Defective records bar partnership claim
4 Oct 07
Legal firm fails against former partner due to inability to value work
A solicitors' firm has failed in a capital payment claim against a former partner because its records were inadequate to prove the value of work in progress.
R A Logan & Co of Ayr had sued Stephen Maxwell, who left the firm in December 2000, for over £95,000 said to be the deficit in Mr Maxwell's capital account at the date of his leaving.
Mr Maxwell disputed the accuracy of draft accounts as at the date he resigned, which he claimed undervalued the work in progress at the firm. A report was instructed from Glasgow accountant Robert Kerr as a "man of skill", who concluded that because certain of the relevant records either did not exist or were incomplete, no "reasonable and prudent accountant could, given the information available, provide a valuation of work in progress which could be considered to be reasonably accurate".
Logan & Co objected to the report, claiming that Mr Kerr had failed to fulfil his remit, had failed to have regard to information available and had attempted too high a standard of precision in his valuation. Lord Drummond Young in the Court of Session, however, rejected the criticisms.
Because of the importance of the accounts to the parties and for tax reasons, he said, "it is important that the figure should be substantially accurate. Mr Kerr's view was that, because of the inadequacy of the firm's records, it was impossible to provide anything that could be considered reasonably accurate. In my opinion that is a view that he was entitled to take".
The judge commented that Mr Kerr's duty "was to provide a valuation, not a mere guess; if, therefore, the reporter thought that he could not provide a proper valuation it was his duty to say so".
The result, he ruled, was that the parties were bound by the conclusion in the same way as if the matter had gone to proof in court, and the firm had failed to prove that its claim had a value: final decree had to be granted in favour of Mr Maxwell.
"This is not obviously unfair; the pursuers' failure to prove their case results from the inadequate nature of the firm's accounting records, and that is a matter for which the pursuers must bear a large part of the responsibility."
Lord Drummond Young's decision can be read at http://www.scotcourts.gov.uk/opinions/2007CSOH163.html .