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Cite as: 2003 SCLR 964, [2003] ScotCS 284

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Thomson v. Royal Bank Of Scotland Plc & Anor [2003] ScotCS 284 (28 October 2003)

OUTER HOUSE, COURT OF SESSION

CA62/00

OPINION OF LORD CLARKE

in the cause

MRS LAURA THOMSON (A.P.)

Pursuer;

against

THE ROYAL BANK OF SCOTLAND PLC and ANOTHER

Defenders:

________________

Pursuer: O'Brien, Q.C., Upton; Haig-Scott & Co., W.S.

First Defenders: McLean; Bennett & Robertson

28 October 2003

Introduction
[1] In this commercial action the pursuer seeks production and reduction, in so far as granted by her, of a standard security granted by the pursuer and the second defender in the action, her husband Mr Andrew Thomson, (who has not entered appearance in the action), in favour of the first defenders on 27 November 1992 and registered on 21 December 1992. In doing so she relies on the law established for Scotland in the case of Smith v Bank of Scotland 1997 (S.C.) H.L. 111. The decision in that case has been considered and applied in a number of subsequent cases to which I will have cause to refer in this Opinion. The case of Smith held that, in the law of Scotland, the creditor in a contract creating cautionary obligations may have a duty, in certain circumstances, to give advice to the cautioner, which if it is not given by the creditor, can result in the cautionary obligation being unenforceable, if it transpires that the contract had been entered into by the cautioner because of misrepresentation, undue influence or other wrongful act perpetrated by another.

[2] In the present case the pursuer claims that she granted the standard security in respect of her interest in the subjects, which is the matrimonial home of herself and the second defender, and that the security was required by the first defenders to secure certain indebtedness of a company of which the second defender was a director and shareholder. The pursuer's position is that, in executing the standard security, she acted under the undue influence of the second defender and that since, in the event, the first defenders had taken no steps to fulfil the duty on them, which arose in the circumstances, having regard to the law set out in the case of Smith, they cannot enforce the standard security, it having been obtained through the undue influence of the second defender.

[3] The case came before me for proof before answer having previously been the subject of a debate at the conclusion of which I allowed a proof before answer. As a result of the evidence adduced at the proof there was a very substantial amount of agreement as to the facts in this case. The dispute focused largely on the effect, and consequences, in law, of those facts.

The evidence relating to undue influence
[4] The background and circumstances leading up to the granting of the standard security by the pursuer and the second defender, in favour of the first defenders, as established at the proof were as follows. The pursuer and the second defender married in 1975. They have two sons, who were born in 1980 and 1983 respectively. While it is averred, by the pursuer in her pleadings, that she and the second defender "have been estranged and separated since about December 1995 because of the matters condescended upon", the evidence before me was that they are now reconciled. At all relevant times they have continued to live at the matrimonial home which is 32 Fruin Avenue, Newton Mearns, Glasgow. There was absolutely no suggestion, in any of the evidence, that the marriage was anything other than a happy one until the pursuer became aware, in or about 1995, that the second defender was in financial difficulties and had been sequestrated.

[5] The pursuer is presently employed as a school secretary. In 1992 the sole source of family income was the second defender's earnings from his business as an insurance broker. The pursuer and the second defender acquired the subjects to which the present proceedings relate, in 1987, having sold the house which they had previously occupied as a family home. The second defender was unclear as to whether the previous home was held in his sole name or in joint names. In 1987 the pursuer was not working full time but was doing some night work. The proceeds of the sale of the previous matrimonial home had provided the deposit for the purchase of the present matrimonial home. The balance of the purchase price was obtained by means of a bank loan secured over the subjects. It was agreed that title to the subjects should be taken in joint names. All of the arrangements regarding the purchase of the matrimonial home and the funding of that purchase were left to the second defender. Title was, in the event, taken in joint names and the pursuer signed a standard security in respect of the loan which had been used to purchase it. Both the pursuer and the second defender were aware that if the repayments of the loan were not made, the bank could call up the standard security and that they might consequently lose the property. At the time of the purchase of the present matrimonial home the second defender was employed as an insurance broker on a salaried basis.

[6] In about 1988 the second defender and three other persons set up a company whose business was to be insurance broking. The second defender was the only one of these four persons who had any insurance broking experience. The company was named Thomson Loudon, Thomson being the second defender's surname and Loudon being his middle name. Each of the shareholders, including the second defender, held a £1 share in the company. The second defender did all the insurance broking work himself. The other persons provided certain unspecified services to the company.

