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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Royal Bank Scotland Plc v. Wilson & Ors [2003] ScotCS 196 (09 July 2003)
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Cite as: [2003] ScotCS 196, 2003 SCLR 716
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Royal Bank Scotland Plc v. Wilson & Ors [2003] ScotCS 196 (09 July 2003)
SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Justice Clerk Lord Osborne Lord Hamilton
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XA105/01 XA106/01 OPINION of THE LORD JUSTICE CLERK in Appeals from the Sheriffdom of Lothian and Borders at Edinburgh in the causes (1) THE ROYAL BANK OF SCOTLAND plc Pursuer and Respondent; against (First) FRANCIS JOHN WILSON and (Second) Mrs ANNETTE WILSON (AP) Defenders and Appellants: and (2) THE ROYAL BANK OF SCOTLAND plc Pursuer and Respondent; against (First) JOHN PATRICK McCORMACK WILSON and (Second) Mrs NORMA WILSON Defenders and Appellants: _______ |
Act: Sir Crispin Agnew of Lochnaw, QC; Robertson; MacAdams (Second Defenders and Appellants)
Alt: McIlvride, solicitor advocate; Bennett & Robertson (Pursuer and Respondent)
9 July 2003
Introduction
[1] These are appeals from decisions of the sheriff at Edinburgh in two actions by the pursuer as holder of standard securities over houses at 98 Dalum Grove and 100 Dalum Grove, Loanhead. In these actions the pursuer seeks (1) warrant in terms of section 24(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 to enter into possession of the security subjects and (2) removing of the defenders with a view to selling the security subjects. [2] In the first action (the Francis Wilson action), the pursuer sues Francis John Wilson and his wife, Mrs. Annette Wilson. The action relates to their house at 100 Dalum Grove. In the second action (the John Wilson action), the pursuer sues John Patrick McCormack Wilson and his wife Mrs. Norma Wilson. The action relates to their house at 98 Dalum Grove. Francis Wilson and John Wilson are brothers. [3] The standard security in the Francis Wilson action was granted by Francis Wilson and his wife on 12 July 1991 in consideration of a loan for the purchase of their house. The standard security in the John Wilson action was granted by John Wilson and his wife on 28 November 1991 in consideration of a loan for the construction of a conservatory.The standard securities
[4] The standard security in each case, so far as relevant to these appeals, provides as follows:"We [name] and [name], Spouses ... (hereinafter referred to as 'the Obligant') hereby undertake to pay to The Royal Bank of Scotland plc (hereinafter referred to as 'the Bank', which expression includes its successors and assignees whomsoever) on demand all sums of principal, interest and charges which are now and which may at any time hereafter become due to the Bank by the Obligant whether solely or jointly with any other person, corporation, firm or other body and whether as principal or surety;
DECLARING THAT;
...
(2) in the event of the foregoing personal obligation being granted by more
than one person the expression 'the Obligant' means all such persons together and/or any one or more of them; and in all cases the obligations hereby undertaken by the Obligant shall bind all person(s) included in the expression 'the Obligant' and his, her or their executors and representatives whomsoever all jointly and severally without the necessity of discussing them in their order; ... "
The partnership letters
[5] Francis Wilson and John Wilson were partners in two firms, F J Wilson Associates and Wilson Brothers. On 8 October 1992 and 15 October 1993 each of them signed so-called "Partnership Letters" in favour of the pursuer. The 1992 letter was granted in respect of borrowings by F J Wilson Associates. The 1993 letter was granted in respect of borrowings by Wilson Brothers. Each letter authorised he pursuer to open or continue an account in its books in the name of the firm and to establish joint and several liability on the part of the signatories "for the repayment of any indebtedness or liability incurred by the firm and interest and charges thereon." [6] Both firms defaulted on the loans. The pursuer then sought recourse against the first defenders. The first defenders in turn defaulted. The pursuer then enforced the standard security against both defenders in each case.The defences
[7] In each case, both the first and the second defenders lodged defences on the merits and on quantum. On the merits, the first defender's defence in each case was that he was not liable to repay any debt due by either firm. The second defenders took the same line; but in each case the second defender also pled that she was misled into believing that the standard security secured only the loan for which it was granted, and that the pursuer was in bad faith in procuring from her the cautionary obligation that the standard security contained.
The pleadings
[8] In the Francis Wilson action, the pursuer avers that the pursuer advised the defenders that they would require to instruct solicitors to act on their behalf in connection with the standard security; that the defenders instructed Allan McDougall and Co., solicitors, Penicuik, who acted on their behalf in the constitution of the security and were at all material times independent of the pursuer; that the pursuer has at no time been advised by the defenders that that firm failed to advise them on the import and effect of the standard security; and that in accepting the standard security the pursuer reasonably believed that both defenders had been properly advised by that firm on those matters (Cond. 2).
[9] The second defender admits that Allan McDougall and Co. acted on the defenders' behalf in the constitution of the security (Ans. 2). Her averments about the granting of the standard security are as follows:"All the defenders' financial affairs were ordinarily handled by the first defender. The second defender relied on the first defender in such matters. The defenders had a joint personal bank account with the pursuers' Penicuik branch. The pursuers were or ought to have been aware that the defenders were husband and wife. The pursuers were or ought to have been aware that the second defender had no interest in the said businesses of Wilson Brothers and F J Wilson Associates. The second defender attended the pursuers' Penicuik branch with the first defender to sign application forms for a house purchase mortgage. Neither the pursuers' branch manager nor the first defender indicated to the second defender that the standard security would secure any borrowings other than the house purchase loan. The pursuers' branch manager was or reasonably ought to be [sic] aware that the second defender understood she was dealing only with a house purchase loan. Esto the standard security secures the business borrowings condescended upon over the second defender's property, the pursuers' branch manager and the first defender misrepresented the true position to the second defender. The second defender would not have signed the standard security had she been aware that it extended to borrowings relating to the first defender's business. Thereafter the second defender was asked to sign the standard security. The second defender reasonably understood the standard security to relate solely to the house purchase mortgage for which the defenders had applied. The standard security is, so far as material, in a standard printed form used by the pursuers. At the time of granting the standard security the second defender was not told by the pursuers or by the first defender of any other debts owed or obligations undertaken by the first defender to the pursuers. The second defender was not offered any explanation by the pursuers of the consequences of her signing the standard security. The second defender was not advised by the pursuers to take independent legal advice before signing the standard security. The pursuers referred the defenders to Messrs Allan McDougall and Co. to complete the conveyancing work associated with the house purchase and loan. The pursuers did not inform Messrs Allan McDougall and Co. of any business relationship between the pursuers and the first defender giving rise to business borrowings from the pursuers for which the first defender would be liable. In these circumstances the pursuers were in bad faith in procuring the said standard security as a cautionary obligation from the second defender. In these circumstances the pursuers are personally barred from enforcing the said standard security against the second defender in respect of the debts condescended upon" (Ans. 2).
