Nakhjavani v Pelagias

LADY JUSTICE ARDEN: I agree with the judgment given my Lord Mr Justice Wilson, subject to a minor point of emphasis which I will make in a moment. The masters of the Chancery Division are of course extremely experienced in the taking of accounts and when this matter is remitted to the Master, the Master will be able to see through the fog to which Wilson J has referred without the difficulty that has attended this court.

The comment of the Master in this case cited by Wilson J to the effect that the reasons would be short and would not be adequate does not form part of his approved transcript that I can see and I approach the question whether the reasons which he gave were adequate by examining what was said in the approved transcript. Nonetheless, I have come to the same conclusions as my Lords for the reasons given by my Lord, Mr Justice Wilson, with the minor qualification that I will now mention.

The Deputy Master relied on the figures in the accounts produced to him. In a way this was understandable because very often the taking of accounts proceeds in the Chancery Division on the basis of an accountant's report, accountants' reports on behalf of both parties. Here there were none and so the Master relied on the accounts that he did find within the bundles. However, they were the accounts of a partnership between Mr Pelagias and Mr Christodoulou, not Mr Nakhjavani, and the Master proceeded to take these accounts into consideration without any inquiry into the basis upon which they had been prepared. As my Lord said, they had not been audited, nor were they statutory accounts. So, for example, there was no statutory restriction on offsetting items within the accounts. Nor was there any indication on the face of the accounts as to the conventions on the basis of which they had been prepared. There was no obligation on the part of the person preparing these accounts to show a true and fair view and that point would affect what could be within the items under any particular entry or label. There is no separate entry in these accounts for the insurance proceeds of £24,000 approximately. However, these could have been included in the accounts within some other entry not marked insurance proceeds. Accordingly this court cannot assume, without evidence, that the insurance proceeds were not taken into account in drawing up the accounts.

That would still leave the balance of the £46,262 to which my Lord has referred, namely the £21,422 rent which does amount to a material sum which was not included within the item "improvements" and could not be included. That, as my Lord has explained, meant that there is a substantial difference between the figures in the accounts in evidence before the master and those put forward by Mr Pelagias for the purposes of the account.

For my part, I would, like my Lord, Mr Justice Wilson, encourage the parties to endeavour to settle these proceedings. They are extremely expensive, I have no doubt, and the sums actually in issue may not be that great. Accordingly, those who are presenting Mr Nakhjavani and Mr Pelagias should consider very carefully to which items objections could be sustained and to which items objections should accordingly be maintained. I have had an exchange with Mr Blaker in the course of the hearing of this appeal and he was candid enough to accept that the insurance proceeds, £24,840, were indeed credited in the account prepared by Mr Pelagias. Moreover, it is clear from the documents that the appellant did not challenge the fact that there was a second set of carpets as a matter of fact, because the carpet originally laid was damaged as a result of a flood. The appellant's point is simply that the instalments towards the cost of the new carpets should have been deducted from the rental account under a second account ordered by Master Bowman, see in particular paragraph 24.7 of the appellant's skeleton argument. The appellant's skeleton argument for this appeal was prepared by counsel who is now indisposed and who thus has not been able to assist in the preparation or presentation of this appeal.

Likewise, the Deputy Master ruled that expenditure was not objectionable for the purposes of the account by reason only that it was not incurred prior to 1st May 1998. He gave that ruling at the hearing of the account. Neither party has appealed, and thus the parties are bound by that ruling. Accordingly no objection can now be maintained to an item simply on the ground that it was incurred after 1st May 1998.

I would actively encourage both parties to think very hard about what points they really need to take into any further account. Provisionally, and subject always to further submissions, the parties should not go beyond the objections already entered and if they can reduce them, so much the better.

Next, Mummery LJ, when giving permission to appeal, encouraged the parties to use Alternative Dispute Resolution. The parties were not able to employ it before the hearing of this appeal but, as this appeal is not the end of the matter, ADR remains in my judgment a very sensible course. Indeed, I would ask the parties to consider whether the draft form of order used in the commercial courts should not be used at any disposition of this appeal. This form of order is set out at page 260 of Volume 2 of the White Book and it provides that the parties should exchange lists of three neutral individuals who are available to conduct ADR procedures in the case. Second, it is provided that the parties must in good faith endeavour to agree a neutral individual and, third, that, failing such agreement, a Case Management Conference will be restored to enable the court to facilitate agreement. Fourth, it is provided that the parties should take such serious steps as they may be advised to resolve their disputes by ADR procedures before the neutral individual chosen by them, not later than the agreed date as specified by the court and, fifth, and importantly, if the case is not finally settled, the parties shall inform the court by letter prior to, in this case, the hearing before the Master, what steps towards ADR have been taken and (without prejudice to matters of privilege) why such steps have failed. If the parties have had failed to initiate ADR procedures, the Case Management Conference is to be restored for further consideration of this case.

For my part, I would like the parties to consider a period of time within which an opportunity can be given for taking advantage of ADR and avoiding the cost of a further account.

That matter can be dealt with in the submissions after this judgment.

The last matter which I wish to deal with is that, for my part, I express no view on whether the rent paid by Mr Pelagias to the head lessor of the subject property during the period of refurbishment falls within the second or the third account ordered by Master Bowman. This was not fully argued and, for myself, I would prefer to express no view thereon and to leave it to the Master. With those observations, I agree with the judgments already given.