Nakhjavani v Pelagias

When taking an account, a court must examine the evidential basis of the figures relied upon. Unaudited accounts prepared for a different partnership cannot be treated as reliable without inquiry into their preparation and accounting conventions. The absence of a separate entry does not prove that an item was omitted, but a material item which cannot properly fall within another heading may produce a substantial discrepancy requiring the account to be reconsidered. Unappealed rulings bind the parties in the continued account. The Court may remit the account, limit objections to those made in writing, and encourage or order alternative dispute resolution.

The appeal concerned the taking of accounts following proceedings between Nakhjavani v Pelagias. The Deputy Master had relied on accounts relating to a partnership between the respondent and another person, rather than the appellant. The accounts were unaudited and non-statutory. Issues included the treatment of insurance proceeds, carpets, rent and expenditure incurred after 1 May 1998. The central question was whether the account could properly proceed on the evidential material before the Deputy Master.

The appeal was allowed. The account was remitted to a full Master of the Chancery Division. Objections were to be limited to those made in writing, ADR proceedings were ordered, and costs were awarded to the appellant but reserved to the Master.

1. Reliability of the accounts. The Deputy Master relied on accounts prepared for a partnership between the respondent and Mr Christodoulou, not the parties to the appeal. They had not been audited and were not statutory accounts. There was no evidence of the conventions used to prepare them or of any obligation to show a true and fair view. The Court therefore could not treat their headings or contents as conclusive without investigating their basis.
2. Insurance proceeds and rent. The absence of a separate entry for approximately £24,000 of insurance proceeds did not establish that the proceeds had been omitted, since they might have been included under another heading. However, rent of £21,422 was not included within the item for improvements and could not be included there. This created a substantial difference between the figures in evidence and those advanced for the account.
3. Binding effect of an unappealed ruling. The Deputy Master had ruled that expenditure was not objectionable merely because it was incurred after 1 May 1998. Since neither party appealed that ruling, they remained bound by it and could not maintain an objection solely on that ground.
4. Unargued issue and future conduct. Lady Justice Arden expressed no view on whether rent paid to the head lessor during refurbishment fell within the second or third account, leaving that issue to the Master because it had not been fully argued. The parties were strongly encouraged to reduce the issues and use ADR.

1. Court of Appeal (Civil Division) — on 17 June 2005, the appeal was allowed and the account remitted to a full Master, as reported at [2005] EWCA Civ 823.
2. High Court, Chancery Division — the account had been dealt with by Deputy Master Weir. No citation for that decision is stated in the judgment.