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Cite as: [2001] ScotCS 100

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OUTER HOUSE, COURT OF SESSION
O/14/6(a)/99	OPINION OF LORD MACFADYEN in the cause ISABELLA DORIS BRIGGS or BROADWAY Pursuer; against CLYDESDALE BANK PLC Defenders:   ________________

 

 

Pursuer: Davies, Drummond Miller, W.S.

Defenders: McNeill, Q.C., Anderson Strathern, W.S.

27 April 2001

Introduction

[1] In this action the pursuer seeks partial reduction of a standard security which she, along with her husband and son, granted in favour of the defenders over Westquarter House, Glassford, Strathaven ("Westquarter"). Westquarter was at the material time jointly owned by the pursuer, her husband Leslie Broadway ("Leslie"), and her son Anthony Broadway ("Anthony"), in the proportions of one quarter, one quarter and one half respectively. The pursuer seeks reduction of the standard security so far as it relates to her one quarter pro indiviso share. There are also conclusions for reduction of a sheriff court decree granting warrant for ejection, which the defenders obtained against the pursuer and Anthony, as an individual and as executor of Leslie, in reliance on the standard security; for reduction of a charge for eviction proceeding on that decree; and for interdict of the defenders from ejecting the pursuer from Westquarter or selling it without her consent.

[2] The action proceeds on averments (a) that the pursuer was induced to sign the standard security by the exercise by her son or her husband or both of them of undue influence over her, and (b) that the defenders were not in good faith in relation to the granting of the standard security. Although the pursuer's first and second pleas-in-law are cast in terms that suggest that she contends that reduction should be granted if either one of those factors is established, in his submissions Mr Davies, who appeared for the pursuer, accepted that she could succeed only if both factors were established.

The Circumstances Surrounding the Granting of the Standard Security

[3] The standard security in favour of the defenders over Westquarter (No. 6/4 of process) was executed on 15 October 1992. The standard security as such was granted by Anthony, Leslie and the pursuer. The relative personal obligation was granted by Anthony and his wife, Sandra, and was in respect of "all sums which are now and which may at any time hereafter become due to the Bank in any manner of way by us, either solely or jointly with any person or persons or corporation, company, firm or other body".

[4] The circumstances which led to the granting of the standard security, as established in evidence, may be summarised as follows. In the early 1950s Leslie, who was a civil engineer by profession, acquired from one William Gardiner a small haulage business. A limited company ("the company"), originally called John Gardiner (Contractors) Limited, was incorporated on 16 January 1953. The business was transferred to the company, and evolved into a contracting business, carrying out road surfacing and asphalting work. The business was successful. Although William Gardiner was initially a director of the company, he resigned at an early stage. Leslie and the pursuer were both directors, and the pursuer was company secretary. In practical terms Leslie managed the business and negotiated contracts with customers, while the pursuer was responsible for clerical and bookkeeping work. Anthony, who was born in 1956, joined the company at the age of seventeen. He became a director when he was about twenty-one. At some stage in the 1980s (not clearly identified in evidence) Leslie, whose health was by then deteriorating, retired as a director of the company, and Anthony (at first jointly with one James Russell) became managing director. The business changed direction. First, it diversified into thermal insulation and asbestos removal. Then the road surfacing part of the business was closed down. At that stage Mr Russell was made redundant. The name of the company was changed to John Gardiner Environmental Services Limited. As at 1992 Anthony was the managing director, and Sandra was also a director. The pursuer was still a director and still formally the company secretary, but in practice her duties as secretary had been taken over by Sandra and she had ceased to be actively involved in the business. At that stage the issued share capital of the company was 10,000 shares of £1 each, of which Leslie held 5104, Anthony held 3263 and the pursuer held 1633. In about 1992 Anthony and Sandra decided to inject further capital into the company. That was done by borrowing £200,000 from the defenders. It was in security of that loan that the standard security was granted. Subsequently, in the course of 1993, 40,000 additional shares were issued to reflect in part the injected capital, and 20,000 of those shares were allotted to each of Anthony and Sandra. Leslie's shareholding was thus reduced from a majority to a minority interest, and the pursuer's minority shareholding was substantially diluted.

[5] Prior to the transaction in connection with which the standard security was granted, the company had banked with the Royal Bank of Scotland. The pursuer was, according to her evidence, unaware of the reason for the approach being made to the defenders. Anthony's evidence was that there was at about the relevant time a change in personnel at the relevant branch of the Royal Bank. The business manager with whom the company had been accustomed to dealing for many years was moved away. Anthony was at pains, however, to minimise his own involvement, saying that he tended to deal with the general running of the business, leaving financial matters to Sandra. It was, he said, Leslie (who, although retired as a director, maintained an influence over the affairs of the company) and Sandra who became dissatisfied with the Royal Bank, and the company's accountant who, after discussions with Sandra, opened negotiations with the defenders. Sandra confirmed that there was a change in management structure at the Royal Bank, and she attributed to Leslie the suggestion that the company should change its bankers. The approach to the defenders, she said, was made through Neil Atkinson of the company's auditors. The evidence about the progress of the negotiations was not particularly clear or consistent, but it appears that initially the company simply wished to "transfer" its overdraft to the defenders (presumably by borrowing on overdraft from them and repaying the Royal Bank overdraft with the borrowed funds). Sandra mentioned the sum of £170,000 in that connection. The defenders were not, however, prepared to lend on that unsecured basis. Eventually the arrangement came to be that the defenders would lend £200,000 to Anthony and Sandra on heritable security and Anthony and Sandra would in turn inject the borrowed funds into the company. According to Sandra the proposal that the borrowing from the defenders should take the form it did was made to her by telephone, and she then discussed it with Anthony and with Leslie. Ian McMillan, then the Banking Services Manager of the defenders' Stirling branch, said that the original introduction by Neil Atkinson was in connection with another matter, and that a direct approach to borrow for the company was made by members of the Broadway family. His recollection was that the proposal under discussion had, from the outset, related to borrowing on heritable security, but be that as it may he confirmed that the granting of an unsecured overdraft would not have been acceptable to the defenders. At all events, it seems to be clear that, however the subject had originally been raised, a stage was reached at which there was a meeting at the defenders' Stirling branch attended by Anthony and Sandra and Ian McMillan. It is also clear that what was agreed (whether at that meeting or, as Sandra said, over the telephone) was that the defenders would make a heritably secured loan to Anthony and Sandra and they in turn would inject the borrowed funds into the company. That injection was ultimately treated partly as a loan and partly as a subscription for additional share capital. The banking business in general was transferred to the defenders from the Royal Bank. It is, however, clear that the pursuer took no part in the negotiations which resulted in the loan and the transfer of banking business.

[6] At the time of the negotiations with the defenders, the title to Westquarter stood as I have indicated in paragraph [1] above. So far as occupation was concerned, Leslie and the pursuer lived in one part of the house and Anthony and Sandra lived in another. There was, however, no structural division of the house into two parts. According to Anthony, he "took it" that it was his part of the house that was to be taken by the defenders as security for the loan, mainly because the loan was to be to Sandra and him. Sandra said that when it was indicated to her that the defenders required security "over what I thought was our part of the house", she had to speak to Anthony. She said that she also spoke to Leslie. She said that "we [i.e. she and Anthony] thought the security was over our part of the house". Ian McMillan's evidence was to a rather different effect. He said that from the outset he contemplated that the defenders would take a standard security over the whole of Westquarter. His understanding was that the property was owned by Anthony and Sandra jointly with Leslie and the pursuer. He had no recollection of believing at first that Anthony and Sandra alone owned the property, then discovering that Leslie and the pursuer were also proprietors. He attributed his understanding to information conveyed to him by Anthony and Sandra. As part of the process of deciding whether or not to lend, the defenders had Westquarter valued. What was valued was the whole property. The defenders would not have accepted security over part of an undivided property. He denied that the terms of the letter of instruction dated 12 October 1992 (No. 7/12 of process) which he sent to Burnett & Reid showed that at that stage he was unaware of the interest that Leslie and the pursuer had in the house. He said that the draft of the letter was prepared for him by a subordinate, who had taken the details from the mortgage application completed by Anthony and Sandra. The fact that the borrowers were not the only owners of the security subjects was overlooked in the drafting of the letter. When the true state of the title was drawn to the defenders' attention by Burnett & Reid (No.7/13 of process), that did not come as news to him (except to the extent that he had thought that Sandra also had a proprietary interest). If it had, he would have reacted differently to that letter. In the event, the response was probably an acknowledgement by telephone. It had been his understanding all along that Leslie and the pursuer were part owners of Westquarter, and that the standard security in respect of the loan would be granted over the whole property. It is clear from the terms of correspondence between Leslie and Michael McMillan of Burnett & Reid (Nos. 7/38 and 39 of process) that Leslie understood that the security was to be over the whole of Westquarter. It is also clear from No. 7/13 of process that Michael McMillan knew that the security was to be granted over the whole property. In the circumstances, I am satisfied that security over the whole of Westquarter was contemplated from the outset. That was plainly the only commercially realistic course for the defenders to take. I do not find convincing the evidence of Anthony and Sandra that they thought otherwise, and am not prepared on that basis to hold that Ian McMillan's evidence that he knew from the outset of Leslie's and the pursuer's interest in the house, and that his source of information was Anthony and Sandra, is untrue. Nor, in my view, do the terms of the letter of instruction (No. 7/12 of process) justify rejection of Ian McMillan's evidence on that point.

[7] According to the pursuer's pleadings, she signed the standard security at a meeting attended by Ian McMillan and all four members of the Broadway family in Anthony and Sandra's lounge at Westquarter on 15 October 1992. The standard security bears to have been executed at Strathaven on that date. It seems clear on the evidence that there was a meeting at Westquarter attended by Ian McMillan. Its date remains uncertain, although the weight of the evidence suggests that it was before the date on which the standard security bears to have been executed. Be that as it may, there was a conflict of evidence as to whether the standard security was signed by the pursuer at that meeting. The pursuer was the only witness who thought that it had been. Her recollection was not good. She acknowledged her signature on the standard security, and said that she recalled signing it. When asked if she remembered the occasion when she signed it, she said (at page 36C of the transcript of her evidence):

"Well, in my mind the only time I met anybody from the Clydesdale Bank was when I was introduced to the manager ... at Westquarter, in Anthony and Sandra's part of the house. And I can only imagine that ... I have ... The only thing I can think of, that must have been the time I signed it, because I've never been in the Clydesdale Bank offices or anywhere else to do that."

