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Christie v. Governor Company Bank Scotland [2003] ScotCS 239 (28 August 2003)

OUTER HOUSE, COURT OF SESSION

A2293/99

OPINION OF T.G. COUTTS, Q.C.

(Sitting as a Temporary Judge)

in the cause

VIVIENNE CLARE CHRISTIE

Pursuer;

against

THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

Defenders:

________________

Pursuer: Drummond; Brodies, W.S.

Defenders: Doherty; Anderson Strathern, W.S.

29 August 2003

Introduction
[1] The pursuer seeks reduction so far as they affect her of both a Personal Guarantee and a Standard Security, granted by her and her husband to the defenders in 1992. Demands for payment thereunder were made by the bank and the present action was raised in 1999.

[2] In her pleas-in-law, the pursuer contends that each of the said documents was obtained gratuitously, (sic) and that her consent was given under concealment of the nature and consequences of the documents and in circumstances in which the defenders ought reasonably to have suspected that the pursuer's consent might be so obtained. Accordingly she pleads, the documents granted by her are void. She also asserts that neither document was validly executed but concedes (Condescendence 10) that both are ex facie valid. It has to be said at this stage that the pursuer's pleadings are vague and disingenuous.

Matters Arising after Procedure Roll Hearing
[3] When this matter was debated at procedure roll on 6 March 2003 both counsel were aware that a potentially relevant outstanding decision was awaited from the Inner House in The Royal Bank of Scotland Plc v Wilson. That decision was given on 9 July 2003 and, in the light of its content, parties were invited to express any views at two By Order roll hearings in July. Unfortunately, counsel who conducted the debate for the pursuer was, for good reason, unavailable but a substitute was able to provide some assistance to the Court. An effect of the decision in The Royal Bank of Scotland v Wilson was that part of the matters canvassed before this Court in March could no longer be supported i.e. the argument which had been presented founding on The Royal Bank of Scotland v Etridge (No. 2) 2001 3 WLR 1021. That could no longer be maintained in the Outer House. Accordingly, no suggestion that the "tick list" of requirements specified in Etridge could apply in Scotland was available. The other matter for consideration in the light of The Royal Bank of Scotland v Wilson was whether the views of the House of Lords in Smith v The Bank of Scotland were retrospective. This is discussed below. Despite the reservations expressed by the Inner House in Wilson, however, they did not expressly overrule Clydesdale Bank v Black and it was maintained by counsel for the defenders that I remain bound by Black.

The Pleadings
[4] The pursuer avers that she "was until the Spring of 1993 married to Richard Stewart Christie". She does not deny that she remains married to him. They separated about 1993. The matrimonial home was Woodside Farm, Monkton, purchased in March 1990, husband and wife each having a one half pro indiviso share.

[5] Mr Christie had an interest in Busby Equitation Centre Limited. The pursuer avers that she took no active part in the running of this business after the parties' marriage but, astonishingly, avers "she believes she may be a director of the company and the company secretary but has never been given sight of any of the company documentation and took no part in any decision making or management of the company". She also avers, however, that it was Mr Christie's practice "to ask her to sign any documentation relating to the business without ever volunteering any information as to the content or import of any such document." In February 1999, she received a demand for payment in terms of a Personal Guarantee about which she avers she has "no recollection of signing any such document. The signature on the document appears to be that of the pursuer." The defenders aver, and the pursuer does not deny, that she and her husband were directors in the company Busby Equitation Centre Limited.

[6] She makes no other averments in relation to the content of the Personal Guarantee but, in relation to the Standard Security which followed on 16 October 1992, she avers:

"In about October 1992 the pursuer had been hospitalised with pneumonia. She had returned home and was recuperating there. The parties' marriage was at the time under some strain. On or about 16 October 1992, the pursuer was in the kitchen in the matrimonial home at Woodside Farm where her husband produced a document to her and shouted words to the effect 'You'll need to sign this or we will lose the house and the children will have to come out of school'. The pursuer executed the document. She was not given the opportunity to read it and had no idea of its contents or import. The pursuer believes and avers that the document signed by her at that time is the Standard Security dated 16 October 1992. Esto it is the same document, it was not executed at Busby as appears on the testing clause but at Woodside Farm aforesaid."