"The first defender ordinarily dealt with the defenders' financial affairs. The second defender relied on the first defender in such matters. The first defender explained to the second defender that the said loan would be secured on the defenders' house. The first defender told the second defender that the pursuers' said manager had advised that this was the best way of raising funds for building the conservatory. The first defender did not indicate that the standard security would secure any other borrowings. Esto the standard security secures the business borrowings condescended upon over the second defender's property, the first defender's representation misled the second defender. The second defender would not have signed the standard security had she been aware that it extended to borrowings relating to the first defender's business. Thereafter the second defender signed the standard security in the reasonable belief that it related solely to the conservatory loan. In her belief the second defender was misled by the representation of the first defender. The defenders had a joint personal bank account with the pursuers' Penicuik branch. The pursuers were or ought to have been aware that the defenders were husband and wife. The pursuers were or ought to have been aware that the second defender had no interest in the businesses or Wilson Brothers and F J Wilson Associates. The standard security is, so far as material, in a standard printed form prepared by the pursuers. At the time of granting the standard security the second defender was not told by the pursuers of any other debts owed or obligations undertaken by the first defender to the pursuers. The second defender was not offered any explanation by the pursuers of the consequences of her signing the standard security. The second defender was not advised by the pursuers to take independent legal advice before signing the standard security. The pursuers did not inform Messrs Henderson & Co. of any business relationship between the pursuers and the first defender giving rise to business borrowings from the pursuers for which the first defender would be liable. In these circumstances the pursuers were in bad faith in procuring the said standard security as a cautionary obligation from the second defender. In these circumstances the pursuers are personally barred from enforcing the said standard security against the second defender in respect of the debts condescended upon" (Ans. 2).
Procedure to date
[13] The sheriff repelled both the first defenders' and the second defenders' defences on the merits as being irrelevant and allowed proof before answer restricted to the question of quantum. Both defenders appealed to this court; but the first defenders abandoned their appeals and the second defenders insisted in theirs only so far as they related to misrepresentation and bad faith. [14] At the hearing of these appeals the solicitor advocate for the pursuer was granted leave to amend the crave for removing to one for ejection. Counsel for the second defenders did not object to this amendment. [15] Counsel for the second defenders were granted leave to amend the defences on the question of the legal advice available to them when they granted the standard securities. The effect of these amendments was to add to the defences already tabled in the Francis Wilson action the following averments:"Messrs Allan McDougall & Co were also instructed to act for the pursuers. Messrs Allan McDougall & Co gave the second defender no advice anent the scope or effect of the proposed Standard Security."
and in the John Wilson action the following averments:
"Henderson & Co were also instructed to act for the pursuers. Henderson & Co gave the second defender no advice anent the scope or effect of the proposed Standard Security. Henderson & Co merely posted the Standard Security to the defenders for signature and return."
Counsel for the second defenders were also granted leave to add the following plea-in-law in each case:
"3. In the circumstances condescended upon, the pursuers not having acted in good faith in procuring the second defender to execute the standard security, and the second defender having been induced to enter into it upon the misrepresentations as condescended upon, the pursuers are not entitled to enforce the standard security against the second defender's pro indiviso share of the house for the debts condescended upon and accordingly the craves of the writ should be refused in so far as directed against the second defender."
Submissions for the parties
[16] The general proposition underlying these appeals is that although in each case the second defender and her husband granted the securities as co-obligants in respect of the initial borrowing, the second defender became a cautioner for her husband in respect of his subsequent borrowings. Junior counsel for the second defenders submitted (1) that the second defender in each case undertook a gratuitous cautionary obligation in consequence of a misrepresentation by her husband; (2) that the existence of the marital relationship imposed on the pursuer a duty of good faith towards her (Smith v Bank of Scotland (1997 SC (HL) 111); (3) that the pursuer was on its enquiry as soon as the second defender offered to grant the standard security; (4) that it was not sufficient for the creditor to assume that the second defender's solicitors had given appropriate advice - Forsyth v Royal Bank of Scotland (2000 SLT 1295) being wrongly decided on that point; and (5) that the pursuer should have advised the second defender to take independent legal advice and should have sought confirmation from her solicitors that the appropriate advice had been given (Royal Bank of Scotland v Etridge (No. 2), ([2001] 3 WLR 1021). [17] Senior counsel for the second defenders put the submission on a broader basis. His proposition was that since the standard security made the second defender cautioner for debts that her husband might incur to the pursuer, whether solely or jointly with "any other person, corporation, firm or other body and whether as principal or surety," and since that gave the pursuer a security that was far beyond the immediate purpose of the transaction, the pursuer was in bad faith from the outset since it would know that this was a security that no solicitor could responsibly advise the wife to grant (Royal Bank of Scotland v Etridge (No. 2), supra, Lord Hobhouse at paras. [112] and [126]). [18] Counsel for the second defenders submitted that the defences on the merits were sufficient to entitle the second defenders to enquiry. They moved us to allow the appeals and remit these cases to the sheriff for proof before answer on the whole record, as now amended. [19] The solicitor advocate for the pursuer submitted that (1) the sheriff was right in holding that the defences for the second defenders were irrelevant; (2) that the second defenders had failed to aver facts and circumstances which, if proved, could establish that the pursuer was not in good faith; and (3) that they had failed relevantly to aver that they were induced to grant the standard security as a result of any misrepresentation. The transactions in these cases predated the decision in Smith v Bank of Scotland; but he was content to show that the defences were irrelevant even if judged by the principle laid down in that case. However, the prescriptions set out in Royal Bank of Scotland v Etridge (No. 2) (supra) did not apply in Scotland.Conclusions
[20] In Smith v Bank of Scotland (supra) the House of Lords extended the law of Scotland. The creditor's obligation of good faith as it was defined in that case had not been recognised in the law of Scotland at the date on which the standard security was entered into (cf. Mumford v Bank of Scotland, 1996 SLT 392). In Clydesdale Bank plc v Black 2002 SLT 764 the majority of the Extra Division were of the view that the extension of the law in Smith v Bank of Scotland could not apply to pre-existing transactions (cf Lord Coulsfield at para [33]; Lord Sutherland at para [2]; Lord Marnoch at para [8]). That view seems to be in line with the distinction made in the English cases, which I will discuss, as to the effects of those cases upon past and future transactions (Barclay's Bank plc v O'Brien, [1994] 1 AC 180, Lord Browne-Wilkinson at p. 196F-H; Royal Bank of Scotland v Etridge (No. 2), supra, Lord Nicholls of Birkenhead at paras. [50], [79]-[80]). The difficulty with that view is that in Smith v Bank of Scotland the House of Lords allowed the pursuer's appeal and returned the case to this court for a proof on the pursuer's averments. That decision implies that the doctrine of good faith as now defined affects cautionary obligations incurred by wives in circumstances in which the creditor acted on an accurate understanding of the law as it stood at the time. That could have a serious impact on the interests of the creditor in certain cases; but we need not concern ourselves with the question because the solicitor advocate for the pursuer invited us to decide the appeal in accordance with Smith v Bank of Scotland and I think that it is appropriate that we should proceed on that basis. [21] In my opinion, these appeals fail because (1) the securities in these cases were not gratuitous; and (2) in any event, the second defenders have not pled a relevant defence either of misrepresentation or of bad faith.(1) Whether the cautionary obligation was gratuitous
[22] Since both securities were granted in consideration of a loan to both husband and wife, the obligation incurred by the wife in relation to that loan was not cautionary. I am of the opinion, however, that by reason of the wording of the "all-sums" element the obligations were cautionary, on the parts of both the husband and the wife, in respect of any debt to the pursuer that would later be incurred by the other. [23] Counsel for the second defenders presented these as cases about the duty of good faith owed by the pursuer in circumstances where by granting the security the wife became liable for any subsequent borrowings from the pursuer by her husband and got nothing in return; but that is an incomplete view. Under these securities, the husband incurred an equally onerous potential liability in respect of any borrowings from the pursuer by the wife. Each spouse secured the debts of the other. [24] In my opinion, these appeals fail on the ground that the second defenders did not incur the cautionary obligation gratuitously. In incurring a cautionary obligation in respect of her husband's future debts, each received the benefit of a co-extensive obligation on his part in respect of her own. In Smith v Bank of Scotland the discussion seems to have proceeded on the assumption that the wife incurred a cautionary obligation in respect of her husband's debts and got nothing in return. The Session papers in Smith v Bank of Scotland show that the standard security was an all-sums security in similar terms to these, but this point was not taken in that case. In my view, it is a decisive point in the present cases.