Later (at page 37D) she repeated:

"I can't imagine I signed this [the standard security] other than on that occasion".

She could not remember what was discussed at the meeting. In cross examination she spoke of having a recollection of signing a document on the coffee table in Ian McMillan's presence. The document she signed, however, was one produced by Ian McMillan from his briefcase. She understood that it was some sort of acknowledgement that the borrowed funds would be invested in the company. She had no recollection of any of the other members of the family signing the document that she signed. I am unable to accept the pursuer's evidence as reliable evidence that she signed the standard security in the course of the meeting attended by Ian McMillan at Westquarter. I do not doubt that the pursuer was doing her best to recall the circumstances in which she signed the standard security. It may well be that there was some other document that Ian McMillan produced for her to sign at the meeting, although he had no recollection of doing so. At all events the evidence of the other witnesses satisfies me that the standard security was not signed at the meeting. The result is that the pursuer has no recollection of the occasion on which she actually did sign the standard security.

[8] In fact the standard security was sent by Michael McMillan to his former firm, Macdonalds Sergeants, East Kilbride, under cover of a letter dated 14 October 1992 addressed to "The Broadway Family" (No. 7/14 of process). Michael McMillan's intention was that the members of the Broadway family should go to the offices of Macdonalds Sergeants and execute the standard security there under the guidance of a representative of that firm, but in the event that did not happen. Instead Anthony, at Sandra's request, collected the envelope containing the engrossed standard security and the covering letter from Macdonalds Sergeants' office, and brought it to Westquarter. I shall return (see paragraphs [11] and [12] below) to the question of what precisely was done with the contents of that envelope at Westquarter, but it is clear that the executed standard security, signed by all four members of the Broadway family, reached the hands of Michael McMillan by 16 October (No. 7/15 of process). According to his evidence, which I accept, it came back via Macdonalds Sergeants.

[9] It is necessary to examine in some detail the role of Michael McMillan in the transaction. Anthony gave evidence that Michael McMillan was, at the material time, his solicitor. He had acted for him in connection with other matters. When Leslie's previous solicitor had retired some time before, Anthony had introduced Leslie to Michael McMillan, and Michael McMillan had begun to act for Leslie and for the company as well. Anthony said that the defenders had been advised through Sandra that Michael McMillan was "our solicitor" (without elaborating on what he meant by "our"). According to Sandra, Michael McMillan was her solicitor and Anthony's, and had later acted for Leslie and the pursuer as well. She said that she must have advised the defenders that "he was our solicitor" (again without further elaboration of "our"). The pursuer's evidence was that Michael McMillan had acted for Leslie in relation to inheritance tax planning, and had prepared wills for her and for Leslie. She had not given him instructions in relation to the standard security. She said that she was unaware of the letter (No. 7/39 of process) from Leslie to Michael McMillan in relation to the transaction with the defenders. Michael McMillan's evidence was that he first met Anthony when Anthony bought a public house from a client of his. Anthony then asked him to act for him, and he did so, at first in relation to licensing matters. He was introduced to Leslie and the pursuer in late 1990 or early 1991. He acted for them in the transactions by which shares in the title to Westquarter were transferred from Leslie to the pursuer and Anthony, and from the pursuer to Anthony. He also prepared wills for them. He considered himself to be the family solicitor. In relation to the transaction with the defenders, his instructions came initially from Anthony. Anthony denied contacting Michael McMillan about the loan transaction, but I found his repeated attempts to minimise the extent of his own involvement unconvincing, and prefer Mr McMillan's evidence. At about the same time as he was instructed by Anthony, Mr McMillan received the letter from Leslie (No. 7/39 of process) indicating his and the pursuer's agreement to the granting of security over Westquarter in favour of the defenders. He did not recall the subsequent telephone call mentioned in No. 7/38 of process. He said that he regarded himself as acting for all four members of the family in relation to the granting of the standard security. He said that he anticipated receiving instructions from the defenders to act for them as well in the transaction. He duly received such instructions (No. 7/12 of process). By the time that letter arrived, he had had a telephone call from Anthony indicating that the defenders' instructions were coming, and asking him to deal with the matter expeditiously. His response to the defenders (No. 7/13 of process), which was sent by fax (see No. 7/32 of process), drew attention to the state of the title to Westquarter. He did not feel that he needed any further instructions from the defenders or from the Broadway family to proceed in the way indicated in that letter. Ian McMillan's evidence was that he was advised by Anthony and Sandra that their solicitor was Michael McMillan. He understood that Michael McMillan was to be acting for all members of the Broadway family; that he was the family solicitor chosen by them. He instructed him to act for the defenders as well (No. 7/12 of process). He understood the reference in the reply (No. 7/13 of process) to "the clients" to be a reference to all members of the Broadway family. In light of all of that evidence, I am satisfied that Michael McMillan was acting for the pursuer as well as for Leslie, Anthony and Sandra in relation to the transaction with the defenders. There is no dispute that he had instructions from Leslie, Anthony and Sandra in the ma

[10] In his capacity as the family solicitor acting on behalf of all four members of the Broadway family, Michael McMillan sought to tender to them certain advice in connection with the granting of the standard security. He formulated that advice in the covering letter with which he sent the standard security for execution. That letter (No. 7/14 of process), which was as I have said addressed to "The Broadway Family", care of Macdonalds Sergeants, was in the following terms:

	"Dear All, Clydesdale Bank Loan Security over Westquarter
	I understand the position to be that AJWB [Anthony] and SB [Sandra] are borrowing cash from Clydesdale Bank to inject capital into John Gardiner [the company], and that this capital will be treated as Directors' Loan Capital. The loan is to be secured over Westquarter.
	Would you please all be aware that:-
	1.	AJWB and SB are the borrowers, and they are the persons liable to repay the loan, and pay the interest charges.
	2.	However, the house is owned as to 1/4 by each of LJB [Leslie] and IDB [the pursuer] and as to 1/2 by AJWB. The security has to be granted by them as the three owners.
	3.	Accordingly, although LJB and IDB have no personal liability for repaying the loan or interest, they would lose their interest in the house if the Bank called in the loan and forced a sale of the house. What would happen then is that the house would be sold by the Bank, the loan would be deducted, and the money left over would then be paid to AJWB, LJB and IDB in the proportions of 1/2:1/4:1/4.
	4.	It is probable that SB has no occupancy rights in the house anyway, because her husband does not own it outright but only a share of it, but any rights she does have are being given up.
	5.	On the other hand, the loan is not available unless the security is granted!
	Provided you are all prepared to proceed, would you please arrange to sign the enclosed deed where your initials are marked in pencil. [There then followed further directions for execution and attestation.]
	I await return of the deed. Yours sincerely ...".

[11] The evidence offers no satisfactory explanation of what became of that letter. When it was put to Anthony, he accepted that "it must be the letter I collected from Macdonalds Sergeants". When asked if he read it at the time, he said, "Not when I collected it. I just took it back to Sandra." He then embarked on a series of answers which I noted in the following terms (emphasis added):- "I can't honestly remember reading it, to be honest. ... I must have seen it at the time. I can't honestly remember. ... I can't remember, to be honest, reading the letter properly. ... I don't recall reading it at the time. ... I am not aware who else might have seen the letter. ... I would have remembered it if I had read it properly". The very repetition of variants of the word "honest" strongly suggested to me that in that passage of his evidence Anthony was not being candid. When asked who else ought to have seen the letter, he said his father, because he did not do anything without his father's say-so. So far as his mother was concerned, "she hadn't taken much of an interest in things". He said that he did not remember who was there when he signed the standard security, but thought he had signed it when Sandra did. He said, too, that he thought that Sandra must have taken the standard security to his father and mother for them to sign it. Sandra's evidence was that Anthony collected the envelope from the solicitors and brought it back and handed it to her unopened. She opened the envelope, read the instructions and signed the standard security. She acknowledged that No. 7/14 of process was the letter, but said that she did not show it to the other members of the family. She said that Anthony "saw" it. She herself read it. She said that it did not represent "our understanding" of the position. She added: "We ignored the terms of the letter because of what we'd already been told" (which I understood to be a reference to her assertion that she understood the security to be over Anthony's share only). She acknowledged that she was aware that the letter constituted the solicitor's advice to the family, but that she had decided to ignore it. She maintained that she did not take the standard security to Leslie and the pursuer for signature. Her evidence was that she and Anthony both signed it, then Anthony took it upstairs for his parents to sign it, and returned with it signed. On the basis of that conflicting evidence it seems to me to be likely that the standard security was signed by Anthony and Sandra together, not in the presence of Leslie and the pursuer. I am unable to make a finding as to who took the standard security to the pursuer and Leslie to obtain their signatures on it. I am unable to accept that Anthony did not see the letter from Michael McMillan. I am unable to determine how carefully he read it, or what attention, if any, he paid to its terms. I am unable to find in the evidence of Anthony or Sandra any support for a conclusion that the pursuer saw the letter. Equally, however, I am unable to make a positive finding that Anthony was responsible for deliberately withholding it from her in the knowledge that it contained advice, intended for her among others, about the risks of granting the standard security. Although I find Anthony's evidence about his dealings with the letter unsatisfactory and highly suspicious, my rejection of that evidence together with acceptance of Sandra's evidence that he "saw" the letter and that she read and understood it, does not, in my view, justify a positive inference that he was aware of its terms and deliberately suppressed it.

[12] There were also curious aspects of the pursuer's evidence about Michael McMillan's letter (No. 7/14 of process). When it was put to her in examination in chief, she was first asked to note that it was addressed to "The Broadway Family, care of Macdonalds Sergeants", and was then asked if she knew that firm. She explained that she knew it was Mr McMillan's former firm before his move to Aberdeen. As she was giving that answer, she was reading the letter (see the transcript of her evidence at page 48E - "I'm busy having a look to see what this is about"). She was then asked if she wanted an opportunity to look through the letter. Her answer is recorded (at 49A) as "Ehm, yes, I would, actually. Oh, dear, I see, mhm hm". My recollection is that the latter part of that answer was murmured as she read the letter. She was then asked, "... at the time that you signed the security which we've been discussing, had you seen this letter?" and replied, "No, no." There followed some questions about whether she was involved in or had knowledge of the letter being collected from Macdonalds Sergeants. I then asked some questions (beginning at page 49E):

Q.	"Mrs Broadway, have you seen that letter before today?"
A.	"No; no, my Lord, no."
Q.	"It's not been shown to you?"
A.	"That's a shock, I've never ...".
Q.	"You haven't been shown it and asked for your comments on it?"
A.	"No. No. I'm shattered".

