Case note: Ruby Properties (Scotland) Ltd v James Watt

“on any view the pursuer has set out its case in a confusing way. While headings in lengthy pleadings can serve to make pleadings easier to follow, here they serve only to obfuscate. … the summons less than helpfully confuses the factual averments with those about breach. Nonetheless, it is tolerably clear that … the pursuer has … pled, however clumsily, that [the 2020] accounts breached the warranties specified. Whether or not the pleadings give fair notice of the case the pursuer now wishes to advance, which is that revenue was (wrongly) released to income evenly across a 12-monthly period, is, however, a different matter. …  I do not consider that fair notice has been given of the case which the pursuer now wishes to advance, and accordingly the evidence founded on … in support of such a case is inadmissible.”

“there is no question of their having been lost … the pursuer has simply failed to lodge them. There is equally no question of the defenders having been prejudiced … but prejudice is not the test, and arises as a consideration only where the documents or object in question have been lost … The stark question, rather, is whether proof of the contents of the accounts is crucial to the pursuer’s case … the starting point is the assertion at the heart of the pursuer’s action that the 2020 accounts fail to give a true and accurate view of the company’s affairs … and that they do not disclose all liabilities …. On any view, the accounts themselves are a crucial piece of evidence in establishing that. One cannot know whether the accounts give a true and fair view, or what liabilities are disclosed, without knowing what figures are in the accounts, which self-evidently involves looking at the accounts themselves. … secondary evidence about the figures in the accounts … is inadmissible”.

“that the accounts were not prepared in accordance with FRS 102. In the absence of the accounts themselves, it is difficult to see how that could ever be achieved, but even had I not ruled evidence about the content of the 2020 accounts to be inadmissible, proof of the pursuer’s case would nonetheless hinge on the court (a) accepting [the] spreadsheet as a reliable analysis, to which weight can be attached, of how revenue was allocated as opposed to how it ought to have been allocated in order to comply with FRS 102; and (b) also accepting Mr McCarlie’s evidence about FRS 102, and the approach to allocation of income. The pursuer’s case falls at both hurdles … [It] is that the 2020 accounts did not give an accurate view of the state of affairs of the company. That can ultimately be assessed only by having regard to evidence of what the state of affairs of the company actually was; which is evidence one would ordinarily expect to have come from the sort of forensic accounting exercise (carried out by a suitably qualified accountant, on the basis of the primary accounting and financial records of the company) which Mr Whitby freely acknowledged the spreadsheet was not. … [The pursuer’s expert accountant] did not himself undertake the prior exercise of verifying how the income received in advance had been treated. … the factual substratum for Mr McCarlie’s evidence has been swept away, rendering his opinion of no weight. However, aside from that, … it is plain that he equates training and flying hours as though they were the same thing, but on Mr Whitby’s description of the non-flying elements of the course … they are not. … To the extent that Mr McCarlie reached his view by having regard to the costs incurred … there was no evidence as to what those costs were … Further, Mr McCarlie did not have a reliable basis for rejecting the straight line approach desiderated by paragraph 23.15 of FRS 102, since he has not taken into account the description of the course given by Mr Whitby … Further still, Mr McCarlie has not adequately explained why example 19 at paragraph 23A.23 of FRS 102, which provides that fees for tuition … may be realised over the period of instruction, did not allow the company to treat revenue as it was doing.”

“A question next arises as to whether one should have regard to the original or the amended accounts … in determining which policy was applied in that year. … where amended accounts have been filed with Companies House, they supersede the original accounts. That is sufficient to save the defenders in relation to the 2018 accounts … However, in relation to 2017 … the figures were simply restated in the amended 2018 accounts. I do not consider that to be sufficient. … it cannot be said that the 2020 accounts were completed using the same Accounting Policies as those in the only set of 2017 accounts which was filed at Companies House.”