£2.25 million action against law firm’s successor partnership allowed to proceed to proof

About this case:

• Citation:
  [2025] CSOH 20
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Braid

Andrew Marr International Ltd contended that Mackinnons Solicitors LLP tendered negligent advice in relation to the service of a notice under a Share Purchase Agreement, thereby significantly weakening its negotiating position as to force it to settle the claim for a much lower sum. The defender contended that the pursuer must pursue its claim against the previous firm and all those who were partners in it when the allegedly negligent advice was tendered.

The case was heard in the Outer House of the Court of Session by Lord Braid. Breen, advocate, appeared for the pursuer and A McKinlay, advocate, for the defender.

Consent to novation

In 2018, the defender’s predecessor firm Mackinnons, a partnership, acted for the pursuer in a breach of warranty claim. On 16 September 2019, the firm transferred its business to a different entity, a limited liability partnership, with clause 3 of the Transfer Agreement providing that the LLP would assume all the liabilities of the partnership.

Seeking dismissal of the action, the defender contended that, notwithstanding clause 3 of the Transfer Agreement, it was under no obligation to the pursuer in the absence of any agreement that the obligation to make reparation to the pursuer had been novated to it. The defender’s argument was that no relevant case had been pled as to establish liability on its part.

Counsel for the defender submitted that novation required the consent of all parties, which required to be judged objectively. The Transfer Agreement was of no moment as the pursuer had not been party to it. The missing link was any offer to prove conduct on the part of the defender from which a willingness to novate could be inferred. The pursuer did not found upon the presumption of transfer of liabilities between successive partnerships, which could not be said to apply to a transfer from a partnership to a limited liability partnership.

For the pursuer it was submitted that there was no need to find a tacit agreement where there was an express agreement that the liabilities would be assumed by the defender. The court was entitled as a matter of law to infer the pursuer’s consent to the novation to the defender of the obligations owed to it by the partnership, from the fact that the pursuer was seeking to enforce those obligations against the defender.

Nothing further required

In his decision, Lord Braid noted that the legal issue at hand was one long-grappled with in Scots law: “There is no difference in principle between a case where a new partner has been assumed (resulting in the formation of a new legal persona in the form of a new partnership), and the present case, where a common law partnership has been converted into a limited liability one. In each case, whether the new entity has assumed the liabilities of the old will be a question of fact and circumstance, turning, to some extent at least, on what the equities of the situation require.”

He continued: “In many cases, whatever the nature of the change in the business, a creditor will not know whether, in acquiring the assets and business of A, the new entity B has agreed also to assume its liabilities. That is no doubt why the law has developed the presumption that, at least in some circumstances, in acquiring the assets of A, B had also agreed to assume its liabilities, since not to make that presumption could lead to injustice to A’s creditors.”

Considering the pursuer’s non-reliance on that presumption, Lord Braid said: “Counsel for the defender made great play of the fact that the pursuer is not relying on the presumption, the conditions for the application of which, he submitted, were not fulfilled in any event. However, I agree with counsel for the pursuer that there is no need for the pursuer to rely on any presumption as to what the defender might or might not have tacitly agreed to, because it is known, as a fact, from the Transfer Agreement, about which the pursuer does have averments, that the defender did expressly agree to assume the liabilities of Mackinnons.”

Lord Braid then turned to the argument on novation, saying: “It is true, as counsel for the defender submitted, that in many situations, for a contract to be novated to a third party who is to assume the obligations of one of the original contracting parties, the consent of all those parties is required and, in effect, a new contract requires to be entered into. However, none of the authorities in the area suggest that such a rigid approach is required where the obligation, as here, is an obligation to meet a debt or satisfy a liability which has been transferred along with the assets of a business.”

He concluded: “By averring that it has elected to continue to sue the defender after learning of its assumption of the liabilities of Mackinnons, the pursuer has relevantly averred that it has consented to the novation to the defender of the obligation owed to the pursuer, and that it has a direct right of action against the defender. Nothing further is required. The pursuer could have chosen, instead (or in addition), to pursue the partners in Mackinnons but has elected not to do so. The defender has no right to resist that election.”

The motion to dismiss the action was therefore refused, with Lord Braid proceeding to fix a proof before answer.