At that point she appeared to be somewhat distressed, and the court adjourned for a few minutes. When proceedings resumed, Mr Davies' examination proceeded (at page 51A) as follows:

Q.	"... do you remember having seen this letter at the time you signed, or about the time you signed the Standard Security?"
A.	"No."
Q.	"Later, have you been shown this letter by your solicitor?"
A.	"Yes, yes."
Q.	"Right, you remember ...?"
A.	"I'm convinced I haven't seen it, no."
	...
Q.	Were you shown the letter by your solicitor in connection with this litigation ... before today?
A.	"No. No, this was a complete shock to me."
Q.	"Are you sure you didn't discuss it in a meeting with him?"
A.	"No."
Q.	"Had you discussed various correspondence?"
A.	"This question here?"
Q.	"Yes."
A.	"With my solicitor?"
Q.	"Yes, Mr Carlin?"
A.	"Not in that ... form".

I then asked a number of further questions:

Q.	"What Mr Davies is trying to get at, Mrs Broadway, is whether at some stage in preparation of this case ...you have been shown that letter, or a copy of that letter?
A.	"Oh, yes, I have, but not in ... It was the shock of seeing it in this form that took the breath away from me."
Q.	"I'm not understanding what you mean about 'this form'?"
A.	"Have I been shown the letter ... by my solicitor? Yes, I had."
Q.	"So why was it a shock to see it?"
A.	"Because it just, it brought it completely back to me. I didn't know that it was Macdonalds Sergeants, I thought it had been sent to the family, not through the solicitor, through Macdonalds Sergeants, I couldn't believe that. I mustn't have understood that from my own solicitor that that was it. And it was seeing the shock of that that floored me".

A few questions later it became clear that the pursuer was not hearing clearly everything that was said to her. In cross examination, her position was that she had not seen the letter until it was shown to her by her present solicitor in April or May 2000. I take the pursuer's ultimate position to be (1) that at the time she executed the standard security she had not seen the letter No. 7/14 of process, (2) that in the course of this process but before she gave evidence she was shown it by her present solicitor, (3) that there was something about the letter, when it was placed before her while she was giving evidence, that surprised or distressed her, and (4) that what surprised her had something to do with the involvement of Macdonalds Sergeants in the transmission of the letter. I am in the end prepared to accept that those passages in her evidence in which she said that she had never seen the letter before were the result nervousness, confusion, misunderstanding or imperfect hearing or a combination of those factors. I remain puzzled as to why realisation of the involvement of Macdonalds Sergeants in the matter should have upset her to the extent that she appeared to be upset while giving evidence on this matter. Although in general I accept the pursuer as a truthful witness who was doing her best to give accurate evidence so far as the imperfections of her memory permitted, I feel that there may have been an element of exaggeration of her reaction to the letter for histrionic effect, which she then found it difficult to explain when it became apparent that she had indeed seen it before, albeit not when she signed the standard security. I cannot in all the circumstances go so far as to conclude that the pursuer's evidence that she did not see the letter at or about the time when she signed the standard security is untrue.

[13] On the basis therefore that the pursuer signed the standard security without having received the written advice that Michael McMillan had sought to convey to her and to the other members of the family by his letter (No. 7/14 of process), it is necessary to consider further what her understanding of the position was. She accepted that in the context of expansion of the company there had been general family discussion of the need for more capital. She was not involved in discussions as to how such capital was to be raised. She accepted, however, that she was told about the proposed transfer of the family's and the company's banking business from the Royal Bank to the defenders. She believed that it was Leslie who told her. The reasons for the change were not discussed with her, but she presumed that the defenders were offering better terms than the Royal Bank had done. In examination in chief (at page 35A of the transcript), she was asked:

Q.	"Did you discuss the matter of the loan with your husband, Leslie Broadway, at any stage?"
A.	"I did say that I hoped it wasn't going to have any effect (sic) and Les said, 'Not at all, they're responsible for that', and I wasn't to worry".

Later (at page 40C) she was asked:

Q.	"... did anyone explain to you that the document you were signing was the security over your share of the house?"
A.	"Not my side of the house whatsoever, no".
Q.	"I mean, did anyone tell you that ... this put your house at risk or ...?"
A.	"I had no idea of that at all; if I had I would have, with hindsight, taken advice".

Later, after she had explained that she only took a cursory look at the document before signing it, and did not read it, she was asked (at page 42C):

Q.	"And why not, would you not normally read such a document?"
A.	"I didn't think I was ... involved in it. I thought this was purely Anthony and Sandra's involvement in borrowing the money and I really quite thought it was their responsibility and not mine, stupidly enough".
Q.	"Did you ask your husband about signing the document?"
A.	"Yes, and he said it would be all right, just sign."
	...
Q.	"Would you often follow your [husband]? You said your husband said just to sign it."
A.	"Oh, yes, I followed him, I trusted him with everything really. I had no question to mistrust him at all".

Asked out how she felt about how her husband had acted she said (at page 56B):

A.

"Well, I can only say he was ... trying to prevent me from undue worry about what might happen ultimately. He obviously would know that, what the results would be and tried to prevent me from undue distress. But it was, with hindsight it was very foolish, I ought to have been prepared there and then [for] what was going to happen. Let's face it, he didn't know what was going to happen, that the business was going to fold."

In cross examination, the pursuer indicated that she appreciated that in general a bank would require security for a loan. She assumed, however, that any security would be Anthony and Sandra's responsibility, and would affect Anthony's part of Westquarter. Nevertheless, she was not surprised at having to sign a document. She thought it was something to do with the banking arrangements, approval of putting the borrowed funds into the company's account. She was asked (at page 84C):

Q.	"Now, at some stage did you ask your husband as to what it was about or whether you should sign it?"
A.	"Yes, he would have told me I had no reason to worry about signing anything because the whole ... borrowing arrangements were Anthony and Sandra's responsibility and that I wasn't involved in them."

She had, she said, only one such discussion with her husband, which was before the meeting with Ian McMillan. Towards the end of her cross examination, she said that her husband was not in the habit of keeping things from her, that there was implicit reciprocal trust between them, and that Leslie and Anthony were not people she would expect to deceive her. Since the pursuer gave her evidence on the hypothesis, which I have held to have been mistaken, that the standard security was the document which she signed in the course of the meeting attended by Ian McMillan, it is difficult to be sure how much of her evidence about her understanding of the security transaction and such information and advice as she received about it can be taken to apply in relation to execution of the standard security on some other occasion. I am able to accept from the pursuer's evidence that she was aware in general terms of the proposal that the banking arrangements should be transferred to the defenders from the Royal Bank, and that further working capital for the company was to be obtained by borrowing from them; that some aspects at least of the matter were discussed with her by Leslie; that he reassured her that Anthony and Sandra would bear the responsibility for the loan; that she appreciated that the bank would require security for the loan; that her understanding was that the security would be granted over Anthony's share in Westquarter and that her share would not be affected; and that she signed the standard security without appreciating that it burdened her interest in Westquarter. It is not wholly clear that when she spoke of Leslie telling her that it would be all right to sign the document, she meant that he was referring to the standard security rather than whatever other document or documents she may have signed in connection with the adjustment of the banking arrangements, but on the balance of probabilities, taking the tenor of her evidence as a whole, I am prepared to accept that he did indicate that she could safely sign the standard security. I accept the pursuer's evidence that a relationship of mutual trust existed between her and Leslie, and that Leslie had never previously done anything to show himself unworthy of her trust. I note the pursuer's own perception, disclosed when she was asked for her reaction to Leslie's assurances to her, that (i) he was attempting to protect her from undue worry, and (ii) that he did not know at that stage that the business was later going to fail. She was thus not attributing any improper motive to his failure to point out to her the worst possible outcome. She was, in effect, characterising his behaviour as misguidedly protective of her.

The Nature of the Parties' Contentions

[14] It is convenient, before turning to the detail of the parties' submissions on the main issues which require to be considered, to note in outline the nature of their respective contentions. The pursuer's case is based on the authority of Smith v Bank of Scotland 1997 SC (HL) 111. She maintains that the defenders are not entitled to enforce the standard security against her because (i) she was induced to grant it by undue influence exercised by Leslie or Anthony or both of them, and (ii) the defenders did not act in good faith, in respect that, although in the circumstances they ought to have appreciated that because of the personal relationship between her on the one hand, and Leslie and Anthony, on the other, her consent to the standard security might not be fully informed or freely given, they did not warn her of the consequences of granting the standard security or advise her to take independent advice. As I have already mentioned in paragraph [2] above, it was accepted on the pursuer's behalf that, notwithstanding the terms of her first and second pleas-in-law, for her to succeed it was necessary for her to establish both (i) that she granted the standard security as a result of undue influence on the part of Leslie or Anthony or both and (ii) that the defenders did not act in good faith.

[15] The defenders' position is, first, that the pursuer has not established that she granted the standard security as a result of undue influence on the part of Leslie or Anthony. Secondly, they maintain that they acted in good faith. They do so on the basis that the pursuer had, and was understood by them to have, the benefit of independent professional advice from Michael McMillan acting as her solicitor in the transaction. In such circumstances, good faith did not require them to warn her about the consequences of granting the standard security, or advise her to obtain independent advice (Forsyth v Royal Bank of Scotland 2000 SLT 1295; Wright v Cotias Investments Inc. 2001 SLT 353).

[16] Although Mr Davies objected to certain evidence given by Ian McMillan about what he said to the members of the Broadway family at the meeting at Westquarter, on the ground that it was an attempt, without a proper foundation on record, to advance an alternative line of defence, namely that he had at least in part done what was desiderated in Smith v Bank of Scotland at 122C, I did not understand Mr McNeill, for the defenders, to maintain that that line of defence was open to them. If he had done so, I would have been inclined to sustain the reserved objection, because the brief averment at page 15B of the Closed Record about Ian McMillan's having "discussed the transaction" with the members of the Broadway family at the meeting does not in my opinion give fair notice of that line of defence.

Undue Influence

(a) The Pursuer's Submissions

[17] Mr Davies submitted that undue influence was a doctrine developed by the English courts of equity and received into Scots law in the latter part of the nineteenth century. In Smith v Bank of Scotland at 119H Lord Clyde said:

"The reception from England of the concept of undue influence as a ground of action distinct from fraud was clearly established in Gray v Binny [(1879) 7 R 332], but in relation to contracts between close relations the necessity for fairness and avoidance of undue pressure had already been recognised. In Fraser v Fraser's Trustees [(1834) 13 S 703] at p 710, the Lord President, Lord Hope, observed:

'where bargains and contracts are entered into between persons standing in the relationship to each other, such as that of husband and wife, parent and child, every thing ought to be done as fairly, equally, openly and candidly as possible'.