[7] From 1988 to 1992 the business of Thomson Loudon was the sole source of income for the pursuer and the second defender and their children. The second defender's income from the business was paid into a joint account in the name of both the pursuer and the second defender. By 1992 business of the company was successful and was beginning to expand. The second defender was the only one of the four shareholders drawing a regular salary from the business. At that time the position was, as the second defender himself put it in evidence "I earned the money and my wife looked after the children". As the pursuer put it "My husband put money into the joint bank account and I spent it". The pursuer also said in her evidence that she had no reason to doubt the second defender's money sense. As he was providing for the family satisfactorily she trusted him to continue to do so. That was her choice. There was no question of the second defender not being frank with her about his income or his assets. As previously noted his whole income was placed in a joint account in the name of the pursuer and himself.

[8] In 1992 the second defender had the idea that his business might be profitably expanded by the company taking over another insurance broker's business. The second defender's company was based in Linwood. The other company (known as A.T. Bell) was based in Glasgow city centre. The other company's business was twice as big as that of the second defender's company. The second defender's fellow shareholders and directors were apparently agreeable to the idea of the other business being purchased. The second defender, in his evidence, described the taking over of the other company's business as "a quick means of expanding his business". It was "an exciting prospect" bringing with it the expectation of an increase in the second defender's income. The second defender told the pursuer that he and his fellow shareholders were planning to take over another company "to do better for ourselves by means of increasing my income". The second defender said that he had proceeded on the basis that any means of increasing the family income was something that the pursuer would be happy about.

[9] The purchase of the other company's business, required an increase in the second defender's existing company's overdraft facilities with the first defenders, who were the company's bankers. The first defenders requested the second defender to provide a guarantee in respect of that increased overdraft facility. The second defender, in evidence, said that he did not know whether or not his three fellow co-directors and shareholders provided guarantees. It was, however, a matter of agreement that none of these persons provided any standard security over any heritable property belonging to them to secure the increase in the overdraft facility.

[10] In anticipation of taking over the other company's business the company, Thomson Loudon, moved to an office in Bath Street, Glasgow. The office below the company's was occupied by a solicitor Colin MacLeod. Mr MacLeod was the solicitor of one of the second defender's co-directors, a Mr Strang. The second defender had met Mr MacLeod socially on previous occasions. Mr MacLeod became the solicitor of the company and was engaged by Mr Strang to act in the arrangements for the increase of the overdraft facility for the company. The second defender, in his evidence, said that Mr Strang was the person who primarily dealt with the company's legal affairs. The second defender was asked to provide a standard security over his home in support of the increase in the overdraft facility to be provided to Thomson Loudon. The second defender and the pursuer had their own solicitor, who had acted for them previously in conveyancing matters. The solicitor in question was a Miss Christine Henderson. The second defender did not think to seek the advice of Miss Henderson as to whether or not he should grant the standard security. The second defender thought that he himself had signed the standard security as soon as it was proffered to him, which he thought was done either by Mr Strang or Mr MacLeod. Prior to that he had been aware that he would be asked to sign the standard security, as would the pursuer.

[11] In relation to the circumstances in which the pursuer came to sign the standard security, the evidence of the pursuer and the second defender differed to some extent. In examination-in-chief the pursuer's evidence was that she remembered signing it at the matrimonial home. Her recollection was that the second defender brought something home for her to sign. She asked what it was. He said it was something to do with the business. She had not been previously forewarned by him that he was going to bring the document home for her to sign. She said that the second defender did not say to her that there was any risk to her interests if she signed it. She was asked if the second defender had suggested that she might want to get legal advice and, in reply, she said that he had not done so. She could not remember whether or not the second defender had already signed the standard security when he asked her to sign it. The pursuer went on to say, in examination-in-chief, that if the second defender had advised her to get advice before signing the standard security she would have discussed this with friends because she herself was not used to dealing with lawyers. She said that she would like to think that her friends would have suggested that she should obtain legal advice. The pursuer said that if one of her friends had advised her to go to a solicitor she would have gone to Miss Henderson. The pursuer said on a number of occasions that if she had gone and obtained advice and the solicitor had said to her that the bank would have the right to her one half share of the matrimonial home in the event of the company failing to repay its overdraft, she would never have signed the standard security. She also said that if she had been told that her husband was the only one of the four shareholders and directors providing security she would have been "even more unhappy". Her position was that the second defender simply told her that the standard security was for the business and she did not ask anything more. She signed it because she trusted him.

