Scottish Court of Session Decisions

Mrs Dick, wife of John Dick, ironfounder, Coatbridge, pursuer, with the consent and concurrence of her husband as her curator and administrator-in-law, brought an action against John Motherwell Alston, solicitor, Coatbridge, defender, for recovery of £10,000 in name of damages for breach of duty and repayment of gain improperly made by the defender out of transactions with the pursuer as his client.

The pursuer pleaded—“(1) The pursuer having suffered loss, injury, and damage through the fault and negligence of the defender, is entitled to reparation. (2) The pursuer having suffered loss, injury, and damage through the defender's breach of duty, is entitled to reparation. (3) The amount sued for being a fair and reasonable estimate of the damage sustained by the pursuer, decree should be pronounced as concluded for. (4) The defender having illegally and improperly made gain out of his transactions with the pursuer, is bound to restore the same to the pursuer.”

The defender pleaded—“(2) The material averments of the pursuer being unfounded in fact, the defender is entitled to absolvitor. (3) The pursuer having suffered no loss, injury, or damage through the actings and conduct of the defender, the defender is entitled to be assoilzied from the conclusions of the action.”

After a proof, in which the evidence led and the purport of the documents referred to sufficiently appear from the opinion of the Lord Ordinary (Salvesen) and of the Judges in the Inner House, the Lord Ordinary on 21st January 1910 assoilzied the defender.

Opinion.—“The pursuer in this case sues the defender, who is a solicitor in Coatbridge, for a sum of £10,000. Speaking generally, her case is that between 1897 and 1908 the defender acted as her law-agent; that he advised her in making investments, and that through his negligent advice or breach of duty towards her she has suffered loss to the extent concluded for. Pleas 2 and 4 for the pursuer raise a separate and entirely different case, to wit, that the defender, as the pursuer's law-agent, illegally and improperly made gain out of his transactions with the pursuer, and is bound to restore such gain as he made.

The history of the pursuer's connection with the defender goes back to the year 1897. In that year she succeeded to a sum of about £12,000 from an aunt. Prior to this she had been for twelve years married to Mr John Dick, who was a partner with his father in the business of ironfounders which they carried on under the name of John Dick & Company. It is common ground that Mrs Dick was introduced by her husband to the defender shortly after the money in question was available, and that she consulted him generally as to its investment. As the result of the interview she signed a cheque for £10,000 to enable the defender to get the money into his own hands; and he thereupon, with her consent, deposited it with the Commercial Bank of Scotland, of which he is the agent in Coatbridge; and sent her five separate deposit-receipts for £2000 each. About the end of 1897 or beginning of 1898 a little over £2000 of this sum was invested in the purchase of 70 preference shares of A. & J. Stewart & Clydesdale, Limited, and £1000 Coatbridge 2 3 4 per cent redeemable stock. These investments were carried through by the defender on the pursuer's behalf; but it is not necessary to consider whether they were made on his advice or not, as it is not said that any loss has been incurred, or that the investments when made were not perfectly suitable. In March 1898 the defender also carried through a transaction on the pursuer's behalf, under which she lent to Mr Hugh Ross, a personal friend of her own and her husband, a sum of £1000 for the purchase of a pawnbroking business. As security for repayment of the loan Mr Ross granted a promissory-note for the amount, and assigned two policies of life insurance. No question arises as regards this investment, as apparently Mr Ross is quite able to repay the loan if and when required. The pursuer was quite aware from the first that repayment of the loan depended on Mr Ross's success in the business which he acquired; and from motives of personal friendship she was willing to give the loan on the terms stated.

The main question in the case relates to the investment by the pursuer of the bulk of the sum to which she succeeded in the business in which her husband was interested. This firm had an account with the branch of the Commercial Bank of which the defender was agent. He and his firm also acted as law agents for the firm, and the defender personally from time to time made advances to the firm out of his own pocket. The business had been founded by the pursuer's father-in-law as far back as 1868, and had been carried on with a fair measure of success, although on a somewhat small scale. As early as November 1888 the defender had advanced to John Dick senior the sum of £1200, and on the 20th of the same month he advanced a further sum of £500. He obtained as security for these two loans a conveyance of the foundry and an assignation of a policy of insurance over the life of John Dick junior. From that time down to September 1897 the defender made further advances amounting in all to about £1100 in connection with the extension of the works. The defender considered the securities already obtained as ample to cover the loans. The total sum due to him in the latter half of 1897 was £3250, interest on which had been regularly paid. It is to be noted that the first loan of £1200 which the defender made to John Dick & Company took the place of another loan

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of similar amount, on which a higher rate of interest was paid. The defender says that he never had any doubt as to the security subjects being ample to meet the loans which he made, and I think it proved that their value in 1897 was largely in excess of the advances.