It is unnecessary to explore all the kinds of relationships in which the possibility of undue influence may now be admitted. At least in the context of wills close personal relationships may prompt a perfectly proper influence towards the benefit or support of those who are dependent upon a testator ... If influence is exercised in genuine devotion to the interests of the person influenced reduction may not lie ... But if the required elements are present to establish an abuse of a trusted and influential position there seems to be no good reason why reduction of a contract should not be available where the contracting parties are husband and wife."

In Gray v Binny a young man's consent to a disentail, obtained for grossly inadequate consideration, was reduced on the ground of undue influence on the part of his mother, the heiress of entail in possession, and the family solicitor. It is clear from the opinion of the Lord Ordinary (Lord Young) that he found the circumstances extreme. At 337 he said:

"The transaction is, on the face of it, so inequitable and unjust as to suggest unfair advantage taken of simplicity and ignorance. On the one side there was age and experience, assisted by a solicitor, who had himself, as it happened, a personal interest to serve. On the other there was youth and inexperience, and ignorance of business. On the one side there was the domination of a mother's not illegitimate influence over her son, and the confidence commanded by a family solicitor. On the other there was the son subject to the influence and reposing the confidence. It was so obviously the duty of Mrs Gray and her solicitor to see that the pursuer had the protection of independent legal advice in transacting business of such serious importance to him that I find it impossible to account for their neglect of it if they meant to deal fairly by him. [His Lordship then quoted various expressions used by the solicitor in correspondence with Mrs Gray.] These expressions show that Mr Binny at least had no thought, and did not imagine that his client, to whom he wrote so frankly, had any thought, of dealing fairly by the pursuer. The object of both was to win his confidence - to prevent him from resorting to any other for enlightenment and advice, and then to take an unfair and unconscionable advantage of him."

At 338 his Lordship formulated the principle thus:

"where a relation subsists which imports influence, together with confidence reposed, on the one side, and subjection to the influence and the giving of the confidence on the other, the Court will examine into the circumstances of any 'transaction of bounty' ... between parties so related, whereby the stronger party ... greatly benefits at the cost of the weaker, and will give relief if it appears to have been the result of influence abused or confidence betrayed."

Lord President Inglis, at 339, adopted the Lord Ordinary's reasons for granting decree. At 342 he added:

"It is not enough, however, for the pursuer of such an action to prove that he has given away valuable rights for a grossly inadequate consideration, and that he has been betrayed into the transaction by his own ignorance of his rights without proving deceit or unfair dealing on the part of those who take benefit by his loss. But in order to determine what kind and amount of deceit will be sufficient to entitle the injured party to redress regard must always be had to the relation in which the transacting parties stand to one another. ... If ... the relation of the parties is such as to beget mutual trust and confidence, each owes to the other a duty which has no place as between strangers. But if the trust and confidence, instead of being mutual, are all given on one side and not reciprocated, the party trusted and confided in is bound, by the most obvious principles of fair dealing and honesty, not to abuse the power thus put in his hands."

Lord Shand (at 347-8) said:

"The circumstances which establish a case of undue influence are, in the first place, the existence of a relation between the granter and the grantee of the deed which creates a dominant or ascendant influence, the fact that confidence and trust arose from that relation, the fact that a material and gratuitous benefit was given to the prejudice of the granter, and the circumstance that the granter entered into the transaction without the benefit of independent advice or assistance. In such circumstances the Court is warranted in holding that undue influence has been exercised; but cases will often occur ... in which over and above all this, and beyond what I hold to be necessary, it is proved that pressure was actually used, and that the granter of the deed was in ignorance of facts, the knowledge of which was material with reference to the act he performed. In such a case the right to be restored against the act is of course made all the more clear."

[18] Taking from those Scottish authorities the proposition that the doctrine adopted in Scotland was not materially different from that developed in England, Mr Davies went on to rely on a number of English cases. He referred first to Allcard v Skinner (1887) 36 Ch D 145. It is, I think, necessary to take note of the circumstances of that case before turning to the passages from the judgments on which Mr Davies relied. The plaintiff was introduced by her spiritual director and confessor, one Mr Nihill, to the defendant, the lady superior of a religious sisterhood. Mr Nihill was a founder and the spiritual director of the sisterhood. Eventually, after passing through various intermediate grades, the plaintiff became a professed member of the sisterhood. She bound herself to its rules of inter alia poverty and obedience. They required her to give up her property to relatives, the poor or the sisterhood. A few years later, the plaintiff, on becoming possessed of considerable property, made it over to the defendant. The rules of the sisterhood prohibited members from taking external advice without the leave of the superior. After leaving the sisterhood, the plaintiff sought to recover her property. She failed because she had delayed for over five years after leaving the sisterhood before making her claim. It was held, however, that since at the time of the gifts she was subject to the influence of the defendant and Mr Nihill and the rules of the sisterhood, she would, but for the delay, have been entitled to recover her property so far as it remained unexpended. Lindlay LJ said (at 181):

"The doctrine relied upon by the Appellant is the doctrine of undue influence expounded and enforced in Huguenin v Baseley and other cases of that class. These cases may be subdivided into two groups, which, however, often overlap.

First, there are the cases in which there has been some unfair and improper conduct, some coercion from outside, some over-reaching, some form of cheating, and generally, though not always, some personal advantage obtained by the donee placed in some close and confidential relation to the donor. ...

The second group consists of cases in which the position of the donor to the donee has been such that it has been the duty of the donee to advise the donor, or even to manage his property for him. In such cases the Court throws upon the donee the burden of proving that he has not abused his position, and of proving that the gift made to him has not been brought about by any undue influence on his part. In this class of cases it has been considered necessary to show that the donor had independent advice, or was removed from the influence of the donee when the gift to him was made."

(See also per Cotton LJ at 171.) Mr Davies then turned to the classification of cases of undue influence adopted by the Court of Appeal in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 at 953 and quoted with approval by Lord Browne-Wilkinson in Barclays Bank plc v O'Brien [1994] 1 AC 180 at 189:

"Class 1: Actual undue influence

In these cases it is necessary for the claimant to prove that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned.

Class 2: Presumed undue influence

In these cases the complainant only has to show, in the first instance, that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction. In Class 2 cases therefore there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had independent advice. Such a confidential relationship can be established in two ways, viz.,

Class 2(A)

Certain relationships (for example solicitor and client, medical adviser and patient) as a matter of law raise the presumption that undue influence has been exercised.

Class 2(B)

Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned."

In Aboody it had been held that in all cases of undue influence it was necessary for the plaintiff to prove that the transaction was manifestly disadvantageous to him or her (964 In CIBC Mortgages plc v Pitt [1994] 1 AC 200, however, the House of Lords held that a plaintiff who proved actual (Class 1) undue influence did not require also to prove that the transaction was manifestly disadvantageous (per Lord Browne-Wilkinson at 209D). That requirement remained, however, in Class 2 cases. To set up a Class 2(B) case, it was sufficient, so far as the nature of the relationship was concerned, to prove that it was one of trust and confidence; dominance did not require to be established (Goldsworth v Brickell [1987] 1 Ch 378 per Nourse LJ at 401C-E). Smith v Bank of Scotland (per Lord Clyde at 120B) showed that the requisite relationship of trust and confidence might exist between husband and wife. Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 (approved in Barclays Bank v O'Brien per Lord Browne-Wilkinson at 198E) was an example of such a relationship being held to exist between a son and his elderly parents. Actual undue influence (Class 1) might be exercised by the concealment of material facts (Gloag on Contract 526). In Aboody the husband was held to have exercised actual undue influence over his wife in respect that he:

"deliberately acted so as to conceal matters from her in a way which prevented her from giving proper detached consideration to her independent interests in transactions which involved substantial risks to her. The mere fact that Mr Aboody may have had no intention to injure her does not save his conduct from being unconscionable" (970C).

[19] Mr Davies dealt next with the question whether it was a necessary element of a case of undue influence that the influence was exercised for the benefit of the person exercising it. To vouch a negative answer to that question, he pointed first to the circumstances of Allcard, where one of the persons held to have exercised undue influence was Mr Nihill, although there was no suggestion that he benefited personally. Further support for that view was to be found in Bullock v Lloyds Bank Ltd [1955] 1 Ch 317, and in Scotland in Allan v Allan 1961 SC 200. In the latter case, Lord Walker, after noting that in Forbes v Knox 1957 SLT 102 at 104 he had "rejected the broad proposition ... that influence only becomes undue when the person possessing the influence exerts it in order to obtain some benefit for himself", said (at 204):

"I still do not think that anything ... said by the Lord President [Lord Clyde in Ross v Gosselin's Executors 1926 SC 325 at 334] was intended to mean that, if the averments in that case had been that the solicitor influenced or circumvented his client in order to obtain an advantage for his near relative, instead of for himself, the action would have been irrelevant. The true question is whether the influence has been unduly exercised, and some light on what is meant by 'unduly' is shed by Lord President Inglis's reference to abuse of the power acquired by the parent through the trust and confidence reposed in her by her child - Gray v Binny ... at 342. Just as there are no limits to the modes in which power may be abused in fact, so I think there are no limits to the modes in which such abuse may be proved."

A narrower view of undue influence was expressed by Lord Guthrie in Forbes v Forbes's Trustees 1957 SC 325 (the sequel to Lord Walker's decision in Forbes v Knox). There his Lordship said:

"In my opinion, an onerous contract entered into by a party of full age cannot be reduced on the ground that his consent was the result of undue influence exercised upon him, unless the influence was exerted to the detriment of that party by or on behalf of the other party to the deed in breach of a duty arising out of a fiduciary or quasi-fiduciary relationship."

Mr Davies submitted that the former view should be accepted.