[13] The second defender's evidence regarding the circumstances in which the deed was executed was as follows. In examination-in-chief he said that he took it home for the pursuer to sign. He told her that he needed her signature upon it and asked her to sign it. He told her that it was a "company document". He said that it was a document which needed to be signed to obtain an overdraft facility from the bank in order that his company could purchase the other company's business. He later said he could not recall if he mentioned that the deed was required in order to obtain the overdraft but that it was possible that he did so. At the time he thought it was in his interests that the document be signed but that it was also in the pursuer's interest that it be signed. As he put it, "he asked for the pursuer's signature and he got the pursuer's signature". If the pursuer had said, "I will not sign", he did not know what would have then happened. The possibility had clearly never entered his mind. When he was asked whether or not he agreed that in all of this he was abusing the trust which the pursuer had placed in him, he flatly refuted this. He admitted that he felt he had let her down because of the way things had turned out by virtue of him being sequestrated. In cross-examination the second defender said that he had not thought it "useful or appropriate" to say anything more than he did to the pursuer when he asked her to sign the standard security. He had considered, at that time, that there was only a minimal risk that the company's business would not prosper and that the standard security would require to be called up. He had not expected the pursuer to ask questions but that "as usual she would simply trust me". He assumed that she thought he was simply doing the best for them as a couple. His view was that there was no reason for her not to think that. There was only a theoretical risk that things might go wrong. He did not think it unfair nor misleading not to tell her of the theoretical risk that might be involved. In effect he had made a decision for himself and the pursuer. It was put to him that it would have been "more honest and candid" to advise the pursuer that there was a risk that the home might be lost if things went wrong. He replied that in not doing so he accepted that he was not fully candid but that answer, in my judgement, has to be placed in the context of his other answers, which I have just set out. While, he accepted, again, in cross-examination, that he did not give a full explanation as to the reason why the security required to be granted, his explanation for that was that there was no need to do so because he knew that the pursuer would not question his judgement because she had complete confidence in him. He did not consider that the granting of the security involved any real prejudice to the pursuer and his belief was that it was a good thing for the business. The second defender emphasised that he was not trying to hide anything from the pursuer. He simply did not need to tell her anything more than what was proposed was a business arrangement. If, as he had anticipated, the arrangement resulted in the business doing better, his earnings would increase and the pursuer would benefit from that. As he put it in cross-examination he relied on the pursuer to trust his judgement.

[14] In re-examination the second defender said that he had not deliberately withheld any information from the pursuer. He did not think any great risk was involved in granting the security. He thought "the figures would stack up and there would be profits". Had the pursuer asked him for more information he would have supplied it. He did not know how she would have reacted if further information had been given to her. He protested at the suggestion that he was in any way acting in an underhand or dishonest way towards her. As he put it, "the standard security was just a legal form which had to be signed to allow matters to progress". He had not been seeking to abuse any trust placed in him by the pursuer. He had no ulterior motive. It was a straightforward matter between himself and his wife. He strongly refuted any suggestion that in asking his wife to sign the standard security, in the circumstances just described he was being "tricky" or "underhand". The evidence was that, contrary to the second defender's expectations, the business did not, for a number of reasons, prosper and, as has been noted, he was sequestrated.

[15] I should say at this stage that, having had the advantage of seeing and hearing the pursuer and the second defender give their evidence, and having regard to the manner in which they gave that evidence, I reached the following conclusions. It was abundantly clear to me that there was, at no stage in the relationship, any question of the second defender, because of that relationship, exerting a dominant, far less domineering, influence over the pursuer. The pursuer's own counsel described her as a "solid woman". I formed the clear impression that she was a woman of intelligence, with a mind of her own, who, when she considered it appropriate, would have formed her own views about matters. Furthermore, I agreed with counsel for the first defenders when he submitted that while there was no question of the pursuer seeking deliberately to mislead the Court, she had come to the Court with a very clear idea of what she thought she had prove to succeed in this case, and her answers to questions were, to some extent, at least, formed with that in mind.