[7] In relation to the execution of the Deeds, she avers:

"The pursuer's signature on the Personal Guarantee bears to have been witnessed by one John Allan and one Paul Deasy. The pursuer knows of these persons as being involved in the Equestrian world. Neither has been present when any document has been signed by the pursuer. The pursuer's signature on the Standard Security bears to have been witnessed by one David Robinson and one Donna Adams. Neither of these persons were present when the document which the pursuer believes to have been the Standard Security was executed by her. She did not acknowledge her signature on that document to anyone. When she signed it she was not told and was not under the impression that it was going to be signed by anyone else as a witness."

[8] The defenders aver that the documents were ex facie valid, presented to them as duly executed and tested, that they relied upon them and that the pursuer is personally barred from challenging their validity.

[9] The pursuer's averments in relation to any influence over her actings are confined to the assertions that she had, at all material times, relied upon her husband to take and execute decisions relating to long-term financial matters, for them both that he did not seek her involvement in the management of the business, that she was a housewife and looked after her two children and that her husband effectively controlled all financial and business aspects of their lives. She says that she was never told by her husband that she required to sign a Personal Guarantee or told the import of it and that when she was asked to sign the Standard Security, he did not explain what it was or what the effect of such a deed would be or could be. She says that he did not advise her to take independent legal advice.

[10] However, it appears that the Standard Security was dealt with by a solicitor who was instructed by the defenders to act on their behalf in the constitution of the Standard Security. The defenders also aver that the solicitors acted for the pursuer and her husband and provided a copy of the Standard Security conditions. The pursuer's response is a general denial insofar as not coinciding with her own averments, followed by an explanation, "explained and averred that at all material times the pursuer's husband dealt with and issued instructions to the firm of Kidstons & Co." She claims that she did not receive a copy of the Standard Security conditions. She accordingly does not specifically deny that the firm of Kidstons acted for her and her husband, but merely explains that he dealt with and issued instructions to that firm.

The Personal Guarantee
[11] The Guarantee 6/3 of Process was, it is not denied, signed by both husband and wife. It is headed as follows:

"Under this Guarantee YOU MAY HAVE TO PAY INSTEAD of the principal debtor. You should consult your solicitor or other independent legal adviser before entering into this guarantee. Unless otherwise specified in Clause 2 below, your liability under this Guarantee is for an unlimited amount,. Your liability as regards further borrowing by the principal debtor may be terminated in the manner set out in Clause 4 below."

It gives a Personal Guarantee to the defenders of all liabilities due, owing or incurred by Busby Equitation Centre Limited. The total amount recoverable is limited to £100,000 and it bears to be signed by the pursuer and her husband. It is dated 8 June 1992.

The Standard Security
[12] The Standard Security which was for all sums due by the pursuer and her husband over the property of Woodside Farm, was dated as granted by the pursuer and her husband on 16 October 1992 before two witnesses. It was presented for recording by Messrs Kidstons on 30 October 1992. There is a schedule to the Standard Security, the first part of which describes the property and that is signed by the pursuer and her husband. The second part of the schedule specifies a prior standard security by husband and wife in favour of the Bristol & West Building Society granted on 9 March 1990, again signed by the pursuer and her husband. Accordingly the pursuer had previously been a party to a Standard Security over the matrimonial home. Thus the pursuer's averment in Condescendence 8 about having had no explanation about a Standard Security is, at the least, disingenuous.

Pursuer's Averment of Duty
[13] These are to be found in Condescendence 7 and Condescendence 9. The pursuer avers that the defenders should reasonably have suspected, as a result of the relationship between the pursuer and her husband, that there might be factors bearing on her participation that might undermine the validity of the Personal Guarantee and the Standard Security, and that the fact that they lived together as man and wife, in the security subjects would have been apparent from the face of the Deed. The defenders, she avers, ought to have known that the consent of the pursuer to the Personal Guarantee and the Standard Security might not be fully informed and freely given.

[14] In Condescendence 9, the following is averred:

"It was the duty of both Mr Christie and the defenders to explain to the pursuer what the Personal Guarantee and the Standard Security were before she signed it. It was their duty to explain to her in relation to the Personal Guarantee that she bound herself to guarantee the obligations of Busby Equitation Centre Limited to a total of £100,000. In relation to the Standard Security it was their duty to explain to her that if she signed it the family home so far as owned by her could be sold and the proceeds paid to the defenders. It was their duty to advise her to take independent Legal Advice before signing each Deed. In those duties both Mr Christie and the defenders failed."

[15] I note at this stage that Mr Christie is not a party to this action, nor is it explained how such duties could co-exist. If Mr Christie had fulfilled his duty and explained the matters averred it would not have been necessary for the bank to do so and any case against the bank in such circumstances would be irrelevant.