In 1897 the pursuer's husband came to know of the legacy to which his wife was entitled. He seems to have thought that with his wife's money he would be enabled to pay out his father from the firm and obtain the control of the business. Negotiations were accordingly opened between him and his father with that object, and an arrangement come to. Although there was an attempt by Mr Dick and the pursuer to deny that it had been arranged before Mrs Dick actually got possession of her legacy that her money was to be used in paying out Mr Dick senior, I have no doubt that that was the fact. On 10th September 1897 she advanced to the firm £500, and on 11th November of the same year she paid £3000 for the express purpose of enabling the firm to pay off the defender's loans, and in return she received from the defender an absolute conveyance of the firm's heritable property, and also an assignation of a policy of insurance over the life of her husband, which he held as security for his loans to John Dick and John Dick & Company. At the time when she received the absolute conveyance, the pursuer granted a back-letter acknowledging that she held the subjects only in security. The disposition is dated 23rd November 1897, the same day that an agreement was signed between John Dick senior and his two sons John Dick junior and Thomas Dick, under which the senior partner retired from the firm and the pursuer's husband became entitled to three-fourths of the profits of the business, which he was then to carry on in copartnery with his brother Thomas. In face of these documents it is difficult to understand why the pursuer should be so disingenuous as to state on record that she was not aware that her money was being applied in paying off the defender, especially as at that time she undoubtedly got adequate security for all the money she had advanced.

In the course of the year 1898 the pursuer made four further payments to the firm, of which her husband was now the leading partner, of £500 each. As vouching these advances she received from the firm promissory-notes. She says that before making the advances she consulted the defender, and that he, having particular knowledge of the financial position of the firm, advised her that she might safely lend the money. Beyond her statement there is not a scrap of evidence to this effect. The defender's books contain no record of any meetings with the pursuer on the subject of these advances by her to her husband's firm, and I am satisfied that Mrs Dick never either asked nor received advice from the defender on the subject. The pursuer cannot recall a single incident that took place at any of the interviews which she says that she had with the defender on the subject, and I may say that neither what she said in the witness-box nor her manner of saying it was in the least convincing. This matter, however, is not really important, as the securities which the pursuer held covered the advance of £2000 as well as the £3500, and were at the time regarded as ample for the whole sum of £5500.

The next matter founded on is the fact that the pursuer in April 1900 transferred to the defender the Coatbridge Burgh Redeemable stock in security of advances to John Dick & Company. A similar transfer took place in the defender's favour in December 1900 of the preference shares in Stewart & Lloyds, Limited, the name under which A. & J. Stewart & Clydesdale, Limited, at that time carried on business. These preference shares were transferred in further security of advances by the defender to John Dick & Company. The pursuer's account of this is that the defender sent for her and said the firm wanted more money, and that he would advance it if she would give him security; that she asked him if she was quite safe in doing so, and he assured her that she was. She gives a similar account of the transfer of the preference shares, although she does not profess to have any recollection of what passed. She disclaims having consulted with her husband at all, or of having given him any authority to tell the defender that she would pledge her securities to him if he made advances to the firm. The defender's account of this transaction is that in the spring of 1900 Mr John Dick requested him to give the firm a loan of £750, that he agreed to do so on condition that he obtained security for that sum and a prior loan of £250 which had been overlooked when the remainder was repaid at Martinmas 1897, that Mr Dick suggested that his wife would give as security the £1000 of Coatbridge Burgh stock which she held, that he had no communications with pursuer whatever on the subject, and that he neither was asked for nor gave any advice. As regards the December transaction, the bank account was by that time considerably overdrawn, and the defender says that Mr John Dick offered to give the bank certain securities through him; and that the pursuer accordingly conveyed her share in Stewart & Lloyds, and the bill which she held from Ross. The defender is corroborated by his son Mr John Alston, who remembers of Mr Dick calling in April 1900 and desiring a loan of £750, and says that Mr Dick distinctly told him that if the loan was given he would get his wife to transfer to the defender as security for the proposed loan, and the £250 already due, her Burgh stock, and that on the defender agreeing to do so the pursuer and her husband signed a transfer of the stock in his favour. He says that he was not aware of the pursuer ever coming to his office at that time, and that there are no entries in the books showing that she was there. He gives a similar account of what took place in December 1900, when the other securities

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belonging to Mrs Dick were transferred to the defender in security of the bank overdraft. There is no corroboration of Mrs Dick's statement at all, and I cannot therefore hold it proved that she either asked for or received any advice from the defender. Mr Dick professes not to recollect having called and asked for the loan of £750, and denies having offered to obtain a transfer from his wife in the defender's favour of the Coatbridge Burgh stock. I am sorry to say I attach very little importance to his evidence. The probabilities are all in favour of the view that Mr Dick, who wanted the money to meet the obligations of the firm, in which he held the largest interest, should have persuaded his wife to transfer her securities in order that he might get the necessary advances.