[20] Turning to the circumstances of the present case, Mr Davies submitted that the evidence showed that Leslie and Anthony were each in a relationship of trust and confidence with the pursuer. She reposed in each of them such trust that they were in a position to influence her to enter into the security transaction. This was a case in which actual undue influence had been proved. On Leslie's part that consisted mainly of reassuring the pursuer that she could safely sign the document and that it would not affect her property, when the truth was otherwise, and failing to inform her of the true nature and effect of the document. As I understood him, Mr Davies also maintained that in writing to Michael McMillan in the terms in which he did in No. 7/39 of process, Leslie was exercising actual undue influence, but that I think involved reading the obscure passage asking for a "note confirming the agreement of Doris and myself to this arrangement" as soliciting a false voucher for the pursuer's consent, and I do not consider that that is justified. So far as Anthony was concerned, Mr Davies submitted that actual undue influence lay in his failure to inform the pursuer of the nature and effect of her involvement in the transaction, and in his intercepting the letter from Michael McMillan (No. 7/14 of process) and failing to pass it to her. Since the case was one of actual undue influence, it was unnecessary for the pursuer to prove that the transaction was manifestly disadvantageous to her. If that were proved, however, it would strengthen the case. In the circumstances it was proved. The pursuer had granted security over her only substantial asset, her share in Westquarter. She had burdened her own home. She obtained no corresponding benefit. Although the proceeds of the loan were to be invested in the company in which she was a shareholder and of which she was a director, her shareholding was small. The company had not historically paid dividends. Its affairs were not prospering - the salaries drawn by the directors were not generous (£19,000 per annum for Anthony and £3000 per annum for Sandra), and no bonuses had been paid for a number of years. The need to refinance the working capital was not an encouraging sign. The risks for the pursuer clearly outweighed any possible theoretical benefit. The proper conclusion was that the transaction was manifestly to her disadvantage. In all the circumstances, it was proper to hold that she had granted the standard security under undue influence exercised by both Leslie and Anthony.

(b) The Defenders' Submissions

[21] Mr McNeill took as the starting point of his submissions on undue influence a passage in the opinion of Lord Maxwell in Honeyman's Executors v Sharp 1978 SC 223. One of the issues in that case was whether the relationship between a dealer in fine art and his client was capable of being one of such trust and confidence as to open up the possibility of undue influence. Lord Maxwell held that it was. The passage on which Mr McNeill founded, however, was the following one (at 230):

"In Forbes v Forbes's Trustees Lord Guthrie referring to the judgment of Lindley LJ in Allcard v Skinner ... said:

'I do not think that it is desirable or indeed possible to frame a comprehensive statement of what does and what does not amount to undue influence.'

I respectfully agree. What is involved is some kind of abuse of the position of trust for the benefit of the person in whom the trust is confided and it seems to me that whether there has been such an abuse to an extent which would justify the Court's interference is a matter which cannot really be confined within stated rules or ascertained on the basis of written pleadings without inquiry into the facts.

This brings me to the question of presumptions and onus. Without at this stage going as far as suggested by counsel for the pursuer [who had argued for a presumption of undue influence arising from the conjunction of a relationship of trust and confidence and a large benefit obtained for grossly inadequate consideration], in my opinion, there must be cases where the facts as proved raise a prima facie inference that a gift has been acquired by abuse of a position of trust and which at least cry out for an explanation even though the precise mode of abuse is not known and might indeed be too subtle to be readily capable of precise expression."

That passage, which was referred to by Lord Clyde in Smith at 120, set out what Mr McNeill submitted was the appropriate approach. The questions were first whether there existed a relationship that involved a degree of trust, and then whether the facts and circumstances showed or justified the inference that a benefit had been acquired by abuse of the relationship.

[22] In order to determine whether there existed a relationship of trust and confidence of such a nature as to give rise to the possibility of undue influence, it was necessary, Mr McNeill submitted to look beyond the mere existence of the relationship of husband and wife or parent and child, and see whether the circumstances showed the existence of the requite trust and confidence. It was not to be supposed that every wife reposed such trust and confidence in her husband as to be susceptible to undue influence by him. Still less was it to be supposed that every mother reposed such trust and confidence in her son as to be susceptible to undue influence by him. The relationship of trust and confidence was a matter of circumstance rather than a mere matter of relationship. In the present case the evidence supported the conclusion that there was a relationship of trust and confidence between the pursuer and Leslie. In relation in particular to business matters and matters of family finance, it was clear that the pursuer relied upon and trusted Leslie. It was not a matter of blind trust, because the pursuer had played an important part in the family business, but it was a trust that had in the history of the marriage been seen to be well founded. Mr McNeill therefore accepted that in the circumstances disclosed in the evidence the relationship between the pursuer and Leslie was such as to be capable of founding a case of undue influence. The relationship between the pursuer and Anthony was different. Although the pursuer said in evidence that she trusted Anthony, there was nothing in the evidence to create the impression that her relationship with him was such as to make her susceptible to his influence. Mr McNeill did, however, accept that if there was clear evidence of actual undue influence exercised by Anthony in the form of suppression of the letter of advice from Michael McMillan (No. 7/14 of process), the relationship described in evidence would be sufficient in that context.

[23] Mr McNeill accepted, under reference to Allcard v Skinner, that personal benefit gained by the person exercising the undue influence was not an essential feature of a case of undue influence. He therefore did not argue that undue influence exercised by Leslie over the pursuer to procure from her the standard security necessary to enable Anthony and Sandra to obtain the loan from the defenders could not constitute ground for reduction of the standard security. A fortiori the fact that the ultimate benefit of the loan went to the company did not prevent the pursuer from founding on undue influence exercised by Anthony.

[24] In the circumstances of this case, Mr McNeill submitted, it was necessary to approach the evidence with particular caution. Normally in a case in which undue influence was alleged, the person alleged to have exercised undue influence would be on one side and the person allegedly influenced, or commonly someone standing in his or her place, would be on the other side. In such a situation, matters of presumption, onus and inference would be very important. In this case, however, the person allegedly influenced was available to give direct evidence about what was done to influence her. In addition, there was no divergence of interest between the pursuer and Anthony, the surviving person alleged to have exercised the undue influence. The true contradictor, the defenders, had no knowledge of what took place. Mr McNeill recognised, however, that there was no ground for thinking that the members of the Broadway family had got together to agree upon a line of evidence to support the pursuer's case. Nor would it be reasonable to infer that the marked discrepancies in their evidence were part of a Machiavellian plan to avoid the impression of a concocted story. Whatever reservations might be entertained about Anthony's evidence, it contained nothing to suggest that he had intentionally sought to obtain the pursuer's consent to the standard security by abuse of such trust as she reposed in him. Nor did his evidence lend any support to a conclusion that Leslie had done anything to abuse the pursuer's trust in him. Mr McNeill characterised as "bizarre" Sandra's evidence about her reaction to the letter of advice from Michael McMillan. Nevertheless, his submission was that her evidence likewise lent no support to a conclusion that either Leslie or Anthony had abused the pursuer's trust in them. In particular, her evidence did not afford a sufficient basis for an inference that Anthony had suppressed the letter of advice and deliberately withheld it from the pursuer. So far as the pursuer's own evidence was concerned, Mr McNeill drew attention to the fact that it was evident from time to time during her evidence that she was hearing imperfectly. He accepted that her demeanour in general was that of a satisfactory witness, but he drew attention to her "odd" response to being shown No, 7/14 of process. He suggested that it might indicate that "her mind was playing tricks with her", which would be a further reason for caution in the treatment of her evidence. He questioned whether she truly did not appreciate what she was signing. He pointed in that connection to her long experience of business and bookkeeping, and to the speed with which she appeared to recognise the significance of No. 7/14 of process when it was put to her. Her evidence of Leslie's part in the matter was no more than that he asked her to sign the document, and told her that it was all right for her to do so. That was not per se the exercise of undue influence. It involved no abuse of trust. It would have been out of character, according to her evidence, for Leslie to have sought to mislead her. On one reading of Leslie's letter No. 7/39 of process, it was evidence that the pursuer had agreed to grant a standard security over her share of Westquarter. On the evidence as a whole, it was impossible to conclude either that the pursuer signed the standard security in ignorance of what it was, or that her ignorance was brought about in any improper way by Anthony or Leslie.

[25] Even if undue influence were established, Mr McNeill submitted that there was a further matter that required to be proved. In a case of this sort, where the pursuer was seeking to set aside her own deed on the ground that it had been obtained by objectionable means, it was incumbent on her to prove that, in the absence of the objectionable means, she would not have granted the deed. That was recognised in the pursuer's pleadings, where (at page 16A of the Closed Record) it was averred that:

"Had she been properly advised in relation to the nature of the transactions and in particular that her house would be at risk, she would not have signed the said Standard Security".

Reference was made in that connection to Gray v Binny at 341 and 349. The pursuer in the present case gave no evidence to support the averment which I have quoted. It could not in the circumstances of this case be presumed that she would have acted differently if she had fully understood the significance of the standard security. The high point of her evidence on this matter was in the following passage (at page 40D of the transcript of her evidence):

Q.	"... did anyone tell you that ... this put your house at risk ...?"
A.	"I had no idea of that at all; if I had I would have, with hindsight, taken advice".

That did not support the conclusion that with advice she would have refused to sign the standard security. Leslie understood the effect of the standard security, as his letter No. 7/39 shows, yet he bound his interest in the same way as the pursuer bound hers. The pursuer could well have taken the view that the risk was one that she was prepared to take. The terms of Michael McMillan's letter (No. 7/14 of process) show that he expected that the members of the Broadway family, having digested his advice, might well nevertheless agree to go ahead with the transaction. In all these circumstances, the pursuer had failed to establish that if she had understood fully the effect of the standard security she would not have granted it. Her case, if it had succeeded thus far, failed at that stage.

3. Discussion

[26] In my view the essence of undue influence is the abuse of a relationship of trust and confidence. I take that from the speech of Lord Clyde in Smith v Bank of Scotland at 120C - "an abuse of a trusted and influential position", from the opinion of Lord Maxwell in Honeyman's Executors v Sharp at 230 - "some kind of abuse of the position of trust", and the opinion of Lord President Inglis in Gray v Binny at 342 - "the party trusted and confided in is bound ... not to abuse the power thus put in his hands".

