William Sim V. David Howat &c
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2012] CSOH 171 |
| Court | Court of Session |
| Docket Number | CA56/10 |
| Published date | 30 October 2012 |
| Date | 30 October 2012 |
| Year | 2012 |
| OUTER HOUSE, COURT OF SESSION [2012] CSOH 171 | |
| CA56/10 | OPINION OF LORD HODGE in the cause WILLIAM JOHN SIM Pursuer; against DAVID JOHN HOWAT; and BRIDGET MARY McLAREN Defender: ________________ |
Pursuer: Logan; Campbell Smith WS LLP
Defender: Campbell QC; Morisons LLP
30 October 2012
[1] Pattison & Sim (P&S") is a firm of solicitors which has existed since 1905. It has comprised various partnerships as people have retired or been assumed as partners. Between 1999 and 2006 the equity partners were the pursuer ("Mr Sim") and the defenders ("Mr Howat" and Ms McLaren" respectively). In 1998 Mr Sim and Mr Howat were the partners of P&S. Ms McLaren became a partner in 1999, having trained and worked in the firm for several years. Mr Sim, who was the senior partner of P&S, retired on 31 May 2006 and the defenders, who continued the business of the partnership, agreed to pay him the sum of £175,000 by monthly instalments over the following five years.
[2] In 2008 Mr Howat and Ms McLaren discovered that the partnership had a liability to the Scottish Solicitors' Staff Pension Fund ("SSSPF") arising out of the pension entitlement of a former employee, Mr Barr, who had acted as the firm's cashier. He left the employment of P&S in 1998. From this arose the dispute which has given rise to this action for payment under the retirement agreement and the defenders' counterclaim for damages for misrepresentation.
[3] In an opinion dated 5 July 2011 ([2011] CSOH 115) I held that the liability to pay contributions to the SSSPF had been taken over in 1999 by the partnership comprising Mr Sim, Mr Howat and Ms McLaren. The parties agreed to accept that finding and have proceeded to proof on that basis.
[4] Mr Sim seeks payment of £51,752.90 under the retirement agreement, having reduced the balance which he claimed by one-third of the sums which were due to the SSSPF in May 2006 to pay off arrears and buy out future liability. In so doing, he acknowledges that he is bound by a provision in the retirement agreement to pay his one‑third share of any liabilities which were not disclosed in the dissolution accounts to 31 May 2006.
[5] Mr Howat and Ms McLaren sought to reduce the retirement agreement on the ground that it was induced by Mr Sim's misrepresentation which they aver was either fraudulent or negligent. They also claimed damages totalling £120,000 arising from the misrepresentation and breach of fiduciary duty. As I narrate below, they sought to alter their claim by Minute of Amendment at the end of the proof.
The Facts
(i) The negotiation of the agreement
[6] For several years before he retired, Mr Sim aspired to retire at about his sixtieth birthday. His partners were aware that he wished to do so. All parties recognised that the principal difficulty which they faced was how the continuing partners could earn sufficient funds from the business to repay his capital. Discussions as to the terms of his withdrawal from the partnership began in about June 2005. In that month Mr Sim gave his partners a memorandum in which he set out various options, including the sale of the firm's principal asset, which was its office at 19 Glasgow Road, Paisley. Mr Sim expressed his preference that his partners continue the business and suggested that he could work as a consultant for five years before they had to start repaying him his capital by instalments. He also listed the possibility that the defenders buy part of the business and as a last resort the option that he continue to work and that his partners resign from the partnership.
[7] In the firm's accounts to 31 May 2005 Mr Sim was credited with capital of £253,994. In those accounts Mr Howat's capital account was in deficit and he owed the firm £25,151. Ms McLaren's capital was £66,724. The partners recognised that some of the assets of the firm might not achieve the value stated in the firm's accounts. In particular the partners thought that the value of debtors and work in progress had to be discounted. It was necessary to adjust the accounts to allow for a claim which a former employee was pursuing before an Employment Tribunal. Mr Howat and Ms McLaren were also concerned about the burden of taking on responsibility for both the firm's overdraft which at times exceeded £250,000 and also paying out Mr Sim's capital. They sought to negotiate a deal with Mr Sim based on what they considered they could afford to pay. In October 2005 the partners agreed to recalculate the assets of the partnership on a winding up basis as part of that negotiation. Mr Howat and Ms McLaren attempted to calculate what might be due to Mr Sim on that basis and initially, in about February 2006, offered to pay Mr Sim £137,500 for his share of the partnership business. Mr Sim was prepared to compromise as he recognised that some items in the accounts might be overstated and as he wished the firm to continue, because his family had been involved in it from the outset. He suggested that he be paid £200,000. After some informal negotiation the parties settled for the payment by the continuing partners of £175,000 by instalments over five years.
