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SAFFAD SOOFI AGAINST JEFFREY MARTIN DYKES


Submitted: 22 June 2017

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FIRST DIVISION, INNER HOUSE, COURT OF SESSION

[2017] CSIH 40

A473/13

 

Lord President

Lady Paton

Lord Drummond Young

 

OPINION OF THE COURT

delivered by LORD CARLOWAY, the LORD PRESIDENT

in the reclaiming motion

SAJJAD SOOFI

Pursuer and Respondent

against

JEFFREY MARTIN DYKES

Defender and Reclaimer

Pursuer and Respondent: Sandison QC; Balfour + Manson LLP

Defender and Reclaimer: McBrearty QC; CMS Cameron McKenna LLP

 

 

22 June 2017

 

Introduction
[1]        This is a reclaiming motion (appeal) against an interlocutor of the Lord Ordinary, dated 6 January 2017, in which he refused to sustain the defender’s plea to the relevancy of the pursuer’s pleadings and allowed a proof, following a debate on the Procedure Roll.  The point raised, put shortly, is whether the Lord Ordinary erred in holding that the pursuer had provided the defender with fair notice of his case.

 

Background
[2]        The pursuer sues in the capacity of assignee of Bonafied Enterprises International Limited (BEI), which is now in administration.  The defender is a solicitor.  In 2008, BEI instructed the defender to act on their behalf in the purchase of a petrol station, car wash and shop.  The premises were being operated as Airdrie Autopoint.  The terms of the sale were contained in missives dated 9 November 2007, 25 March, 16 April and 29 August 2008.  Entry was 1 September 2008.  The price was £850,000; apportioned as £450,000 to the heritable property, £385,000 to the goodwill, and £15,000 to fixtures and fittings.

[3]        Prior to the purchase, BEI had obtained financial information from the seller relating to Autopoint’s trading history.  The pursuer avers that the information provided was inaccurate and incomplete.  BEI were unable to make a profit from the business.  The missives contained no warranty that the financial information, which BEI had relied upon, was accurate, complete and complied with accepted accounting principles.  The pursuer avers that the defender was negligent in failing to advise that a warranty should be obtained before purchase.  This negligence had caused BEI to enter a transaction which they would otherwise have avoided.  Alternatively, if a warranty had been included in the missives, BEI would have had a remedy in contract against the seller.  The pursuer seeks to recover the whole of the element attributed to goodwill.

 

Lord Ordinary’s reasoning
[4]        Before the Lord Ordinary, the defender submitted that there was inadequate specification of the inaccuracies in the financial information.  There were no averments of the financial performance of the business post-sale, which would allow a comparison of the trading figures.  The pursuer required to detail the specific inaccuracies, to allow the defender to investigate the case adequately.  The fact that the business did not make a profit post-sale did not mean that the trading figures pre-sale were inaccurate.  The pursuer countered that the case was a circumstantial one.  An inference that the pre-sale financial information was inaccurate could by drawn from a combination of facts and circumstances (infra).

[5]        The Lord Ordinary applied himself to the test set out in Macdonald v Glasgow Western Hospitals 1954 SC 453, LP (Cooper) at 465; whether fair notice had been given in the sense that the opposite party would not be surprised at proof.  The pursuer required to prove that the financial information was untrue, inaccurate and incomplete.  Whilst one method of doing so would be by a comparison of pre- and post-sale trading figures, that was not the only way.  The pursuer sought to prove the inaccuracy by inference from a combination of facts and circumstances, which included inter alia that: (1) the purchasers were experienced in running petrol stations successfully; (2) a firm of accountants had assessed the business as a profitable one on the basis of the financial information provided and taking into account the loan to be serviced; (3) sales of fuel had increased post-sale; (4) the seller’s failure to produce primary books of account suggested that they had either been destroyed or never existed; (5) the pre-sale financial information was inconsistent with VAT returns produced by the seller; and (6) the pre-sale information contained a misleading statement attributing the preparation of the accounts to a firm of accountants, when that firm had only reformatted the seller’s own figures. 

[6]        The Lord Ordinary held that this was a legitimate mode of proof.  It would be for the trier of fact to determine whether or not the case had thus been proved.  The Lord Ordinary concluded that the defender did have fair notice, and refused to sustain the defender’s plea to the relevancy.  He allowed a proof simpliciter, albeit that, in these circumstances, the preliminary plea would technically remain standing.