[27] There is, it seems to me, a risk that undue reliance on the categorisation developed in the English authorities (see BCCI v Aboody at 953 and Barclays Bank v O'Brien per Lord Brown Wilkinson at 189) may obscure the essential nature of undue influence. It seems to me that the distinction between actual undue influence and presumed undue influence is not concerned with what constitutes the exercise of undue influence but with what may be regarded as sufficient evidence that undue influence has been exercised. I prefer the less structured approach adopted by Lord Guthrie in Forbes v Forbes's Trustees at 331 and endorsed by Lord Maxwell in Honeyman's Executors v Sharp at 230, that it is undesirable and probably impossible to frame a comprehensive statement of what does and what does not constitute undue influence. The answer to the question whether the requisite abuse of a relationship of trust may be held to have occurred in a particular case must, in my view depend on a consideration of the whole circumstances established in evidence. There will no doubt be cases in which there is direct evidence of action or concealment on the part of the person alleged to have exercised undue influence which will demonstrate that he has acted in a way which involved abuse of his position of trust. There will be other cases in which such direct evidence of acts or omissions demonstrating abuse of the position of trust will not be available, but circumstances will be established which justify the inference that there has been an abuse of trust. I do not consider it particularly helpful to categorise these as different classes of undue influence. Rather they seem to me simply to be examples of the diverse ways in which the essential feature of abuse of a relationship of trust may be sufficiently proved to have been present. In particular, it seems to me that it is inappropriate to treat the conjunction of (i) a relationship of trust and confidence and (ii) a result manifestly disadvantageous to the person said to have been unduly influenced (or the conjunction of these factors with, in addition, an absence of independent advice) as per se raising a presumption that undue influence was exercised. It may well be that in some cases the conjunction of those features will be sufficient to support the inference of undue influence. But I do not consider that it is right to treat them as giving rise to a presumption. Both a relationship of trust and confidence and manifest disadvantage to the party alleging undue influence are matters of circumstance and degree. If these factors are both present in some measure in a particular case, I am of opinion that each would require to be considered in light of the other and in light of all the other circumstances of the case before a conclusion could be reached as to whether it was right to infer that undue influence had been exercised. In my view that approach is in accordance with what was said about presumptions and onus by Lord Maxwell in Honeyman's Trustees v Sharp at 230.

[28] As I have recorded (see paragraph [23] above), Mr McNeill did not seek to argue that an essential element of undue influence is personal benefit accruing to the person exercising the undue influence. Although there are dicta that might be interpreted as being to the contrary effect (see for example Smith v Bank of Scotland per Lord Jauncey of Tullichettle at 114D, Forbes v Forbes's Trustees per Lord Guthrie at 333 (quoted in paragraph [19] above), and Honeyman's Trustees v Sharp per Lord Maxwell at 230 ("for the benefit of the person in whom the trust is confided")), I am inclined to the view that that concession was rightly made. It seems to me that personal benefit is only one of the range of purposes for which undue influence may be exercised. If personal benefit can be demonstrated that will be one of the relevant circumstances to be taken into account in deciding whether the inference that undue influence was exerted should be drawn. In some cases (e.g. those in which a solicitor obtains substantial personal benefit from the will prepared by him for his client) the element of personal benefit may be decisive. But its absence does not seem to me to be fatal. A person in a relationship of trust may use his influence to procure a benefit for another party whom he favours (e.g. Mr Nihill in Allcard v Skinner using his influence to obtain benefit for the sisterhood of which he was a founder), or in some other way to achieve an end which he regards as desirable, and that may be just as much an abuse of the relationship of trust as it would be to obtain benefit for himself (Forbes v Knox at 104; Allan v Allan at 204). Since, in light of Mr McNeill's concession, I did not hear full argument on the point, it is unnecessary and inappropriate for me to express a concluded opinion on it. I do not, however, regard Mr McNeill's concession as having the effect of excluding the question of who was to benefit from the transaction from being considered along with all the other circumstances of the case for the purpose coming to a conclusion as to whether it has been proved that undue influence was exercised.

[29] I accept that the relationship between the pursuer and Leslie was one of trust and confidence. The trust and confidence was in a sense mutual, but I am of opinion that it has been established that in business and financial matters it was the pursuer who reposed trust and confidence in Leslie to such an extent that he was in a position to exercise influence over her. The question therefore comes to be whether he did so in relation to her granting the standard security. The contention for the pursuer is that he did so by asking her to sign it, and telling her that it was all right to do so, when in fact it put her interest in Westquarter at risk. I have accepted the pursuer's evidence that Leslie did tell her that it was all right to sign the standard security (see paragraph [13] above). I do not consider that, apart from the question of whether it was "all right" for her to sign it, Leslie has been proved to have misled the pursuer or otherwise abused his influence over her. I accept that he explained to her that the loan was the responsibility of Anthony and Sandra, but in terms of the personal obligation that was correct. The pursuer knew that security would be required, and although her understanding was that it would affect only Anthony's share of Westquarter, it was not alleged that Leslie said that that would be so. I do not consider that his statement that it would be "all right" to sign the security can be taken as a false indication that it would not affect the whole of Westquarter. It is clear that Leslie understood that the security was over the whole of Westquarter. It seems to me, however, that the evidence does not exclude the possibility that in saying to the pursuer that it was "all right" to sign the security, what he was intending to convey was that on balance there was no unacceptable risk. While on a strict analysis, the granting of the security was to the pursuer's disadvantage in that she put her share of Westquarter at risk with no corresponding benefit to herself, I do not consider that it is likely that it occurred to Leslie to view the matter in that formal way. In the first place, Westquarter was the family home, both for him and the pursuer and for Anthony and Sandra. Title had originally stood in his name. The various dispositions which yielded the result that one half share belonged to Anthony and one quarter share belonged to the pursuer were, on the evidence, undertaken for inheritance tax planning reasons. In the second place, the company was a family asset. It had been built up by Leslie and the pursuer and had provided for them and their family over the years, and had latterly been passed over into the management of the younger generation of the family, to provide their living in turn. The purpose of the borrowing from the defenders was to enable that family business to continue and expand. It seems to me that it is likely that Leslie regarded that as a desirable family objective which justified the provision of support in the form of allowing the family home to be burdened in security. The evidence before me does not enable me to form any opinion as to the magnitude of the risk, as perceived in October 1992, that the defenders would have occasion to enforce the standard security by selling Westquarter. It therefore seems to me that, while there was undoubtedly a risk for the pursuer individually which was not balanced by any personal benefit, it cannot be said to have been proved that, when the transaction was viewed from the perspective of the family as a whole, it was untenable to regard it as the right and appropriate thing to do. Leslie evidently thought it was the right thing to do, since he burdened his own remaining quarter share of Westquarter in exactly the same way as the pursuer did hers. I do not consider that the difference in shareholding between the pursuer and Leslie is in the context a factor that materially disti

[30] The evidence of a relationship of trust and confidence between the pursuer and Anthony is, in my opinion, much less strong. I accept that the pursuer did trust Anthony, but the evidence does not come up to the point of establishing that she reposed such trust and confidence in him as to be in a general way susceptible to his influence. I do not consider that there was any evidence that would support the conclusion that by failing to explain the nature and consequences of the transaction to the pursuer, Anthony exerted undue influence over her. On the other hand, I do consider that there was a sufficient relationship of trust between the pursuer and Anthony to enable the view to be taken that it would have been an abuse of the relationship of trust for him to suppress the letter (No. 7/14 of process) from Michael McMillan to the Broadway family and withhold it from the pursuer. As I understood him, Mr McNeill conceded that that would be so. As I have indicated (in paragraph [11] above), however, I do not consider that the evidence is sufficient to justify the conclusion that Anthony, in knowledge of that letter's terms, deliberately withheld it from the pursuer. I am therefore not persuaded that it has been proved that Anthony exercised undue influence upon the pursuer to procure that she granted the standard security.

[31] If I had held otherwise, and had found that either Leslie or Anthony or both had exerted undue influence upon the pursuer, it would have remained for consideration whether she had granted the standard security because of that undue influence. I accept the submission made by Mr McNeill that that is a matter in respect of which the onus of proof rests on the pursuer, in preference to that of Mr Davies, made under reference to Chitty on Contracts, twenty-eighth edition, paragraph 7-050, that it is for the defenders to show that the undue influence made no difference to the pursuer's decision. The latter approach may be appropriate in an issue between the person exercising the influence and the person affected by it. I express no concluded view on that. I am of opinion, however, that in a case such as this where the claim is made against a party other than the one alleged to have exercised the undue influence, general principle leaves the onus on this point on the pursuer. The pursuer herself did not say that if she had understood the nature and effect of the standard security she would not have granted it. She went no further than to say that in that event she would have taken advice (see page 40D of the transcript of her evidence). Her direct evidence on the point is not, of course essential, because there may be cases (of which Gray v Binny is an example - see pages 431 and 349) in which the circumstances are so clear that no other inference is reasonable than that, without the undue influence, the impugned deed would not have been granted. The circumstances of the present case are not in my opinion sufficient to yield that as the natural inference. This is not a case in which the transaction was not only against the pursuer's interests but also contrary to any objective that she might reasonably be supposed to have wished to achieve. It is, instead, a case in which it is quite conceivable that she would have been willing to take a broader view of family interest. That such was a possible view of the situation is evidenced by the fact that it is the one that Leslie evidently took so far as his own interest was concerned. It is also a view that Michael McMillan clearly (from the terms of his letter No. 7/14 of process) visualised might be taken after his advice about the risks had been read and understood. Clear and acceptable evidence from the pursuer that she would not have granted the standard security would probably have been enough to outweigh those other circumstances. In the absence of such evidence, however, I am of opinion that it has not been proved that the pursuer, if fully informed about the nature and consequences of the standard security, would have declined to grant it. The result is that, if I had been satisfied that Leslie or Anthony had acted in a way that could properly be characterised as exercising undue influence, I would not have been satisfied that it had been proved that that undue influence had procured the pursuer's execution of the standard security.

The Defenders' Good Faith

[32] Since I have held that the case of undue influence has not been established, it is not necessary for the disposal of the case to address the question of whether the defenders acted in good faith. It is nevertheless right that I should set out the submissions which I heard on that aspect of the case, and the view which I have taken on them.

(a) The Pursuer's Submissions

[33] Mr Davies took as the starting point of this aspect of his submissions the passage in the speech of Lord Clyde in Smith v Bank of Scotland at 121H in which his Lordship said that the duty on the lender, if he was to preserve his good faith and thus obtain a security which was not vulnerable to reduction, to give certain advice to the granter of the security, arose

"if the circumstances of the case are such as to lead a reasonable man to believe that owing to the personal relationship between the debtor and the proposed cautioner the latter's consent may not be fully informed or freely given".