[8] Their agreement was not recorded in a written document. Mr Howat and Ms McLaren had prepared a draft minute of dissolution with the assistance of their accountant, Jim Hamilton CA, and Mr Sim had written suggested revisions of the text. The terms of the minute of dissolution were never formally agreed and the stated calculation of Mr Sim's entitlement was superseded by further negotiations. But the parties implemented several clauses of the minute.
(ii) The terms of the agreement
[9] It was not disputed that the agreement provided for (a) payment of £175,000 by monthly instalments of £2,916.66, (b) payment of interest on the unpaid balance at the base rate of The Royal Bank of Scotland plc, (c) interest on arrears of instalments (which the draft minute stated would be at 3% over that base rate but on which I heard no evidence) and (d) Mr Sim to indemnify the continuing partners to the extent of his share of liabilities not accounted for in the firm's accounts to 31 May 2006. In relation to the latter provision clause 16 of the draft minute stated:
"Mr Sim will indemnify the continuing partners in respect of any claims & liabilities of whatever nature in respect of any events relating to the period before 31 May 2006 and which have not been fully accounted for in the final partnership accounts for the year ending 31 May 2006. Where such claims arise and while capital balance remains payable to Mr Sim, he will authorise the continuing partners to offset against such balance his share of any such claim and appropriate costs."
On the draft minute Mr Sim wrote in manuscript the words "his share". It was not ultimately disputed that, while the precise wording of the clause was never finally agreed, the parties had agreed that the indemnity which Mr Sim granted was for his one‑third share of such liabilities. This informed Mr Sim's decision to reduce his claim by £43,521 after I issued my opinion to which I referred in paragraph [3] above.
(iii) The payment of the instalments
[10] Between 31 May 2006 and 28 October 2008 the defenders paid Mr Sim £75,833.15 towards repayment of his capital and £15,619.44 in interest in performance of the retirement agreement. They have paid no sums since October 2008.
(iv) The existence of the SSSPF liability
[11] After Mr Barr ceased to be employed by P&S none of the partners foresaw that they would have any continuing liability to contribute to the SSSPF. This is not surprising as an awareness of the effect on pension funds of increasing longevity and the poor performance of the stock market after 1999 took several years to spread within the legal profession. As I narrate below, it was not until April 2003 that the trustees of the SSSPF wrote to legal firms to inform them of the deficit which had emerged on the fund.
[12] The parties agreed in a joint minute that the sum required to discharge for all time the liability due to the SSSPF in respect of Mr Barr was £126,000 on 31 May 2006 and the sum required to achieve that result as at 28 August 2012 was £125,000. It was also agreed that at the latter date arrears of contribution from P&S to the SSSPF amounted to £44,000.
[13] The parties also agreed that for the purposes of this action and without prejudice to their rights and pleas in other proceedings each of them was liable to the SSSPF for one-third of the capital sum needed to discharge the liability (namely £126,000 in 2006 or £125,000 in 2012).
(v) Mr Sim's knowledge of the SSSPF liability
[14] This dispute is concerned with the extent to which Mr Sim was aware of a continuing liability of the firm to the SSSPF before he negotiated his retirement from the firm and his failure to disclose that liability to the defenders.
[15] P&S employed Mr Barr from 1970 until 1998. The firm paid contributions to the SSSPF when he was employed and ceased those payments thereafter. No demand was made for further payment for about five years and I accept Mr Sim's evidence that, when the SSSPF's administrators raised the issue of further contributions in 2003, he understood that his firm had no further liability as they had ceased to employ Mr Barr.
[16] There is no doubt that the correspondence which Mr Sim received from agents on behalf of the SSSPF, which I summarise below, gave clear notice of a continuing liability of P&S in respect of Mr Barr. If the recipient of the letters read them reasonably carefully, he could have been in no doubt that P&S had a continuing liability to the SSSPF. But it is important to see the letters in their temporal context and to take account of Mr Sim's approach to business as he approached his retirement when assessing both his state of knowledge and whether he acted in good faith.
[17] It was clear from Mr Howat's evidence that Mr Sim at least in later years adopted a rather...
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