 

Submissions
Defender

[7]        The first ground of appeal was that the Lord Ordinary had failed to recognise that, as well as seeking to draw the relevant inference, the pursuer had to exclude other possible explanations for the change in profitability.  There was insufficient detail on why the factors founded upon by the defender would not have affected profitability.  The pursuer required to specify, at least in broad terms, the extent to which BEI’s operating costs were higher than those of the sellers, and why, despite those higher costs, it was not the operating model which resulted in the business’s failure.  The pursuer had previously specified, by averment, that the inaccuracy related to costs, but this averment had been deleted by amendment.  All that was left was that the difference must have been in relation either to turnover or costs; but the pursuer had declined to say which it might be.

[8]        Only one of the six circumstances which the pursuer relied upon was capable of supporting the inference, namely that the VAT returns relating to the same period were inconsistent with the financial information.  The pursuer would have had to prove specific inaccuracies to succeed in an action for breach of warranty and he should have to do the same here.  As matters stood, the pursuer could give evidence at proof of what he believed the financial inaccuracies were.  It would be unfair to expect the defender to test that evidence as it emerged.

[9]        The second ground was that the Lord Ordinary had erred in holding that, if proved, the six circumstances were capable of supporting the inference.  The pursuer’s case was bound to fail, as the only circumstance which could support the inference was itself inconclusive.  All of the other factors relied upon were neutral.

 

Pursuer
[10]      The pursuer submitted that the Lord Ordinary had intended to repel the defender’s plea in allowing the case to proceed to proof simpliciter.  The essential facta probanda were that the defender should have advised that the warranties were required.  These would have been declined, in which case the sale would not have gone ahead.  Alternatively, the warranties would have been granted and could have been used as a basis upon which to pursue the seller successfully.  The Lord Ordinary had correctly identified the proper scope of a plea to the relevancy based upon a lack of specification.  The pursuer intended to prove inaccuracy in the financial information, not by reference to specific figures, but by inference from the facts and circumstances averred.  The Lord Ordinary had correctly concluded that adequate specification and fair notice had been given.  It would be at least open to the trier of fact to draw the inference if the facts and circumstances relied upon were proved.  The question was whether, if the facts and circumstances were proved, the pursuer would nevertheless be bound to fail.  Given that the pursuer’s primary position was that, if asked, the seller would have refused to provide a warranty and the sale would not have gone ahead, the existence of specific discrepancies in the financial information would not justify dismissal.

 

Decision
[11]      The Lord Ordinary identified the appropriate test to be applied when considering a plea to the relevancy based upon a lack of fair notice.  That was that “the plea of lack of specification finds its proper application in a case where the defender does not know the case to be made against him and objects to being taken by surprise at proof” (Macdonald v Glasgow Western Hospitals 1954 SC 453, LP (Cooper) at 465).  The method of proof selected by the pursuer in his pleadings is not by way of identifying specific accounting inaccuracies, but by way of inference from other facts and circumstances.  Those facts and circumstances are set out in the pleadings.  Any attempt to lead evidence of specific inaccuracies, none of which are specified in the pleadings, would be likely to fail on the basis of lack of record.  The defender’s arguments strike at the likelihood of success of the pursuer’s case, rather than the level or lack of specification.  The arguments which attack the pursuer’s core approach could equally well be deployed to undermine the pursuer’s case after proof.  In all material respects, however, the pursuer’s pleadings do give fair notice of the case against the defender.  It cannot be said that the defender will be taken by surprise at proof.  The first ground of appeal is therefore rejected.

[12]      In relation to the second ground, the Lord Ordinary observed that the pursuer’s approach was “a legitimate mode of proof”.  It may be that each circumstance may not, on its own, point to the existence of an inaccuracy in the financial information.  The essential question remains one of whether, if each of the circumstances is proved, the pursuer would still be bound to fail.  Would it be illegitimate for the court to draw the inference sought by the pursuer, if all that is contained in the pursuer’s averments was to be established?  The court is unable to conclude on the pleadings that the pursuer would be bound to fail.  The matter should be left for consideration at a proof before answer. 

[13]      The court will therefore, in practical terms, refuse the reclaiming motion, but this will involve recall of the Lord Ordinary’s interlocutor of 6 January 2017, to allow a proof before answer on the parties’ respective averments.