(2) Whether the defences are relevant
- Misrepresentation by the husband
(b) The creditor's duty of good faith
[28] In Smith v Bank of Scotland the House of Lords extended to the law of Scotland the tenderness towards wives in such cases that their Lordships had thought appropriate in the law of England in Barclays Bank v O'Brien. Their Lordships did so without recourse to the equitable doctrine of constructive notice on which Barclays Bank v O'Brien was based. Instead, their Lordships extended to wives the protection that had been withheld from them by the laisser-faire doctrine expounded in Mumford v Bank of Scotland (supra) by the straightforward and ethically satisfactory principle that in such transactions the creditor must act in good faith. [29] In my opinion, the principle of good faith implies no more than that the creditor ought not to take such a security from the wife where, on an objective judgment of the circumstances, he has reason to think that the wife's consent to grant it may have been vitiated by misrepresentation, undue influence or some other wrongful act committed by her husband. [30] After Smith v Bank of Scotland (supra), it was decided in the Outer House in Forsyth v Royal Bank of Scotland (2000 SLT 1295) that where the creditor knew that a solicitor was acting for the cautioner in the transaction, the creditor was entitled to assume that the cautioner had been properly advised by the solicitor unless the circumstances indicated that that was not the case (at p. 1304B-F). Even if the solicitor acted for both husband and wife, the creditor was entitled to assume that the solicitor had considered any conflicts of interest that arose and had dealt with them satisfactorily (at p. 1304G-1305B). The creditor would not of course be entitled to shelter behind those assumptions if the facts known to him should have put him on his enquiry. [31] In my opinion, that decision is well founded. If the cautioner, to the knowledge of the creditor, is represented in relation to the transaction by an independent solicitor, I cannot see why the creditor should have to verify the content and the quality of his advice. If that were to be the creditor's duty, I cannot see how he could satisfactorily discharge it, short of having his own solicitor present to satisfy himself that the appropriate advice was given. [32] Senior counsel for the second defenders has argued that the nature of the cautionary obligation in this case was sufficient in itself to put the pursuer in bad faith because no solicitor could properly allow his client to grant it. In my opinion, that argument is unsound. It is not the solicitor's duty not to allow his client to enter into such a transaction. A wife will normally have an interest, indirect but nonetheless significant, in the success of her husband's business. Since the wife's decision may be influenced by many considerations, personal as well as financial, the solicitor must leave her to make up her own mind. The solicitor's duty is only to give the wife accurate advice as to the effect of the proposed transaction and as to the conflicts of interest that may exist between her and her husband. In my view, the requirement of good faith is adequately met if the creditor has no objective basis for thinking that the solicitor acting for the wife has been deficient in his professional responsibilities in these respects. [33] Counsel for the second defenders also argued that the principle of good faith now requires the creditor to address to the cautioner's solicitors further questions implying that they may not have fulfilled their professional duty to their client. In Royal Bank of Scotland v Etridge (No. 2) (supra) the House of Lords developed the principle underlying Barclays Bank v O'Brien by prescribing the detailed steps that the creditor should take not merely to give notice to the wife of the consequences of the transaction and of the need to take independent advice, but to go further, in order to avoid having constructive notice of any potential undue influence, by bringing home to her the nature of the risk and by satisfying itself that she had been properly advised; for example, by obtaining written confirmation from the solicitor that he had duly advised the wife of the nature and effect of the transaction. [34] The submission for the second defender can succeed only if these positive requirements are now part of the law of Scotland. In my view, the decision in Royal Bank of Scotland v Etridge (No. 2) on this point has no bearing on the law of Scotland. The prescriptions of the House of Lords in that case appear to be a logical extension of the equitable principle on which Barclays Bank v O'Brien is based; but they are inconsistent, in my view, with the general principle of good faith that now applies in Scots law in such cases. [35] Counsel for the second defenders argued that since the House of Lords decided in Smith v Bank of Scotland that the law on this subject should be similar in both jurisdictions, it was to inferred that it intended that the canons of practice prescribed in Royal Bank of Scotland v Etridge (No. 2) should apply in Scotland. I do not accept this argument. I can find nothing in Royal Bank of Scotland v Etridge (No. 2) to suggest that the specific duties prescribed in that case are part of the law of Scotland. I interpret the speech of Lord Clyde in that case to mean that in Scots law the creditor's general duty of good faith is sufficiently discharged if the creditor reasonably believes that the cautioner has had legal advice; that is to say, in the circumstances canvassed in Forsyth v Royal Bank of Scotland (supra), a decision that Lord Clyde mentions without disapproval (at para. [95]). On this point, I agree with the Extra Division in Clydesdale Bank plc v Black (supra, Lord Coulsfield at para. [31]; Lord Marnoch at paras. [10]-[12]). [36] In any event, the averments added by amendment in each case (supra) to the effect that the solicitors did not give the second defenders advice as to the scope or effect of the standard security are irrelevant. The question is not what advice the cautioner received. It is whether the creditor was entitled to assume that the solicitor had given appropriate advice (eg, Forsyth v Royal Bank of Scotland, supra). Since the second defenders have not averred circumstances that would have given the pursuer reason to think that the solicitors had not discharged their professional duties towards the cautioner, this line of defence is irrelevant. [37] I am further of the opinion that the defences of bad faith are irrelevant so far as they are based on misrepresentation by the pursuer itself. The law obliges the creditor in the interests of good faith not to mislead the debtor (Falconer v North of Scotland Banking Co., (1863) 1 M 704). There is no averment that the pursuer made any representation whatever as to the effects of the standard security. The only misrepresentation averred is an alleged misrepresentation by silence. But there is no general duty of disclosure on the part of the creditor in such circumstances (Smith v Bank of Scotland, supra, Lord Clyde at pp. 117E-118C). Furthermore, it is irrelevant, in my opinion, to aver that the pursuer did not inform the solicitors acting for the defenders of any business relationship between the pursuer and the husband giving rise to business borrowings from the pursuer for which the second defender would be liable. Counsel for the second defenders accepted that on their averments they could not plead that at the date of the standard security there were any debts owed by either of the first defenders to the pursuer. At the relevant date, the husband's partnership letters had not been granted and there is no basis for an inference that that transaction was even in contemplation. [38] In any event, the averments in each action that the