He therefore posed the question whether the defenders had notice of the existence of a personal relationship to which the pursuer was a party and which gave rise to a risk that she would be subjected to undue influence. In order to answer that question it was, he submitted, necessary to look at the transaction as a whole from the defenders' point of view to see who were the principal beneficiaries of it. Anthony and Sandra were beneficiaries, in that they were the borrowers from the defenders. On the other hand, it was part of the arrangement made with the defenders that their loan to Anthony and Sandra would be used to inject working capital into the company. Leslie was, at the time of the transaction, the majority shareholder in the company. He too was therefore a beneficiary of the transaction. Both Leslie and Anthony could therefore be treated as beneficiaries of the transaction, and their respective personal relationships with the pursuer were of the sort contemplated in Smith. The defenders were on notice that in the circumstances of this case the pursuer's consent to the standard security might, because of her personal relationships with beneficiaries of the transaction, not be fully informed or freely given.

[34] Mr Davies referred to English authority that in such cases the lender is put on inquiry by the combination of two factors, namely (a) that the transaction is on its face not to the financial advantage of the granter of the security and (b) that the relationship between the borrower and the granter of the security is such as to give rise to a substantial risk that the granter's agreement has been improperly obtained (Barclays Bank v O'Brien at 196D-E; CIBC Mortgages plc v Pitt at 211G). He accepted that the lender was not put on inquiry where the granter of the security was herself in reality a beneficiary of the transaction, but submitted that in the present case the pursuer's interest in the company was insufficient to make her such a beneficiary. On the contrary, notwithstanding her shareholding, the transaction was not to her financial advantage. In that connection, he relied upon Goode Durrant Administration v Biddulph [1994] 2 FLR 551 at 554E to 555G, Bank of Scotland v Bennett [1997] 1 FLR 801 at 832A-G and, on appeal, [1999] 1 FLR 1115 at 1138-1140, and Bank of Cyprus (London) Ltd v Markou [1999] 2 All ER 707 at 720. In light of the nature of Mr McNeill's response to this aspect of Mr Davies' submissions, it is unnecessary for me to deal with those cases in detail. It is sufficient to note that in Bank of Scotland v Bennett [1999] 1 FLR at 1138 Chadwick LJ said:

"The correct approach, in cases of this nature, is to look at the transaction through the eyes of the lender and to ask whether, in the light of all the facts which the lender does know, it is put on inquiry that there is a real risk that the wife's apparent consent to the transaction may have been obtained by some improper conduct (pressure, abuse of trust and confidence or misrepresentation) on the part of the husband".

The circumstances as known to the defenders in the present case were not, Mr Davies submitted, such as to satisfy them that there was no real risk that the pursuer's consent had been improperly obtained by Leslie or Anthony or both.

[35] Mr Davies went on to note that in this case the position adopted by the defenders was not that they had preserved their good faith by doing what was desiderated in Smith v Bank of Scotland. Rather they maintained that they had reasonably understood that the pursuer had the benefit of professional advice from a solicitor acting for her in relation to the transaction, and that accordingly good faith did not require them to warn her of the consequences of the transaction or advise her to take independent advice. He accepted that if the defenders had a reasonable basis for thinking that there was a solicitor acting for the pursuer in relation to the transaction, that was sufficient to elide the need for them to preserve their good faith by taking the steps mentioned in Smith. He submitted, however, that on the evidence I should hold that the defenders did not have a reasonable basis for thinking that the pursuer had a solicitor acting for her in the transaction. He submitted that I should reject Ian McMillan's evidence that Anthony and Sandra had told him that Michael McMillan was the family solicitor acting for all four members of the Broadway family, and prefer the evidence of Anthony and Sandra that they understood that the transaction did not involve security being granted over the pursuer's interest in Westquarter and had therefore had no occasion to say that Michael McMillan represented the whole family. If Ian McMillan's evidence that he understood from Anthony and Sandra that Michael McMillan represented the pursuer were rejected, no inference could be drawn that he had acquired such an understanding from the correspondence relied on at debate (see my Opinion dated 26 May 2000). This case was therefore readily distinguishable from Forsyth, in which it had been a matter of concession that it appeared to the bank that the pursuer had had a solicitor acting for her, and from Wright, in which the lender had obtained express confirmation from the solicitors that they were acting for the pursuer (see also Royal Bank of Scotland v Etridge (No. 2) [1998] 4 All ER 705, in which there was an express certificate that Mrs Etridge had been advised as to the effect of the charge). In the absence of any satisfactory basis in the evidence for a belief on the part of the defenders that the pursuer had a solicitor acting for her, good faith required that the defenders at least check whether she did. The defenders had accordingly failed to establish that they had in the circumstances acted in good faith.

 

 

2. The Defenders' Submissions

[36] Mr McNeill did not dispute that the evidence was sufficient to bring the transaction in the present case within the category contemplated in Smith v Bank of Scotland. He accepted that the proper approach was as set out in Bank of Scotland v Bennett (see the passage from the judgment of Chadwick LJ at 1138 quoted in paragraph [34] above). He accepted that the relationships between the pursuer and Leslie, and the pursuer and Anthony, were of the sort contemplated in Smith. He accepted that the transaction was one which on its face brought about a change in the pursuer's property rights that was potentially to her financial disadvantage. He did not seek to argue that the pursuer's shareholding in the company made her a beneficiary of the transaction. He suggested that the evidence was not wholly clear as to Ian McMillan's understanding of the pursuer's involvement in the company. He accepted, however, that there was evidence which was sufficient to show that, viewed from the defenders' point of view, the transaction was one which (i) involved the pursuer in granting a standard security over her property, (ii) was not to her financial advantage, and (iii) operated to the benefit of persons whose personal relationships with her were such that improper influence might reasonably be suspected.

[37] The main thrust of Mr McNeill's submission was to the effect that I should hold that the defenders were aware that the pursuer had a solicitor, Michael McMillan, acting for her in the transaction. If that was so, they did not require as a matter of good faith to warn her of the consequences for her of granting the standard security, because they were entitled to assume that Michael McMillan would do that, or to advise her to take independent advice, because they were entitled to assume that she would receive such advice from Michael McMillan. As Mr Davies pointed out in his response to this aspect of Mr McNeill's submissions, Mr McNeill did not seek to develop a case based on the evidence of Ian McMillan that he had understood from Anthony and Sandra that Michael McMillan was acting for Leslie and the pursuer as well as for them. Moreover, Mr McNeill did not seek (as he had done at debate) to found on the correspondence between Burnett & Reid and the defenders as bringing home to the defenders knowledge that Michael McMillan was acting for the pursuer. Rather, the submission concentrated on the proposition that Michael McMillan had acted both for the whole Broadway family and for the defenders, and that consequently his knowledge as agent for the pursuer that he was acting for and advising her should be treated as communicated to him as agent for the defenders and thus communicated to the defenders themselves.

[38] Mr McNeill submitted that Michael McMillan had been instructed by the defenders to act for them in relation to the granting in their favour of the standard security over Westquarter. He had, moreover, acted as the family solicitor for the whole of the Broadway family in relation to that transaction. As such, he tendered advice addressed to inter alios the pursuer advising her of the potentially harmful consequences of granting the standard security (see No. 7/14 of process). He was given no reason to suppose that the pursuer did not receive that advice. Thus Michael McMillan's understanding was that he was acting both for the defenders and for the Broadway family including the pursuer. If, as Mr McNeill put it, he had divided himself in two, he would (as agent for the defenders) have known that he was acting as agent for the pursuer. That knowledge was, in the circumstances, to be treated as knowledge of the defenders. Mr McNeill accepted that there was no very clear authority in Scotland on the imputation to a principal of knowledge acquired by an agent. He cited a passage in the opinion of Lord Salvesen in Goodall v Bilsland 1909 SC 1152 at 1182-3, but it seems to me to have been concerned with a different aspect of agency, and to be of no assistance. He also cited El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, in which Hoffmann LJ (at 702-3) analysed the English authorities bearing upon the circumstances in which the knowledge of an agent is imputed to the principal, and said inter alia (at 702h):

"Secondly, there are cases in which the principal has a duty to investigate or to make disclosure. The duty to investigate may arise in many circumstances ... [T]here may be something about a transaction by which the principal is 'put on inquiry'. If the principal employs an agent to discharge such a duty, the knowledge of the agent will be imputed to him."

In the present case, the defenders instructed Michael McMillan to act as their solicitor in relation to the transaction with the Broadway family, and to carry out all the legal work necessary to perfect their security over Westquarter. Michael McMillan thus to all intents and purposes stood in the place of the defenders in relation to the transaction. As their agent he was privy to the knowledge that there was a solicitor (himself) acting for all four members of the Broadway family. That was knowledge which, if possessed by the defenders, would enable them to refute the suggestion that they acted in bad faith in entering into the security transaction with the pursuer. It would be wrong to hold that in order to refute the suggestion of bad faith the defenders had to show personal knowledge, when actual knowledge had come to the very person to whom they had delegated the task of completing on their behalf the security transaction. There was, in the circumstances, a sufficient basis in the evidence for holding that the defenders, through their agent, had sufficient knowledge that the pursuer had a solicitor acting for her to preserve their good faith without their taking steps themselves to warn or advise her in the way contemplated in Smith.

3. The Pursuer's Response

[39] Since Mr Davies indicated that he had been taken by surprise by Mr McNeill's argument based on the imputation of Michael McMillan's knowledge to the defenders, I allowed him a right of reply on that point. He submitted that in order to meet the imputation of bad faith the defenders required to show knowledge possessed by them or an employee of theirs. Michael McMillan's knowledge that he acted for the pursuer, if he did, could not be imputed to the defenders. Mr Davies cited Halifax Mortgage Services Ltd v Stepsky [1996] 2 All ER 277. In that case a husband and wife informed a lender that the loan in respect of which they were to grant a further mortgage over the matrimonial home was for their joint benefit. The husband subsequently informed the solicitor who was acting for him and his wife that the loan was actually for his sole benefit. The solicitor was then instructed by the lender to act for it as well. The question arose as to whether knowledge that the loan was for the sole benefit of the husband was to be imputed to the lender. It was held that it was not. Mr Davies cited a passage in the judgment of Morritt LJ at 284f-g:

"There is no doubt that the information as to the true purpose of the remortgage loan imparted by the husband came to the knowledge of the solicitors on 12 June 1990 as the solicitors for the husband and wife alone, for they were not instructed to act for the lender until 19 June at the earliest. That knowledge once acquired remained with the solicitors and cannot be treated as coming to them again when they were instructed on behalf of the lender."