Argued for Defenders
[16] Defenders' counsel divided her submissions by dealing first with the duty issue and secondly, with the attestation issue. The defenders' contentions were that there was no relevant averment that the defenders were acting in bad faith in relation to either of the documents nor were there averments to support a proposition that they were not acting in good faith. In the first place, there was no averment that the pursuer would have acted any differently had she been made aware, given that she was not, of the nature and consequences of the documents she signed. The only averment made to attempt to indicate any failure in duty on the part of the defenders, was the averment that the pursuer and her husband were married. In relation to the Personal Guarantee, this was given by her being a director and secretary of a limited company to guarantee the debts of that company. In relation to the Standard Security, that provided for the debts of both husband and wife to be secured. There were no averments to show that the pursuer's consent was flawed, nor whether there was any undue influence or any misrepresentation, all of which would be required to be averred and proved to reduce the deeds. The Deeds were executed in 1992, prior to the decision of the House of Lords in Smith v The Bank of Scotland 1997 SC(HL) 111. If the pursuer had relevantly averred herself within that case and even if it was decided that in any situation involving a husband and wife something had to be done by the creditor to assure itself that it was acting in good faith, then on the authority of Clydesdale Bank Plc v Black 2002 SLT 764 that case does not apply to Deeds executed before that decision.

[17] In relation to the attestation issue, counsel argued that the pursuer was not entitled to rely on a latent defect in attestation. I was referred to Walker Civil Remedies page 149, Baird's Trustee v Murray 11 R 153 at page 160, Boyd v Shaw 1927 SC 414 per Lord President Clyde at 421 and Forsyth v The Royal Bank of Scotland 2000 SLT 1298. She adopted the reasoning of Lord Macfadyen at p.1306. Since the defenders have relied on these documents the pursuer is personally barred from founding on any defect in the attestation by the witnesses. The pursuer's averments indicate in the first place that the first document being a Personal Guarantee for the debts of the pursuer's own company it must have been apparent to her that such a document would be issued to the creditor and relied upon. The Standard Security, on the narration that it was required to keep the husband and wife from losing their home, was again a document which the pursuer did or must be presumed to have intended to be utilised by her husband for the purposes of the business and family security as in Boyd.

The Pursuer's Contentions
[18] Pursuer's counsel expressly indicated that the essence of the pursuer's case was an abuse of the relationship between husband and wife and that the duty arose purely because of that relationship. Further the very fact that the parties to the deeds were husband and wife imposed a duty on the creditor to suspect that there might be factors which might impinge on the validity of the deeds. Since the essence of the case was undue influence i.e. the abuse of the relationship of trust and confidence between husband and wife, there required to be a Proof before Answer in order to add precision to that concept of undue influence. Reference was made to Lord Clyde's opinion at 119H and 121F in Smith v Bank of Scotland.

[19] Clydesdale Bank Plc v Black is distinguishable but is in any event not correct in holding that Smith was not retrospective. The House of Lords in Smith did apply the concept of good faith to a Standard Security granted in 1986 (a factor alluded to by the Inner House in The Royal Bank of Scotland v Wilson).

[20] So far as the attestation issue was concerned, whether or not personal bar could arise would require to be the subject of proof. The pursuer avers that she did not recollect the precise circumstances in relation to her signing the Personal Guarantee and was not given an explanation as to consequences in relation to the Standard Security. Accordingly she had not gone so far as to bar herself from founding on the latent defect in the ex facie valid deeds.

Effect of The Royal Bank of Scotland v Wilson - Duty Issue
[21] The recent plethora of cases in relation to this and allied issues are in the main substantially different in their facts. For example in the English case of Barclays Bank v O'Brien (1994) 1 AR 180 a second mortgage was given over the wife's share of the property as security for loans to a company in which the husband but not the wife had an interest. In Smith v The Bank of Scotland the Standard Security was in order to secure funds for the husband's partnership in which the wife was not a participant. Thereafter in Braithwaite v Bank of Scotland 1999 SLT 25 a letter of pledge over shares to establish a cautionary obligation for the husband's benefit was sent for proof as to whether there was an actionable wrong. In Forsyth v The Royal Bank of Scotland the Standard Security was in relation to sums advanced in connection with the husband's business whereas in The Royal Bank of Scotland v Wilson the Standard Securities were granted in consideration of loans for the purchase of a house and for the construction of a conservatory. Wilson therefore would appear to represent an attempt at a considerable extension of the notion of "tenderness towards wives" in seeking to evade the consequences of her grant of a Standard Security for something in which she had a plain and direct interest. In the present case the fact that the wife was a director and secretary of the family company, brings the factual situation reasonably close to Wilson and some distance from cases like Smith.