pursuer did not tell the second defender of the any other debts owed or obligations undertaken by her husband to the pursuer are plainly irrelevant. Unless expressly asked to, the creditor is not obliged to make any disclosure to the prospective cautioner as to the extent of the borrower's indebtedness (Smith v Bank of Scotland, supra, Lord Clyde at pp. 117E-F; Royal Bank of Scotland v Greenshields, 1914 SC 259). [39] Counsel also argued that the averments in the Francis Wilson action as to the misrepresentations made to the second defender by the bank manager were crucial to the question of bad faith. In the case of the branch manager, there is no averment of facts and circumstances which could give rise to a legitimate inference that the branch manager knew or should have known of the nature of the second defender's understanding of the transaction. At that stage, according to the second defender's averments, the purpose of the meeting was the signing of mortgage application forms. It is not averred that the pursuer's branch manager positively represented that the security would secure only the loan that gave rise to it. At best for the second defender, the branch manager made no representation as to the effect of the security at a time before she and her husband consulted independent solicitors. Merely because the second defender later signed the standard security does not imply that the branch manager misrepresented the situation. By then, those solicitors were acting for the second defender. [40] It is therefore apparent on these averments that the pursuer did not induce any false impression on the part of the wife in either case as to the effects of the security. [41] Senior counsel for the second defenders also argued that the pursuer was in bad faith at a later date when it accepted the partnership letters. That argument, in my opinion, is misconceived. The question of good faith falls to be determined by the circumstances prevailing at the date of the execution of the security. [42] I conclude therefore that neither of the second defenders has pled a relevant case on the pursuer's alleged lack of good faith in these transactions.Disposal
[43] The sheriff awarded expenses against the first and the second defenders in both actions; but he overlooked the fact that the second defenders were assisted persons. I propose that we should allow the appeals to the extent of varying the sheriff's interlocutors by substituting in each action an award of expenses against the second defender as an assisted person. Quoad ultra, I propose that we should repel the new plea in law 3 in each action, refuse the appeals and remit the actions to the sheriff to proceed as accords.Royal Bank Scotland Plc v. Wilson & Ors [2003] ScotCS 196 (09 July 2003)
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SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Justice Clerk Lord Osborne Lord Hamilton
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XA105/01 XA106/01 OPINION OF LORD OSBORNE in APPEALS From the Sheriffdom of Lothian and Borders at Edinburgh by (1) THE ROYAL BANK OF SCOTLAND plc Pursuer and Respondent; against JOHN PATRICK McCORMACK WILSON and ANOTHER Defenders and Appellants: and (2) THE ROYAL BANK OF SCOTLAND plc Pursuer and Respondent; against FRANCIS JOHN WILSON and ANOTHER Defenders and Appellants: _______ |
Act: Sir Crispin Agnew of Lochnaw, Q.C.; Robertson; Macadams (Second Defenders and Appellants)
Alt: McIlvride, Solicitor Advocate; Bennett & Robertson (Pursuer and Respondent)
9 July 2003
[44] Since the background circumstances to these appeals and the arguments addressed to the court have been narrated by your Lordship in the chair, it is unnecessary for me to repeat them. However, it is appropriate for me to record here what I conceive to be the salient features of the two cases, in particular, the form and nature of the transactions to which the actions relate and the crucial averments of the parties. I deal firstly with these matters as they relate to the action in which Francis John Wilson and Mrs Annette Wilson are defenders and appellants. On 12 July 1991, these defenders granted a personal obligation and standard security over a dwellinghouse at 100 Dalum Grove, Loanhead, Midlothian, in favour of the pursuers and respondents. The standard security was in conventional terms. The personal obligation was to the following effect:"We, Francis John Wilson and Mrs Annette Wilson, ... (hereinafter referred to as 'the Obligant') hereby undertake to pay to The Royal Bank of Scotland plc (hereinafter referred to as "the Bank", which expression includes its successors and assignees whomsoever) on demand all sums of principal, interest and charges which are now and which may at any time hereafter become due to the Bank by the Obligant whether solely or jointly with any other person, corporation, firm or other body and whether as principal or surety; ...".
"The standard security was granted to the pursuers as security for a loan made by the pursuers to the defenders for the purchase of 100 Dalum Grove, Loanhead. All the defenders' financial affairs were ordinarily handled by the first defender. The second defender relied on the first defender in such matters. The defenders had a joint personal bank account with the pursuers' Penicuik Branch. The pursuers were or ought to have been aware that the defenders were husband and wife. The pursuers were or ought to have been aware that the second defender had no interest in the said businesses of Wilson Brothers and F. J. Wilson Associates. The second defender attended the pursuers' Penicuik Branch with the first defender to sign application forms for a house purchase mortgage. Neither the pursuers' Branch Manager nor the first defender indicated to the second defender that the Standard Security would secure any borrowings other than the house purchase loan. The pursuers' Branch Manager was or reasonably ought to be (sic) aware that the second defender understood she was dealing only with a house purchase loan. Esto the Standard Security secures the business borrowings condescended upon over the second defender's property, the pursuers' Branch Manager and the first defender misrepresented the true position to the second defender. The second defender would not have signed the Standard Security had she been aware that it extended to borrowings relating to the first defender's business. Thereafter the second defender was asked to sign the Standard Security. The second defender reasonably understood the Standard Security to relate solely to the house purchase mortgage for which the defenders had applied. The Standard Security is, so far as material, in a standard printed form used by the pursuers. At the time of granting the Standard Security the second defender was not told by the pursuers or by the first defender of any other debts owed or obligations undertaken by the first defender to the pursuers. The second defender was not offered any explanation by the pursuers of the consequences of her signing the Standard Security. The second defender was not advised by the pursuers to take independent legal advice before signing the Standard Security. The pursuers referred the defenders to Messrs Allan McDougall and Co., to complete the conveyancing work associated with the house purchase and loan. The pursuers did not inform Messrs Allan McDougall & Co., of any business relationship between the pursuers and the first defender giving rise to business borrowings from the pursuers for which the first defender would be liable. In these circumstances the pursuers were in bad faith in procuring the said Standard Security as a cautionary obligation from the second defender. In these circumstances the pursuers are personally barred from enforcing the said Standard Security against the second defender in respect of the debts condescended upon."