I note, however, that the issue in that case arose under section 199 of the Law of Property Act 1925, which provides that a purchaser shall not be prejudicially affected by notice of any fact unless it has inter alia come to the notice of his solicitor "as such", and it was in that context that Morritt LJ expressed the view on which Mr Davies relied. Mr Davies also cited Etridge (No. 2) per Stuart-Smith LJ at 721d:

"(3) ... Whoever introduces the solicitor to the wife and asks him to advise her, and whoever is responsible for his fees, the bank is entitled to expect the solicitor to regard himself as owing a duty to the wife alone when giving her advice ... If the solicitor accepts the bank's instructions to advise the wife, he still acts as her solicitor and not the bank's solicitor when he interviews her ...

(4) It follows that the bank is not fixed with imputed notice of what the solicitor learns in the course of advising the wife even if he is also the bank's solicitor. Such knowledge does not come to him in his capacity as the bank's solicitor ...".

On that basis Mr Davies submitted that the defenders could not be fixed with any knowledge which Michael McMillan acquired in his capacity as the pursuer's solicitor. In any event, Michael McMillan held no instructions from the pursuer, and Leslie's instruction to him gave no indication that he (Leslie) had the pursuer's authority to instruct him on her behalf. However, if there was to be imputed to the defenders knowledge which Michael McMillan had as the solicitor for the Broadway family, that should be taken to include his knowledge that he had in fact no instructions, directly or indirectly, to act for the pursuer. In the result, therefore, it could not be said that the defenders had, through the agency of Michael McMillan, knowledge that the pursuer was legally represented in the transaction.

4. Discussion

[40] The issue of good faith raised in the pursuer's second plea-in-law requires, in my view, to be considered in a number of stages. As this case developed, not all of those stages were controversial, but it is in my view important to a proper understanding of the conclusion which I have reached on that issue to take appropriate note of each stage.

[41] Smith v Bank of Scotland established that a person who granted a security over her property in respect of a loan made to or for the benefit of another person would be entitled, in a question with the lender, to reduction of the security if she showed (1) that her consent to the granting of the security had been improperly obtained by that other person, for example by misrepresentation or undue influence, and (2) that the lender had not acted in good faith in taking the security from her. In order to put the good faith of the lender relevantly in issue, the granter of the security would require to show that the circumstances of the case were such as to lead a reasonable lender to believe that, owing to the personal relationship between the person who benefited from the loan and the granter of the security, the consent of the latter might not be fully informed or freely given (per Lord Clyde at 121H). In the present case, it was not in the end disputed by the defenders that the pursuer had shown that such circumstances were present. It was not disputed that by burdening her share of Westquarter in security for the loan to Anthony and Sandra the pursuer had entered into a transaction which was not to her benefit. It was not disputed that Anthony and Leslie were each in a sufficiently close relationship with the pursuer to give rise to a reasonable belief that her consent might not be fully informed or freely given. It was not disputed that the evidence showed that the defenders were sufficiently aware of those circumstances. I therefore accept that the pursuer has established circumstances which put the defenders' good faith in issue in this case.

[42] In Smith the next stage was to consider what steps the lender would require to take to preserve his good faith and thus to enable him to resist reduction of the security. The answer given by Lord Clyde (at 122C) was that the lender would preserve his good faith if he warned the granter of the security of the consequences of granting it and advised her to take independent advice. In the present case, although there was some general evidence about Ian McMillan's having explained the effect of the security to the members of the Broadway family, the defenders did not attempt to argue that they had done what was desiderated by Lord Clyde in Smith.

[43] In Smith there was no suggestion that the pursuer had the benefit of legal advice when entering into the transaction, and the steps which Lord Clyde identified as being necessary to preserve the lender's good faith must be seen in that context. In a number of subsequent cases it has been held that if the lender knows or has reasonable cause to believe that the granter of the standard security has the benefit of legal advice in connection with the transaction, good faith does not require the lender to give the warning and advice contemplated in Smith (see Forsyth, Wright and Etridge (No. 2)). In such circumstances the lender's good faith is adequately evidenced by his entering into the transaction in the knowledge or reasonable belief that the granter of the security has the benefit of legal advice. In the present case, the pursuer did not dispute the soundness of those cases, and I do not, therefore, consider it necessary to expand on the point. The issue in the present case came to be whether the evidence showed that the defenders did know or reasonably believe that the pursuer had a solicitor acting for her.

[44] I have taken the view on the evidence that the pursuer did in fact have a solicitor acting for her in the transaction (see paragraph [9] above). The whole of the Broadway family, including the pursuer, regarded Michael McMillan as the family solicitor. He so regarded himself. While it appears that the pursuer gave him no instructions to act on her behalf in the transaction, he had instructions from Anthony and Sandra, and also from Leslie. In this context, the question of whether he had formal instructions from the pursuer is in my opinion of no moment, when it is clear that he regarded himself as acting on her behalf in the matter. He did tender advice to her on the risks for her in granting the standard security over Westquarter in security of the defenders' loan to Anthony and Sandra (see No. 7/14 of process).

[45] The issue is not, of course, whether the pursuer in fact had a solicitor acting for her, but rather whether the defenders knew or had reasonable ground for believing that she did. In my earlier Opinion in this case (dated 26 May 2000) I held that the terms of the correspondence between Burnett & Reid and the defenders were not by themselves sufficient to yield to the reasonable man the unequivocal inference that Michael McMillan was acting as the pursuer's solicitor in the transaction. In his submissions after proof Mr McNeill did not place any specific reliance on that correspondence. It seems to me, however, that its terms remain part of the circumstances to be evaluated in determining what knowledge the defenders had on the matter. Equally. Mr McNeill did not develop a submission based on the evidence of Ian McMillan that he understood that Michael McMillan was the family solicitor acting for all four members of the Broadway family. I am, however, prepared to accept his evidence on that point in preference to the evidence tending to the contrary effect given by Anthony and Sandra (see paragraph [9] above). Whether it proceeded on information given by Anthony and Sandra, or an impression created by them, I would regard Ian McMillan's belief as reasonably based. I would also regard the correspondence, particularly the reference to "the clients" in No. 7/13 of process, as reinforcing that belief. I would therefore on that basis have been inclined to accept that the defenders acted in good faith because they, in the person of Ian McMillan, reasonably believed that the pursuer had the benefit of the advice of her own family solicitor in relation to the security transaction.

[46] The basis on which Mr McNeill sought to argue that the defenders were in good faith was, however, somewhat different. In effect, the submission was that Michael McMillan, in his capacity as the Broadway family solicitor, believed that he was acting for the pursuer in the transaction; that since he also acted as agent for the defenders, his belief affected him in that capacity too; and that the belief which he held as agent for the defenders could be attributed to the defenders themselves. I do not find any of the authorities cited on this issue particularly helpful. As I have already indicated (in paragraph [38] above), I regard the passage cited by Mr McNeill from Goodall v Bilsland at 1182-3 as concerned with a different aspect of agency altogether. I do not regard Michael McMillan as having been employed by the defenders to discharge on their behalf a duty arising from their having been put on inquiry, so the situation does not in my view fall within the scope of the passage quoted in paragraph [38] above from the judgment of Hoffmann LJ in El Ajou v Dollar Land Holdings. Halifax Mortgage Services Ltd v Stepsky turned, it appears to me, on the language of section 199 of the Law of Property Act 1925, and is not authority for the general proposition that knowledge acquired by a solicitor as agent for one client cannot become his knowledge as agent for another client by whom he is later instructed. The passage in Etridge (No. 2) at 721d is concerned with the case where the bank instructs a solicitor to advise the granter of the security. While it indicates that in that situation knowledge acquired by a solicitor while acting for the granter of the security will not be treated as coming to him in his capacity as the bank's solicitor, it seems to me implicitly to recognise that if it did become his knowledge in his capacity as the bank's solicitor, it would then be imputed to the bank. In the circumstances, I prefer to approach the matter as one of principle rather than authority.

[47] In my opinion there is no good reason, in considering whether the defenders have acted in good faith on the basis that the pursuer had a solicitor acting for her, to distinguish between the knowledge of an employee of the defenders, which Mr Davies accepted would be attributed to the defenders, and the knowledge of an agent appointed to conduct the particular transaction of procuring the necessary security deed on the defenders' behalf. If, therefore, Michael McMillan, in his capacity as the defenders' solicitor, can be regarded as having known or reasonably believed that the pursuer had a solicitor acting for her, the defenders too can in my opinion be regarded as having had that knowledge or belief. The question is therefore whether Michael McMillan, as the defenders' solicitor, can properly be treated as possessing knowledge or belief which he acquired in his capacity as the Broadway family solicitor. I accept, in accordance with Etridge (No. 2) at 721d, that there will be some knowledge that it would not be appropriate to regard as passing in that way. It seems to me, however, that knowledge of who his clients are is not knowledge which, at least in the circumstances of this case, he must withhold from himself in his other capacity. Although it would be going too far to say that Michael McMillan was employed by the defenders to make inquiries on their behalf as to whether the pursuer had the benefit of legal advice, he was employed by them to procure the completion of their security, and in that context it was part of his business to be satisfied that the standard security had been properly executed. In all the circumstances, I am inclined to hold that Michael McMillan's belief that he was acting for the pursuer and his knowledge that he had tendered advice to her can be regarded as having transmitted to him in his capacity as the defenders' solicitor, and through him in that capacity to the defenders. It is not, however, in my view necessary to rely on that factor in isolation. I would prefer to treat it as reinforcing the conclusion which I would have reached on other evidence (see paragraph [45] above).

[48] I should add that I do not consider that it matters for this purpose that Michael McMillan's advice did not actually reach the pursuer. Neither he nor the defenders were aware of that. What matters is the defenders' knowledge or reasonable belief that the pursuer had a solicitor acting for her in the matter, not whether she actually received from that solicitor appropriate advice about the risks of the transaction.

[49] Accordingly, I hold that the defenders entered into the security transaction in good faith because, although they were aware of circumstances which raised a question as to whether the pursuer's consent was fully informed and freely given, they acted in the reasonable belief that they did not require to warn her of the risks of the transaction or advise to take separate advice because she had the benefit of the advice of her own family solicitor in relation to the transaction.

Result

[50] In those circumstances and for those reasons I conclude that the pursuer is not entitled to the partial reduction of the standard security that she seeks. It follows that she is not entitled to the other remedies sought. I shall accordingly sustain the defenders' first, second, third, fifth and sixth pleas-in-law, repel the pursuer's pleas-in-law, and grant decree of absolvitor in respect of the first, second, third and fourth conclusions of the summons. I shall reserve the question of expenses.