[22] The Royal Bank of Scotland v Wilson, of course, binds the Outer House. It also provides, particularly in the Opinion of the Lord Justice Clerk a clear and comprehensible line of approach to questions like the present. I adopt with gratitude the clear approach outlined in the Opinion of the Lord Justice Clerk where he indicates, para. 21, that there requires to be considered firstly, whether there was a cautionary obligation and whether it was gratuitous and secondly, whether there is relevantly averred any misrepresentation and any breach of the duty of good faith which can arise in such obligations.

[23] In relation to the Personal Guarantee it is difficult to view that as gratuitous since it was a guarantee given by the directors and secretary of the company in relation to the company debts. Both husband and wife had a clear interest in the maintenance of the company and in any event the Personal Guarantee was not in order to relieve the husband of obligations but to share the consequences of obligations incurred or to be incurred by the company.

[24] In relation to the Standard Security, as in Wilson, both the parties granting it obtained a co-extensive obligation. The wife obtained one from her husband in respect of her own debts. Each spouse secured the debts of the other. In his analysis in Wilson the Lord Justice Clerk indicated that the primary question is whether the husband has committed an actionable wrong against his wife (para. 25). That is the prior question. In my opinion there are no relevant averments of that matter. No positive averments of misrepresentation are made nor is a question of undue influence given any significant prominence or specific detail. There are no averments relevant to infer that an actionable wrong was committed by the husband against the wife.

[25] Even if however the pursuer could on her averments, contrary to my view, have succeeded in getting to the distance of invoking the matter of good faith, again the views expressed by the Justice Clerk in Wilson are of significance. At para. 26 he said that a cautioner is expected to look after her own interests and make her own enquiries. There is no liability for silence unless the circumstances are such as to impose an obligation to speak.

[26] In relation to the creditor's duty of good faith, the Lord Justice Clerk in Wilson said:

"[30] After Smith v Bank of Scotland(supra), it was decided in the Outer House in Forsyth v The 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."

[27] In short, on this aspect of the present case, all that can be derived from the pursuer's averments is that she was married to her husband, he was participant in the securities and did not tell her fully what it was she was undertaking. Leaving aside the fact that the pursuer might have failed in her duties as a director of the limited liability company by such conduct, it is my clear view that nothing has been averred in this case to indicate that the defenders were in breach of any duty of good faith.

[28] The defenders were in a position where the directors and secretary of the limited liability company gave a Personal Guarantee for the debts of that company. There is nothing unusual in that. The bank knew that they were both participants in the company and that this was not simply a case of a wife giving a guarantee for her husband's debts. No further enquiry was, in my view, required in relation to the Personal Guarantee.

[29] In relation to the Standard Security, I consider this case falls within Forsyth. There was a solicitor acting with responsibility for advising husband and wife in relation to a property already burdened. The bank relying upon the professional duties of that solicitor, were entitled to assume that in such circumstances they were not required to take any further steps.

The Attestation Issue/Personal Bar
[30] Both the Deeds are ex facie valid. Both have been acted upon by the bank to whom they were produced. According to the view I have taken, the pursuer, is barred from challenging the deeds now. I follow Lord President Clyde in Boyd v Shaw 1927 SC 421, it is said that whatever may have been the exact state of knowledge with regard to the contents of the Deed, it was signed with the intention that it should be used by her husband and there is no relevant averment of any impretation by fraud or misrepresentation. The sole challenge is on the ground of defective execution. On the averments in this case, I think that the argument of personal bar does arise. The pursuer avers that she habitually signed documents relating to the parties' business without being informed of their content or import. She must accordingly have intended that such Deeds and documents be used and, as in Boyd, has given her husband the authority to use them. While she may not have appreciated all that could happen, on the authorities that is not sufficient to elide personal bar. There is for example no question here of signing a blank sheet of paper, there was, at best, merely a compliance with a request that a document with business import be signed. I think the circumstances are sufficiently similar to those in Forsyth v The Royal Bank of Scotland that the same result should follow.

Result
[31] I shall accordingly sustain the defender's first, fourth and fifth pleas-in-law, repel the pursuer's pleas and dismiss the action.