be paid over five years by sixty monthly instalments of £2,916.66. The parties did not prepare or sign a formal agreement. Since 1 June 2006, Mr Howat and Ms McLaren have practised in partnership under the firm name of Pattison & Sim.
[7] The parties thereafter agreed several variations of the agreement by which £3,892.94 was deducted from the sum payable to Mr Sim. Mr Howat and Ms McLaren paid the agreed monthly instalments to Mr Sim together with interest until December 2008. They have made no payment since then. A claim was intimated to them on behalf of the SSSPF for contributions in respect of Mr Barr's final salary pension. Mr Sim acknowledged that the potential liability to the SSSPF had not been discussed or disclosed in the negotiation of his retirement package. He accepted that, if the partnership which existed between 1999 and 2006 were liable for further payments to the SSSPF, he would remain liable for one-third of the sums due, because he had undertaken in the agreement governing his withdrawal from the firm to remain liable for his share of any liabilities of that partnership which were not accounted for in the partnership accounts to 31 May 2006. While Mr Sim's counsel confirmed his acceptance of this liability, it was not agreed in the Joint Minute.
The SSSPF
[8] The SSSPF was established by trust deed in 1947 and the rules which govern it have been replaced in 1980 and 1990 and amended thereafter by subsequent deeds. While Mr Sim's agents have produced certain of the relevant documents and the 1947 rules are referred to in the Joint Minute, I was not given the current rules and must therefore qualify what I say about particular rules by a recognition that they may have been altered by the time Pattison & Sim ceased to employ Mr Barr. Under rule III of the 1947 scheme an "assenting employer" was one who made membership of the fund a condition of employment to all of its full time employees. I am informed that by 1999 Pattison & Sim was not an "assenting employer". Rule XVIII provided that employers could terminate their obligations to the fund at any time on giving six months' notice. It was not suggested that any of the partnerships which had constituted Pattison & Sim over the years had given such notice of termination.
The contentions of the parties
[9] It is necessary to understand the background to the parties' contentions as otherwise they might appear to be contrary to their interests. The defenders' contention is that Mr Sim misrepresented the financial state of the partnership in 2005 when the terms of his retirement were negotiated by failing to disclose that the partnership which existed at that time had a continuing liability to the SSSPF. The defenders seek to have the agreement, under which Mr Sim makes his claims in this action, reduced ope exceptionis by reason of that alleged misrepresentation. Thus it is Mr Sim's position that the liability to the SSSPF did not transfer to the new partnership which came into being in 1999 when Ms McLaren was assumed a partner and it is the defenders' contention that it did.
[10] The parties' submissions focused on the line of authority in Scots law which provides as a principle or presumption that where a new partnership takes over the assets of a prior business and maintains that business as a going concern without giving value therefor, it is held to have taken over the earlier business's liabilities as well. I was referred to Miller v Thorburn (1861) 23D 359, McKeand v Laird (1861) 23D 846, Heddle's Executrix v Marwick & Hourston's Trustee (1888) 15 R 698, Thomson & Balfour v Boag & Son 1936 SC 2, Miller v McLeod 1973 SC 172 and Ocra (Isle of Man) Ltd v Anite Scotland Ltd 2003 SLT 1232. In relation to the different approach in English law I was referred to Creasey v Breachwood Motors Ltd [1992] BCC 638.
[11] Mr Logan for Mr Sim submitted that the liability to the SSSPF had not transferred from the partnership of which Mr Sim and Mr Howat were the partners to the new partnership created in 1999 when Ms McLaren was assumed as a partner. At that time none of the parties was aware of any continuing liability to the SSSPF. That liability was contingent. No allowance for any such liability was included in the partnership's balance sheet. Further, Ms McLaren had introduced as her capital the not insignificant sum of £20,000 as a condition of her assumption as a partner. While she initially received a fixed salary, she would have been entitled, if the partnership had been dissolved, to both the return of her capital and a share in the surplus assets based on her salary as a proportion of the profits. After 2002 she was entitled to one-third of any surplus. She and the new partnership derived no benefit from Mr Barr's services as he had ceased to be employed by Pattison & Sim before she joined the partnership.
[12] Mr Wallace for the defenders submitted that the liability to the SSSPF was taken on by the new partnership created in 1999. At that time Pattison & Sim would have incurred a liability if they had chosen to withdraw from the SSSPF and they also had a contingent liability to contribute to any deficit in that fund. Ms McLaren's payment of £20,000 as capital did not purchase anything. She was not entitled to share in the surplus assets of the partnership until she became an equity partner in 2002. Her payment was simply following the...
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