In cond. 9 the pursuer narrates that her husband's firm had in June 1900 a large overdraft at the Commercial Bank of Scotland, and that the defender, being well aware of the financial position of the firm, insisted on security being obtained. Two guarantors for the overdraft were secured, but they stipulated that they should receive security, and the pursuer came under an obligation to relieve them. She goes on to say that before coming under that obligation she consulted the defender, who advised her that she might safely become security. This latter statement, which is the only one which is controversial, is I think entirely disproved. Here again, as might be expected, it was the pursuer's husband who induced her to intervene for his benefit, as shown by the letter of 18th June 1900 addressed by Mr Dick to the defender in answer to a letter of 14th June from the defender to him, in which he says, ‘Mrs Dick is agreeable to signing the letter of relief.’ It may be noted that this letter of relief came in place of a similar letter which Mrs Dick had already granted in reference to a former cash-credit bond for £1200.

Up till June 1902 the pursuer held an absolute disposition of the works in security of the advance of £5500 already referred to. In that month, however, she signed a conveyance of the works to the defender, which is dated 16th and 17th June 1902. She says that she was induced by the defender to grant this conveyance while he was still acting as her law agent and adviser, that she was not aware that its effect was to postpone her security to that of the defender and the bank, and that she believed that the defender was safeguarding her interests. She admits having received a back-letter declaring that the conveyance was granted for the purpose of securing advances made by the defender to the firm, and that on payment of these advances he would reconvey the subjects to her. This back-letter was recalled, and another dated 4th July 1902 granted in its place; the chief difference between the two back-letters being that the second one referred to obligations incurred to the Commercial Bank as well as to the defender's personal advances to the firm, and declared that the property would be reconveyed to the pursuer only on repayment of both. No objection was taken by the pursuer to the second back-letter; but she says that throughout this transaction she acted on the advice and at the request of the defender, that she was ignorant of the purpose of the disposition, was unaware that she was thereby ousted from her position as a secured creditor in favour of the defender and the bank, and that she simply signed the various deeds placed before her in reliance on the defender safeguarding her interests. In the witness-box she professed to have no recollection at all about the transaction, or of any conversation she had with the defender. She adds that occasionally she called on the defender to ask him how the works were getting on, as she felt anxious about them seeing that she was not getting any interest on her money. I decline to attribute to the pursuer such simplicity or ignorance of business as she now professes; for I think it is quite clear from a passage in her own cross-examination that she knew perfectly well that in granting the conveyance in favour of the defender of the works she had parted with her security. Referring to a meeting that pursuer had with Mr Ballantyne, at which Ballantyne says her husband was pressing her for further accommodation, she makes the following statement:—‘I was surprised at Mr Alston sending a stranger to me saying they wanted another loan when he knew that he had all the securities.’

In 1902 the defender was consulted with a view to converting the firm of John Dick & Company into a limited liability company. He had previously had their instructions to endeavour to obtain increased working capital by getting other parties to join the firm as partners, and to put money into it. Three gentlemen were all successively approached; but all of them, after consideration, refused to take any interest in the business. The partners of the firm accordingly resolved to go on with the scheme of converting the concern into a limited company; and such a company was ultimately formed on 12th February 1903, with a capital of £20,000, divided into 12,000 ordinary shares of £1 each, and 8000 cumulative preference shares of £1 each. The firm was to receive as the price of the business the whole of the ordinary shares and 4208 preference shares, or an equivalent amount in cash. Preference shares to the extent of £510 only were subscribed for by outside parties, although the whole balance had been offered to the public. This sum, along with £2500 supplied by Mr James Clark, was the only fresh capital put into the concern; and there was no cash available, therefore, to pay off the debt due by the old firm to the pursuer. She accordingly accepted 5000 ordinary shares in the limited company in lieu of her claim as a creditor of the old company. For the same reason the limited company was not in a position to pay off the loan received from the defender, in security of which he held a conveyance of