At pages 15 and 16 of the appeal print the second defender avers that she
"was not informed of any of the said operations on said bank accounts. Her consent to such operations was not sought or given. Such operations effect a material alteration in the nature and extent of the obligations undertaken by the second defender in the Standard Security."
The reference in that averment to bank accounts is a reference to the accounts referred to in answer 2 for the second defender. At page 13 of the appeal print, the second defender makes certain admissions which are of significance. These are as follows:
"Admitted that the defenders are the proprietors of the subjects over which the said Standard Security was granted. Admitted that the firm of Allan McDougall and Co. acted on the defenders' behalf in the constitution of the security. Admitted that said firm are solicitors in private practice."
"
The Standard Security was granted to the pursuers as security for a loan of £10,000, taken by the defenders from the pursuers to build a conservatory on the defenders' house. Said loan was repaid in 1994. Said loan was arranged between the first defender and the pursuers' Penicuik Branch Manager. The first defender ordinarily dealt with the defenders' financial affairs. The second defender relied on the first defender in such matters. The first defender explained to the second defender that the said loan would be secured on the defenders' house. The first defender told the second defender that the pursuers' said Manager had advised that this was the best way of raising funds for building the conservatory. The first defender did not indicate that a Standard Security would secure any other borrowings. Esto the Standard Security secures the business borrowings condescended upon over the second defenders property, the first defender's representation misled the second defender. The second defender would not have signed the Standard Security had she been aware that it extended to borrowings relating to the first defender's business. Thereafter the second defender signed the Standard Security in the reasonable belief that it related solely to the conservatory loan. In her belief the second defender was misled by the representation of the first defender. The defenders had a joint personal bank account with the pursuers' Penicuik Branch. The pursuers were or ought to have been aware that the defenders were husband and wife. The pursuers were or ought to have been aware that the second defender had no interest in the said businesses of Wilson Brothers and F. J. Wilson Associates. The Standard Security is, so far as material, in a standard printed form prepared by the pursuers. At the time of granting the Standard Security the second defender was not told by the pursuers of any other debts owed or obligations undertaken by the first defender to the pursuers. The second defender was not offered any explanation by the pursuers of the consequences of her signing the Standard Security. The second defender was not advised by the pursuers to take independent legal advice before signing the Standard Security. The pursuers did not inform Messrs Henderson and Company, of any business relationship between the pursuers and the first defender giving rise to business borrowings from the pursuers for which the first defender would be liable. In these circumstances the pursuers were in bad faith in procuring the said Standard Security as a cautionary obligation from the second defender. In these circumstances the pursuers are personally barred from enforcing the said Standard Security against the second defender in respect of the debts condescended upon."In response to averments made by the pursuers, the second defender in this action makes certain admissions which are of importance. In particular it is admitted that
"the firm of Henderson and Company acted on the defenders' behalf in the constitution of the security. Admitted that said firm are solicitors in private practice."
"... the duty which arises on the creditor at the stage of the negotiation of the contract should only arise on the creditor 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."
At page 122, he went on to say, dealing with the implications of the creditors' duty:
"All that is required of him is that he should take reasonable steps to secure that in relation to the proposed contract he acts throughout in good faith. So far as the substance of those steps is concerned it seems to me that it would be sufficient for the creditor to warn the potential cautioner of the consequences of entering into the proposed cautionary obligation and to advise him or her to take independent advice."
"I am therefore of opinion that the creditor is entitled to assume that a granter of a standard security who has the benefit of a solicitor acting for her will thereby have the benefit of separate advice, and that that advice will cover at least all the ground which he would, in the absence of a solicitor, have had to cover in order to preserve his good faith. Since he is entitled to make that assumption, the creditor is not in my opinion in breach of the requirements of good faith if he does nothing himself to advise or warn the grantor of the security."
In that case, the solicitor in question was acting not only for the pursuer, but also for her husband, the principal debtor, and the defenders, the creditors. In that situation his Lordship went on to consider whether those circumstances made a difference to the assumptions which the defenders were entitled to make about the receipt of information and advice by the pursuer from her solicitors. He concluded at page 1304 that:
"The mere fact that the solicitor is acting for more than one party in the transaction is not, in my view, sufficient to displace the creditor's entitlement to assume that solicitor will, in his capacity as a solicitor to the granter of the security, fulfil his professional obligations to advise her about the nature and consequences of the transaction."
"Necessarily the precise course to be adopted will depend upon the circumstances. In the Scottish case of Forsyth v. The Royal Bank of Scotland ... it appeared to the creditor that the wife had already had the benefit of professional legal advice. In such a case, it may well be that no further steps need be taken by the creditor to safeguard his rights. Of course if the creditor knows or ought to know from the information available to him that the wife has not in fact received the appropriate advice then the transaction may be open to challenge."
It appears to me that that latter observation contains no suggestion or hint that Forsyth v. The Royal Bank of Scotland was wrongly decided.
[55] I am confirmed in the views which I have formed in regard to these matters by what was said in Clydesdale Bank plc v. Black 2002 S.L.T. 764. In that case, an Extra Division of this court decided that The Royal Bank of Scotland plc v. Etridge (No 2) had effected no change in creditors' duties, so far as Scots law was concerned. At page 771 of the report, Lord Coulsfield observed:"There is, therefore, nothing in Lord Clyde's opinion and, I would respectfully suggest, nothing in the speeches of the other members of the House in any of the cases to which I have referred which need be construed as requiring this court to hold that the specific requirements discussed in Etridge (No 2) form part of the law of Scotland."
He went on to observe that Lord Clyde, in Royal Bank of Scotland plc v. Etridge (No 2) had also apparently approved the decision in Forsyth v. The Royal Bank of Scotland. Lord Marnoch at page 774 also expressed the view that he discerned nothing in The Royal Bank of Scotland plc v. Etridge (No. 2) to suggest that that case had altered the law of Scotland. A similar view was expressed by Lord Sutherland at page 776. In all these circumstances, in my opinion, consideration of the present appeals must proceed upon that basis.
