Nakhjavani v Theophilou Pelagias

On an appeal from an account-taking decision, the court must address material challenges to the evidence and explain why the evidence relied on is probative. Apparent similarity between two calculations is unsafe as a basis for decision unless the circumstances show that they were independently prepared from reliable material.

Unaudited accounts prepared for a different partnership cannot be treated as reliable without examining their basis, accounting conventions and treatment of relevant receipts. A general credibility finding does not cure failure to engage with detailed objections. Where the appellate court lacks the material to conduct the account itself, it should set aside the declaration and remit the account for proper determination.

The claimant and defendant had undertaken a business venture involving the lease, refurbishment and use of premises. The claimant was held to have a beneficial interest proportionate to his contribution, and Master Bowman directed that the relevant costs be determined by an account.

Deputy Master Weir subsequently declared that the total relevant costs were £151,169. The claimant appealed, challenging the evidential basis and reasoning of that determination. The central issue was whether the Deputy Master had adequately assessed the disputed accounts, supporting evidence and objections before fixing the total costs.

Appeal allowed. The declaration was set aside and the account was remitted to a full Master of the Chancery Division.

1. The Deputy Master’s central reasoning was inadequate. He relied substantially on accounts prepared by Mr Chelepis for a partnership involving the defendant and another person, rather than the parties to the appeal. The accounts were neither audited nor statutory. There had been no inquiry into the basis on which they were prepared, the accounting conventions used, or whether relevant receipts had been included. The court could not assume, without evidence, that insurance proceeds had not been taken into account.
2. The apparent similarity between the defendant’s calculations and Mr Chelepis’ accounts did not itself establish accuracy. Such similarity may be significant where calculations are independently prepared from reliable documentary material, but may be insignificant where one calculation is based on the other. The defendant’s underlying figures were subject to detailed challenge, which the Deputy Master did not address. The correct comparison also required attention to the distinction between the defendant’s net figure and the gross figure likely reflected in the accounts.
3. A general finding that the defendant was broadly credible could not replace analysis of the individual objections. The Deputy Master had also refused to hear Mr Chelepis, yet relied on accounts whose preparation he might have explained.
4. The parties were bound by the Deputy Master’s unappealed ruling that expenditure was not objectionable merely because it was incurred after 1 May 1998. No view was expressed on whether rent paid to the head lessor during refurbishment belonged in the second or third account; that issue was left to the Master.
5. The account was to proceed on the written objections already made. The court ordered ADR proceedings and awarded costs to the appellant, with costs reserved to the Master.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 908, the appeal was allowed, the declaration was set aside, and the account was remitted to a full Master of the Chancery Division.
• High Court, Chancery Division: Master Bowman held on 3 February 2004 that the partnership had ended and that the claimant’s entitlement arose through a resulting trust. He directed that the relevant costs be determined on an account.
• High Court, Chancery Division: Deputy Master Weir declared on 18 January 2005 that the total relevant costs were £151,169.