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the works; and the defender agreed to take the limited company as his debtor instead of the firm for this loan, on the footing that he retained his security over the works. The pursuer says that in giving up, as she did, her claim as a creditor of the old firm, and taking shares in the limited company, she acted on the advice of the defender; and that she was not aware that she was thereby postponing her claim against the company to that of the creditors; that the defender was aware of the unsound position of the business, and that he ought to have warned the pursuer that in taking shares her position was being greatly prejudiced. None of these statements have been substantiated. The defender's firm was acting solely in the interests of John Dick & Company in the flotation, and Mr John Alston became secretary of the concern. There is no evidence at all that the pursuer applied to the defender for advice as to whether she should give up her claim as a creditor and take shares in the new concern. What she did I have no doubt was done on the suggestion of her husband, who was very sanguine as to obtaining fresh capital by the allotment of preference shares to his friends, and who believed that his business was sound and would be profitable to the shareholders. Unfortunately his expectations were not realised, and during the years following the flotation the business was carried on annually at a loss until about the middle of 1908, when it was obliged to go into liquidation. The pursuer had meantime become still further interested in the company, as she had taken over at half price 250 preference shares subscribed for by a Mr Ballantyne, who had threatened to raise an action for repetition of the money paid by him. To avoid this the pursuer was induced by her husband to pay Mr Ballantyne, on 9th October 1904, £125, in exchange for the 250 preference shares which he held. In February 1905 the defender was approached for a further advance of £1500 to the company. Before doing so he stipulated that he should hold the securities which he had obtained from the pursuer in security not only of the loans which he had previously advanced, but also of this sum of £1500. To this the pursuer agreed, and the amount was advanced by the defender accordingly, and enabled the company to carry on business for some years. The net result of these transactions is that the pursuer's whole funds which she had invested in her husband's business have been lost, and she has also lost the £3000 or thereby which she originally invested in other securities, but assigned to the defender in security of advances which he made either to the firm of John Dick & Company or to the limited company. It is probable also that the defender will sustain a loss of some hundreds of pounds, the securities which he holds being insufficient to meet the advances to the company.

As regards the transaction with Ballantyne, the pursuer admits that she knew about the purchase of the preference shares from him; and as regards the loan of £1500, the material facts rest on correspondence between Mrs Dick and the defender's firm, dated 18th and 21st February 1905. As regards both these transactions, I hold that the pursuer has entirely failed to prove that she was in any way advised by the defender. I believe she acted as she did because she fancied that by doing so she would promote her husband's interest.

The pursuer, however, maintained that apart from any proof that the defender advised her to make these investments, all the transactions between her and the defender are challengeable in respect they were between agent and client, and resulted in profit made by the agent at his client's expense. It is sufficient by way of illustration to consider the transaction by which the defender obtained from the pursuer a conveyance of the heritable security, for if the pursuer is not entitled to be restored against this she has still less to go upon in any of the others. Now it is undoubted that between 1897 and 1908 the defender was the only law agent whom the pursuer consulted and who transacted law business on her behalf. He was originally introduced to her in order that she might have some one to advise with in the investment of her money. He did in fact make various investments on her behalf, and when she desired to buy a house he carried through the purchase for her. He collected and remitted to her the interest on the securities which he held in his hands; he made a will for her; and, in short, whenever Mrs Dick wished to consult a lawyer she invariably went to the defender. She employed no other law agent, and she was never advised by the defender to avail herself of the services of any other. The conveyance of the heritable property in his own favour was prepared by the defender, and it had of course the effect of depriving the pursuer of the security she held (then considered ample) and leaving her as an unsecured creditor of her husband's firm. It was contended that it was the duty of the defender to explain to the pursuer exactly what he was doing, to make a full disclosure of all that he knew with regard to the financial stability of the company in which her husband was interested, and that if he did not make such disclosure and concealed anything the whole transaction must be set aside and the pursuer restored to the position in which she was before she signed the conveyance. Reference was made to various authorities, some of them of very recent date, of which the following may be noted— Ronaldson, 8 R. 769; Osler, 14 R. 121; Clelland, 6 R. 156; Macpherson, 5 R. (H.L.) 9; Gillespie, 1909 S.C. 1053; and Aitken, 1909 S.C. 1213.