[56] Before expressing the conclusions which I have reached in this case, it is proper finally to notice the decision in Ahmed v. The Clydesdale Bank plc 2001 S.L.T. 423, since, in certain respects, it bears a close resemblance to the present cases. In that case, a wife sought reduction of a standard security which she and her husband had granted in August 1991. The context in which it had been granted was the making of a loan by the defenders to the pursuer and her husband to finance the purchase by them of a house. They were to be the joint owners of the house and they were joint borrowers of the loan. In that standard security, the pursuer and her husband undertook a personal obligation to pay to the defenders "all sums which were then and which might at any time thereafter be due by them or either of them to the defenders", and granted the standard security over the subjects to be purchased for all such sums. In 1992, the pursuer's husband borrowed £30,000 from the defenders to finance the purchase of a shop business. On 15 August 1995 the pursuer's husband entered into a term loan agreement with the defenders, which gave effect to a restructuring of the original business loan obtained in 1992, coupled with a loan to replace existing overdraft facilities. The term loan agreement was entered into without the pursuer's knowledge. The effect of the term loan agreement, in conjunction with the standard security, was to render the pursuer a guarantor of her husband's business liabilities to the defenders. It was a matter of concession that solicitors had been acting for the pursuer and her husband at the time when the standard security was granted by them. Against that background, Lord Macfadyen took the view that the defenders were entitled to suppose that the pursuer had been advised as to those aspects of the effect of the standard security expressed as it was. On 10 April 1995 the defenders had written a letter to the pursuer seeking the pursuer's agreement to signing a guarantee to secure the liabilities of her husband. She was not willing to do that and shortly after receiving the letter informed the defenders of her position. The pursuer contended that the defenders' letter of 1995 had conveyed a false impression to her that she required to sign a deed in order to become a guarantor of her husband's debts. Rejecting her claim, at page 427, Lord Macfadyen said this:"Assuming for the purposes of argument that the letter of 10 April did convey the impression that the pursuer would have no liability for her husband's debts if she declined to grant the proposed guarantee, it is in my view clear that that was a false impression, because the effect of the standard security was otherwise. It is in the falsity of that impression and the absence of any steps taken to correct it that the pursuer identifies the circumstances which she argues put the defenders in bad faith. It seems to me, however, that in his argument, counsel for the pursuer was attempting to deploy the principle of good faith in a way for which there is no authority and which is unsound in principle. I have no difficulty in accepting from Smith that a creditor owes a duty to a potential cautioner not to mislead him by silence where disclosure is required or by positive misrepresentation. But it seems to me that the context in which Lord Clyde was discussing that duty was as a basis for setting aside a cautionary obligation which the cautioner entered into as a result of having been misled by what the creditor did or said in bad faith. The pursuer did not enter into any obligation as a result of the circumstances which counsel for the pursuer identified as constituting bad faith on the part of the defenders. The obligation which the pursuer seeks to set aside, namely the standard security, was entered into by her, in circumstances which are not impugned, long before the alleged acts of bad faith. If the allegedly misleading letter had never been sent, the pursuer's position would have been no different from her present position."
In my opinion, it has to be recognised that the present cases, in certain respects, bear a similarity to Ahmed v. The Clydesdale Bank plc, in respect that, in both cases, the personal obligations and standard securities were entered into by the defenders jointly and for the purpose of obtaining from the pursuers loans to be applied for their mutual benefit; in one case to facilitate the purchase of a house; in the other to finance the erection of a conservatory. In that respect, the situation in the present cases is no different from that which existed in Ahmed v. The Clydesdale Bank plc when the personal obligation and standard security there involved was entered into.
[57] It has to be recognised, however, that in that case, the standard security was entered into by the pursuer in circumstances which were not impugned, long before the alleged acts of bad faith. In that respect, the case differs from the circumstances of the present ones. In the averments of the second named defenders, which I have quoted, in different ways, an attempt is made to impugn the original transactions. In these circumstances, it is necessary to look at the transactions concerned, to see whether the law, as I consider it stands, assists the second named defenders in these actions. [58] To do that, in my opinion, it is necessary to revert to Smith v. The Bank of Scotland, where the principles involved are authoritatively stated in the speech of Lord Clyde. At page 121 of the report, he considers the particular circumstances in which a duty would become incumbent upon the creditor towards the potential cautioner. These are"... where the creditor should reasonably suspect that there may be factors bearing on the participation of the cautioner which might undermine the validity of the contract through his or her intimate relationship with the
debtor ...".
The duty
"... which arises on the creditor at the stage of the negotiation of the contract should only arise on the creditor 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."
Looking at these statements of the circumstances in which a duty could arise upon the creditor, in my opinion, it is very hard to see how any such duty would arise in the context of the present cases. In each case, a personal obligation and standard security was executed jointly by a husband and wife for the purpose of the obtaining of finance from the pursuers for their own domestic purposes. There was no question of the husbands alone obtaining loans for their own purposes, with their liabilities being gratuitously guaranteed by their wives. No doubt, in these cases, the pursuers were well aware that the first and second defenders, in each case, were married and therefore enjoyed a close personal relationship. However, I can discern here no circumstances which would lead a reasonable man to believe that the consent of the wives to the transactions might not be fully informed or freely given. Indeed, having regard to the nature of the present transactions, it is difficult to regard the husbands as the principal debtors and the wives as the proposed cautioners. The fact of the matter is that each husband and wife were borrowing money jointly for their own domestic purposes. Accordingly, at the time of the transactions themselves, each husband and wife were simply joint debtors. In that context, it appears to me that the principles set forth by Lord Clyde, taken their own terms, would not apply to the circumstances of these cases.
