Pension fund wins appeal over successor law firm partnership
Trustees of the Scottish Solicitors Staff Pension Fund had relevantly averred a case that liabilities to the scheme of a solicitors' firm had transferred to successive iterations of the firm constituted after the last employee member of the fund had retired, the Inner House of the Court of Session has ruled.
Lord President Carloway, Lord Drummond Young and Lord Malcolm allowed an appeal by the trustees against a decision of the Lord Ordinary, Lady Wolffe, to dismiss their action for payment of arrears of contributions due to the fund, brought against the firm of Marshall Ross & Munro and two former partners, and allowed proof before answer of the pursuers' case.
Three persons variously employed at the firm between 1955 and 1994 were members of the fund. The firm was the successor of 16 different partnerships, first constituted in 1949, which were dissolved and constituted of new as partners joined and left the firm. In 1994 the 14th partnership (“MRM 14”) was in existence. MRM 15 was formed in April 1995 and dissolved in March 2001. MRM 16 was formed several months later and dissolved in 2006; the present defenders were formed in 2006 and dissolved in 2015. A deficit in the fund was identified in 2003; the various MRM partnerships paid contributions required by the pursuers until 2008 when they began to fall into arrears, continuing to make partial payments to account until December 2012.
Lady Wolffe held that a successor firm was not liable for the debts of its predecessors, but a transmission “presumption” could apply if the whole business was transferred to a new entity without any outwards change in the form in which the business was carried on, based on an express or implied agreement to assume liability for the predecessor's debts; however the pursuers had insufficient averments to support this given that MRM 15 had made no payments to the scheme, and MRM 16 had not been formed until several months after MRM 15 had been dissolved. Further, under the fund rules, no contingent liability existed in respect of any deficit until an amendment in 1997; and each successive partnership could only be liable for arrears due at or before the notice of termination when it left the fund. The pursuers had failed to identify a contingent liability that was capable of transmitting to the defender firm.
Lord Carloway, with whose opinion Lord Malcolm agreed, said that as respects contingent liability it was an amendment to the fund rules in 2003, providing that “contributions may still be payable by employers towards the provision of benefits accrued”, that was significant. “On the... hypothesis that MRM were a single continuous entity throughout, they would be liable from that point in the contingent event (which occurred) that the Fund became unable to pay, to their three former employees, the accrued benefits.”
Regarding the transmission presumption, the law was accurately stated in the Scottish Law Commission discussion paper on partnership, which the Lord Ordinary had disapproved. It concluded that “the only conclusion that can be drawn from the authorities is that the courts will look at the facts and circumstances surrounding each case to establish whether the partnership is continued on substantially the same basis as the old firm and, thus, whether the presumption of liability will apply. Where the partnership taking over the assets is 'practically the same' as the predecessor and the business is continued without interruption, with the predecessor left without assets, the paper (at para 10.68) considered that 'some continuity in liability' was clearly desirable to 'protect the interests of creditors'”.
The Lord President added: “The statement in the SLC’s paper is accurate and, so far as the situation in this case is concerned, complete.” In the present case, beyond notifications in the Law Society of Scotland's Journal, to the outside world MRM was the same entity throughout, trading from the same premises under the same name and holding itself out to be the same business or firm, paying some of the contributions called for after 2003.
“Contrary to the commercial judge’s opinion, it may be enough in a given case that there was an uninterrupted practice of a particular business”, Lord Carloway stated. Although the defenders averred that the formations of MRM 16 and 17 involved “obvious and material outward change in the manner in which the business had been carried on”, the case could not, in absence of agreements as to the facts, be disposed of as a matter of relevancy.
The averments as to contributions paid were also sufficient to merit inquiry to counter the defenders' plea of prescription.
In a concurring opinion Lord Drummond Young observed: “At the heart of this area of law is a fundamental tension between the existence in law of successive partnerships as partners are added to or leave an existing partnership and the perception by outsiders of the partnership’s business as a continuing commercial enterprise... The presumption that, where essentially the same business is passed by one partnership to another, the new partnership takes over liabilities as well as assets is designed to deal with these sources of tension.”
He stated: “I am... of opinion that the presumption that a successor partnership takes over the debts of its predecessor should be applied consistently in all cases where the three conditions set out in para 10.68 of the Joint Law Commissions’ consultation paper are met, including the very common cases where the inference of a transfer of assets is made from the fact of continuation of the business without interruption.”