These cases resolve themselves roughly into two categories. In the first category may be placed such cases as that of Ronaldson, where the agent was held liable for the loss of an investment which he negligently advised his client to make. In the second are included such cases as Gillespie and Aitken, decided in 1909, where contracts between an agent and client were sought

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to be reduced on the ground that the agent secured to himself an unfair benefit. I have already held that the defender never advised the pursuer with regard to any of the transactions which she entered into and which have proved to her prejudice. The mere fact that a client is known by her ordinary law agent to be making investments which if he had been consulted he would possibly not have advised is no reason for holding the law agent responsible if these investments turn out bad. The pursuer was perfectly aware that when she signed the conveyance in favour of the defender she was giving up her security over the heritable property of John Dick & Company. If she had done so in order to oblige the defender, and so as to confer a benefit upon him, the transaction would no doubt have been open to challenge; but the defender in no case received any benefit, with the single exception of the occasion when he obtained security for the unsecured advance of £250 when he was advancing a further sum of £750. His advances were made only on the footing that the securities which the pursuer owned were assigned by her to him. In these transactions the pursuer's husband was her natural adviser, and if she chose to act upon his advice she has only herself to blame. The loan of £250 is not really an exception, because there is no question that at that time the defender could have made it good against John Dick & Company, who remained solvent for years afterwards. The case seems to me to be the common one of a wife with separate means being induced by her husband to part with these means in order to keep his business afloat; and the case would have been precisely the same if Mr Dick had got some friend who ordinarily consulted the defender on legal business to become cautioner for a loan which the defender was willing to make to Mr Dick. No doubt any independent law agent if he were consulted as to such a transaction would advise his client never to enter into cautionary obligations on behalf of another; but it would be absurd to make any difference between the case where a mercantile firm was the lender and where the loan was made by the ordinary law agent of both parties. I cannot see any trace of unfairness in the defender's dealings with the firm of John Dick & Company or with Mrs Dick, and unless it be the law that an agent for spouses, each of whom has separate estate, has a duty to prevent the one from pledging his or her means for advances made to the other (whether by himself or by a third party does not seem to matter) there can be no liability here. In the various years in which these transactions took place which have proved so disastrous to the pursuer she never consulted the defender at all. Had she asked him for his advice in the matter and he had advised her negligently or dishonestly, the case would have been entirely different; but on that issue the pursuer has in my judgment completely failed. I have therefore no difficulty in assoilzieing the defender.”

The pursuer reclaimed, and argued — Transactions had been entered into by the defender with the pursuer which he knew to be to her prejudice and to his own advantage. He had taken security from the pursuer for Dick & Company, obtaining for himself a large balance of security, not only as an individual but also as agent of the Commercial Bank, responsible to the bank for the position of Dick & Company's account. As an individual he had taken security in this way for past advances which were unsecured; and in the case of one of these, for £250, security had been taken by him without disclosure to the pursuer. The defender was the pursuer's only law agent, and financial transactions which he entered into with her while acting as her law agent were to be strictly scrutinised— Aitken v. Campbell's Trustees, 1909 S.C. 1217, 46 S.L.R. 830; Gillespie & Sons v. Gardner, 1909 S.C. 1053, 46 S.L.R. 771; M'Pherson's Trustees v. Watt, November 29, 1877, 5 R. (H.L.) 9, 15 S.L.R. 208; Cleland v. Morrison, November 9, 1878, 6 R. 156, 16 S.L.R. 90. The defender had failed to disclose his own interests in his transactions with the pursuer, and had taken no steps to see that she was independently advised— Willis v. Barron, [1902] AC 271. Even if the defender had acted innocently, he had failed in his duty to the pursuer, whose husband was also his client, because it was the duty of a law agent to see that his client's wife was not subject to undue influence — Bank of Montreal v. Stuart, [1911] AC 120. The defender should have refused to act for the pursuer because of his connection with Dick & Company.

Argued for the respondent—The ground of the decision in the case of the Bank of Montreal v. Stuart ( cit. sup.) distinguished that case from the present, as in that case undue influence of the husband was within the knowledge of the bank that took advantage of it, and in the present case the element of undue influence was entirely absent. The case of Willis v. Barron ( cit. sup.) was also distinguished from the present, in which there had been no misrepresentation. The pursuer had shown a complete understanding of all the transactions in question, and without cause sought in the present action to have an onus imposed upon the defender of showing that no undue influence had been employed — Forrests v. Low's Trustees, 1907 S.C. 1240, 44 S.L.R. 925; 1909 S.C. (H.L.) 16, 46 S.L.R. 639. The transactions in question had been initiated by the Dicks, and if they had gone to third parties they could not have got better terms than they got from the defender. No case had been made on record as to taking securities for past advances without disclosure. The defender had obtained no unfair advantage and had treated his clients, the Dicks, generously.

At advising—