[59] The most that can be said of these transactions as regards cautionary is that, because of the language of the personal obligations undertaken by the two couples, already quoted, there existed a potential for the existence of a cautionary situation following upon the execution of the deeds. However, it has to be recognised that, in the wording of the personal obligations, there exists the potential for the husbands to be cautioners for the wives, the wives to be cautioners for the husbands, or both of them to be cautioner for a third party. Looking at the language of the deeds themselves, the positions of husband and wife in each case are identical. In my opinion, such a situation is plainly not one falling into the category of situations referred to in Smith v. The Bank of Scotland, which would give rise to a duty on the part of the creditor. Thus, it appears to me impossible to see the second named defenders as having entered into cautionary obligations at the time of the transactions concerned. I consider that what they did was to expose themselves to the possibility that they might become cautioners at some indefinite time in the future following those transactions, upon the condition that subsequent events brought about that situation. I am not persuaded that the principles set forth in Smith v. The Bank of Scotland can be applied to such a situation. [60] Recognising as I do that the wording of the personal obligations undertaken by the defenders in these transactions created, in a conditional sense, in relation to each spouse, the status of cautioner for the other, or some third party, depending upon future events, on the assumption that the principles set forth in Smith v. The Bank of Scotland, are capable of being applied to such a situation, I next consider whether any duty arising was, on the second named defender's pleadings, obtempered by the pursuers. If that were so, then there could be no question of bad faith on the pursuers' part. As the matter was put in Smith v. The Bank of Scotland, the importance of the potential cautioner having independent advice was emphasised. In Forsyth v. The Royal Bank of Scotland plc Lord Macfadyen decided that the defenders were entitled to infer from the involvement of solicitors on the pursuer's behalf, even though they were acting for both the pursuer and her husband, that she would be properly advised as to the nature and consequences of the transaction and that the defenders did not require, in order to preserve their good faith, themselves, to undertake the task of advising her, nor to seek express confirmation that the solicitors had done so. In Ahmed v. The Clydesdale Bank plc, Lord Macfadyen, at page 426, expressed a similar opinion. Furthermore, in The Royal Bank of Scotland plc v. Etridge (No. 2) at paragraph 95, Lord Clyde expressed the view that, in circumstances such as those which existed in Forsyth v. The Royal Bank of Scotland plc, it might well be that no further steps required to be taken by the creditor to safeguard his rights. In the present cases, as I have already pointed out, at the time when the relevant transactions were entered into, the defenders were in each case advised by solicitors. That is a matter of admission on the part of the second named defender in each case. In the light of the view which I have formed as to the law, these circumstances appear to me to be destructive of the cases of bad faith on the part of the pursuers advanced by each second named defender. [61] As I have already indicated, it was held in Braithwaite v. The Bank of Scotland that the effect of the decision in Smith v. The Bank of Scotland was that, where the parties were cohabiting as husband and wife, proof of an actionable wrong perpetrated by the husband was a prerequisite to the wife having a remedy against the financial institution which was the creditor. That being so, it is necessary to examine the averments of the second named defenders in these cases with a view to deciding whether their averments meet that test. I have already quoted the averments pertinent to this matter in each case. [62] Looking firstly at the averments made in the action in which Mrs Annette Wilson is the second named defender, it is to be noted that criticism is levelled initially not against the first named defender, her husband, but rather against the pursuers' branch manager at Penicuik. However, at a later stage in the averments it is averred that that branch manager and the first defender misrepresented the true position to the second defender. That averment is totally lacking in specification, In particular, there are no averments as to what was said on the occasion in question and how it was that the first named defender is to be associated with the pursuers' branch manager in the making of an alleged misrepresentation. My conclusion is that I am unable to hold that these averments amount to averments of an actionable wrong on the part of the first named defender in that action. [63] Turning to the action in which Mrs Norma Wilson is the second named defender, the averments involved, already quoted, are in somewhat different terms. The criticism made is that the first defender did not indicate to the second defender that the standard security entered into would secure any borrowings other than those necessary for the building of the conservatory. It is claimed that the first defender thus misled the second defender. Essentially, the second defender's allegation against the first defender is that he was silent upon the matter in question. While it may be that silence on the part of a creditor towards a potential cautioner may amount to bad faith, which could undermine the transaction, I do not understand how it can be maintained that silence on the part of the first defender in the context here amounts to an actionable wrong. In my opinion it does not. Accordingly in this action also, I have reached the conclusion that the second named defender's averments are insufficient to meet the test set forth in Braithwaite v. The Bank of Scotland. [64] For all of these reasons I agree that these appeals must fail. Royal Bank Scotland Plc v. Wilson & Ors [2003] ScotCS 196 (09 July 2003)|
SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Justice Clerk Lord Osborne Lord Hamilton
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XA105/01 XA106/01 OPINION OF LORD HAMILTON in APPEALS From the Sheriffdom of Lothian and Borders at Edinburgh in the causes (1) THE ROYAL BANK OF SCOTLAND plc Pursuer and Respondent; against JOHN PATRICK McCORMACK WILSON and ANOTHER Defenders and Appellants: and (2) THE ROYAL BANK OF SCOTLAND plc Pursuer and Respondent; against FRANCIS JOHN WILSON and ANOTHER Defenders and Appellants: _______ |
Act: Sir Crispin Agnew of Lochnaw, Q.C.; Robertson; Macadams (Second Defenders and Appellants)
Alt: McIlvride, Solicitor Advocate; Bennett & Robertson (Pursuer and Respondent)
9 July 2003
[65] I agree with the disposals of these appeals proposed by your Lordship in the chair. I am content to adopt your Lordship's narrative of the material averments and of the submissions made to us. I add only some words of my own on the legal issues which arise. [66] In neither of the cases before us is there any averment that, in executing the relative standard security, the wife acted under the undue influence of her husband. The vitiating factor relied on each case is misrepresentation. Subject to a specialty in the action directed against Francis and Annette Wilson (to which I shall return), the misrepresentation founded on is one allegedly made by the husband to the wife upon which, it is averred, the latter relied. [67] That a misrepresentation by a husband to a wife can constitute a vitiating factor which in appropriate circumstances may affect the creditor's rights against the wife is recognised in Bank of Scotland v. Smith 1997 S.C. (H.L.) 111 ("Smith"), where also the wife's case was based solely on misrepresentation (Lord Clyde atp. 119D-E). Before us it was expressly accepted by counsel for each wife that for her to succeed in such a case in a question with the respondents she required, as a first step, relevantly to aver (and, unless admitted, to prove) that the husband had made a misrepresentation to her and that, so misled, she had in executing the standard security acted on it. No challenge was made to the decision or reasoning in Braithwaite v. Bank of Scotland 1999 S.L.T. 25 (at p. 33A-D). Nor was it suggested that any presumption or other evidential rule applicable in Scotland elided to any extent that requirement.
[68] It is not averred in either of the present cases that the husband made any express representation to the wife as to the terms or scope of any deed which would be used to secure the envisaged borrowing. That position may be contrasted with Smith where the pursuer alleged"... that she was induced to sign the standard security as a result of misrepresentations by her husband to the effect that she required to sign as his wife in order for him to receive a loan and that her personal assets were not at risk." (per Lord Clyde at p. 116G).
Senior counsel's submission was that there had in the present cases been misrepresentation by silence on the part of the husband. Reference was made to Gloag and Irvine - Rights in Security at p. 708, Gloag on Contract (2nd edition) at p. 460 and Walker on Contracts (3rd edition) paras. 14.61 and following, especially at para. 14.64. But these passages lend no support, in my view, to the concept of a misrepresentation by silence except in circumstances where the silent party has an obligation to speak. In Gloag and Irvine the learned authors, when discussing the constitution of cautionary obligations at p. 706, state "that there must, at entering into the engagement, be perfect fairness of representation so far as the creditor is concerned ...", but in the same context make it plain that a cautionary obligation is not a contract uberrimae fidei and that in the ordinary case there is no universal obligation on the creditor to make disclosure. As appears from p. 708, different considerations may apply where some representation but not a full and fair one is made. The cited passage from Gloag on Contract (under the heading "Half-Truths") is to the same effect. As Professor Walker makes plain at para. 14.61 of Contracts the general rule is that there can be misrepresentation by silence only where the person remaining silent was bound voluntarily, even if not asked, to disclose the matter which was not disclosed. In para. 14.64 he expressly distinguishes cautionary obligations from contracts uberrimae fidei. It was not argued before us that the relationship of husband and wife (in circumstances where no undue influence was said to have been used or to have had effect) itself created an obligation of disclosure by the husband (see also Lord Clyde in Smith at p. 106H-I).
