New partners not liable for prior debts without averments of acceptance
A new partner is not liable for prior debts of the firm unless liability has been accepted either expressly or tacitly, and it is for the party alleging liability to allege facts and circumstances from which such acceptance can be inferred, a judge has ruled.
Lord Woolman in the Court of Session gave his decision in the action by Heather Capital Ltd and its liquidator against Glasgow solicitors Levy & McRae, alleging breach of fiduciary duty by the defenders by facilitating a fraud perpetrated against Heather Capital by a director. The case centres on two sums totalling £28.4m paid into and then paid from Levy & McRae's client account in early 2007.
Three partners in Levy & McRae sought dismissal of the action so far as brought against them, on the basis that they had been assumed after 1 June 2007. The pursuers sought to sue in addition five partners assumed more recently. They argued that where a business was continued without interruption, there was a presumption that the new partnership took over the whole liabilities as well as the assets. The defenders had been called on to provide documents showing that liability had not been accepted but had failed to do so.
Lord Woolman ruled that establishing the presumption depended on sufficient facts being proved to sustain it, and that required the pursuer to offer to prove such facts and circumstances, which they had failed to do. They were attempting to invert the normal rule that a pursuer had to plead their case. He dismissed the action against the three partners and refused to allow it to be brought against the additional five.
The judge also refused to order the remaining defenders to answer questions as to whether their professional indemnity insurance would cover the claim and whether their insurers had accepted the claim. Although this was said to assist a "cards on the table" approach to litigation, "There are major questions involved in disclosure, including the likelihood that it would encourage speculative 'deep pocket' litigation", he added.
He further held it inappropriate to order the defenders' partner Peter Watson to produce a witness statement in advance of other witnesses, without "compelling reason... to depart from the normal rule that there should be a simultaneous exchange of witness statements".