[69] In any event, there is nothing to suggest that, at the time when Mrs. Norma Wilson was first told by her husband about the proposal to secure the conservatory loan over their home or at the time when Mrs. Annette Wilson attended with her husband at the respondents' Penicuik branch to discuss the home purchase loan application, either husband was any better informed than his wife as to the terms or scope of the proposed security deed. Nor is there anything in the pleadings to suggest that at any other stage prior to the completion of the relative transaction the husband was any better informed than the wife on that matter. In these circumstances there are, in my view, no relevant averments in either case of misrepresentation by the husband resulting in the wife's execution of a relative standard security. [70] I should add that, so far as the husband's conduct was concerned, reliance was placed by counsel for the wives on the use by Lord Nicholls of Birkenhead in Royal Bank of Scotland v. Etridge (No. 2) [2002] 2 AC 773 ("Etridge") at para. 36 of the phrase "wittingly or unwittingly". But that observation goes to the character of the misleading action, not to its existence. [71] If I am wrong in that conclusion, the next issue is whether, given the wife's express admission in each case that solicitors acted on behalf of her and her husband in the constitution of the security and her implicit admission that the respondents were aware that solicitors were so acting, the wife's assertion that the respondents were in bad faith is supported by relevant averments. It was not suggested that the fact that the same firm of solicitors acted for the husband as for the wife was in the circumstances of this case material. This issue has previously been addressed in the Outer House (Forsyth v. Bank of Scotland 2000 S.L.T. 1295 ("Forsyth"). There the focus of the argument was on the fact that, in the creditor's understanding, the same solicitors were acting for both husband and wife (not as I have said, a factor relied on in the present appeals). But Lord Macfadyen also addressed (at p. 1304C-F) the general question of what assumptions a creditor is entitled to make about the information and advice which the solicitor will have given to the granter of the security. Lord Macfadyen stated:"I propose to test the matter first by reference to a case where the granter of the security has the benefit of a separate solicitor acting for her, who has no involvement in advising any of the other parties to the transaction. In my opinion the creditor is ordinarily entitled to assume that the solicitor will have acted in accordance with his professional obligations towards his client. The possibility exists, of course, that a solicitor will fail to fulfil his professional obligations. But if he does so fail, the client will ordinarily have recourse against him for any loss which she suffers as a result. It would, in my view, be going too far to say that good faith requires that the creditor make the assumption that the solicitor may fail to fulfil his professional duties. The position would, of course, be different if the creditor were aware of circumstances that indicated that the solicitor had not fulfilled, or would not fulfil, his professional duties to his client. In the absence of such information, however, the assumption must, in my view, be that the solicitor will act properly. The precise content of the solicitor's professional duty will vary with circumstance[s]. It seems to me, however, that it may be taken that his duty will include making sure that his client, before she executes the security deed, understands the nature of the transaction in to which she proposes to enter, and the range of potential consequences for her and her property which it will entail. I am therefore of opinion that the creditor is entitled to assume that a granter of a standard security who has the benefit of a solicitor acting for her will thereby have the benefit of separate advice, and that that advice will cover at least all the ground which he would, in the absence of a solicitor, have had to cover in order to preserve his good faith. Since he is entitled to make that assumption, the creditor is not in my opinion in breach of the requirements of good faith if he does nothing himself to advise or warn the granter of the security".
Lord Macfadyen then went on to consider whether it made a difference that the solicitors were understood by the creditor to be acting for both husband and wife. He concluded (at p. 1305B) that that circumstance
"was not sufficient to disentitle the defenders from assuming that it was unnecessary for them to intervene to explain the transaction to the pursuer and urge her to seek separate advice".
"All that is required of him is that he should take reasonable steps to secure that in relation to the proposed contract he acts throughout in good faith. So far as the substance of those steps is concerned it seems to me that it would be sufficient for the creditor to warn the potential cautioner of the consequences of entering into the proposed cautionary obligation and advise him or her to take independent advice. Of course, in accordance with the existing law, he will still have the duty to make a full and honest disclosure if occasion arises for that to be done. But apart from that it seems to me that the giving of the warning and the advice should be sufficient so far as Scots law is concerned to fulfil the duty on the creditor and secure that he remains in good faith in relation to the proposed transaction".
That avoidance of prescription may be contrasted with the approach adopted for England at least for future cases in Etridge. In the latter case at para. 95 Lord Clyde reiterated his preference for a non-prescriptive approach.
[74] While there may be much to be said for there being a broad equivalence in Scotland and in England in the law applicable to the relationship between vulnerable proprietors and creditors offering advances on security, there may well, against the background that different legal routes have been adopted and different approaches indicated to the making or otherwise of prescriptive rules, be different results in particular cases in the two jurisdictions. It would be wrong, in my view, to conclude that, because the House of Lords in Etridge has laid down certain rules for English transactions, or has interpreted Barclays Bank plc v. O'Brien as having certain effects for English transactions, the same approach is to be adopted for Scots law - at least at the level of the Court of Session. [75] In so far, accordingly, as the wives in the present appeals rely on the principle adopted in Smith, they can succeed in resisting the respondents' claims only in so far as they can bring themselves within the scope of that principle, as reasonably interpreted and applied in the particular circumstances of their own situations. That involves consideration of the doctrine of good faith and the adoption of a non-prescriptive approach to the performance of the creditor's duties. [76] There was much discussion before us of certain passages in the speech of Lord Clyde in Etridge, particularly at paras. 91, 94 and 95. It is clear from para. 94 that Lord Clyde interpreted the steps identified in Barclays Bank plc v. O'Brien, in so far as past cases were concerned, as not intended to be prescriptive and that his Lordship was satisfied that a non-prescriptive approach was that which had been adopted for Scotland generally in Smith. It is also plain from para. 95 that Lord Clyde, notwithstanding the stricter, more prescriptive, requirements laid down in Barclays Bank plc v. O'Brien for future cases, continued to favour a non-prescriptive approach. It is in that context that he refers to Forsyth and observes that where, as in that case, it appeared to the creditor that the wife already had the benefit of professional advice"... it may well be that no further steps need be taken by the creditor to safeguard his rights. Of course if the creditor knows or ought to know from the information available to him that the wife has not in fact received the appropriate advice then the transaction may be open to challenge".