[16] The second defender started off giving his evidence in a somewhat guarded way. He, of course, found himself in the situation that, while he was convened as the second defender in the action, it was in his interest to support the pursuer's case in the sense that the matrimonial home in which he resides with her is at risk. When, however, it became apparent that he was being accused of having acted in some way wrongfully in having the pursuer sign the standard security in 1992 he reacted with a quite fulsome, and in my judgement, genuine sense of displeasure. I am bound to say that the picture which these two individuals left me with was that, up until the time when the second defender's business failed, in or about 1995, they had enjoyed a perfectly harmonious and thoroughly modern type of marriage, which was a true partnership, in the sense that the second defender was the sole breadwinner, whose whole income and assets were shared with the pursuer, with the pursuer acting as the manager of the household, leaving financial decisions to the second defender, and being happy to do so because he had, during their marriage, never let her down in that respect. I have also to say that I am not convinced that the discussion with regard to the nature and purpose of the standard security was, at the time the pursuer was asked to sign it, as limited as she would have had it to be. I consider that the likelihood is that matters went a bit further than she said. Certainly I prefer the evidence of the second defender as to what was discussed and, indeed, I consider that it is probable that even a bit more than what he suggested was discussed, was, in fact, raised. It is not surprising that after an interval of more than ten years the detail of the discussion is not fresh in the mind of either the pursuer or the second defender, particularly since I am satisfied that neither of them thought the matter had any great significance, in the scheme of things, at the time. In any event, I am satisfied having heard and seen the pursuer and the second defender that, had the pursuer asked the second defender questions about the nature and purpose of the standard security, he would have answered these questions truthfully, to the best of his knowledge. While counsel for the pursuer submitted that the pursuer was not knowledgeable about business matters, her evidence made it clear that she was quite familiar with concepts such as free equity in heritable property and the effect of and nature of mortgages or secured loans. While she said in evidence, on more than one occasion, that had she been told that in signing the standard security she was putting her interest in the property at risk, she would have refused to sign it, I am not persuaded by her evidence in that respect. Her position seemed to be that she would have refused to sign if she had been told there was any risk whatsoever. Given that the second defender had formed the view, which I consider to have been quite genuinely held by him, that the advantage to himself and to the pursuer would far outweigh any risk to their interests in the property, I am not satisfied, given the trust which the pursuer clearly placed in him that she would have refused to sign the standard security, had he given her an assurance that that was his considered belief. It is quite a different thing to say that had she known that the business would fail and that the standard security would be called up, she would have refused to sign the security deed, from saying that if the second defender had told her that there was a risk of that happening she would have refused to sign.

[17] There was a further issue in the case, as pled, on behalf of the pursuer, and explored in evidence at the proof as to whether, in any event, apart from any question of the security having been obtained by virtue of undue influence, it fell to be regarded as unenforceable because of lack of proper attestation. In her closing submissions, however, senior counsel for the pursuer disclaimed this case and, accordingly, I need not consider it.

The evidence relating to the first defenders' good faith
[18] I now turn to consider the factual position as established as the evidence, in relation to the first defenders' good faith, or otherwise, in the matter. The solicitor, who prepared the standard security in question, was Colin MacLeod, who gave evidence at the proof. He was led on behalf of the pursuer. As has been previously noted, his office was located below that of the second defender's business. He had become the company's solicitor. While the pursuer and the second defender had their own family solicitor, Miss Christine Henderson, the second defender had not thought to have her act on their behalf in relation to the transaction. The pursuer herself had met Mr MacLeod on a few occasions socially and at one stage, in her evidence, said that she knew that he was involved in the setting up of the new business, but later on she said that she only became aware of that subsequently. The second defender was asked either by Mr Strang, his co-director or Mr MacLeod to sign the standard security. Neither the second defender, nor the pursuer, were at any time clients of Mr MacLeod, prior to the transaction to which the present proceedings relate. The second defender had met with representatives of the first defenders to discuss the increase in the overdraft facility to enable the company to buy the other business and he knew that he would be required to sign a security over his home in respect of that facility. It never occurred to the second defender to instruct his own solicitor Miss Henderson to act for him in respect of the transaction.

[19] Mr MacLeod was, in late 1992, experiencing work and personal problems, including ill health. His practice as sole practitioner was wound up in about the middle of December 1992. The papers relating to the transaction were transferred to another firm of solicitors. Mr MacLeod's recollection of his actings in the matter was clearly limited. He had, however, had access to the relevant file of correspondence and this had helped to jog his memory. His evidence was that he was not, in 1992, in the habit of acting for the first defenders. His attention was drawn to number 7/6 of process. That is a copy of a letter from the Shawlands, Glasgow branch of the first defender's address to Mr MacLeod's firm and dated 29 October 1992. It is headed:

"Customer(s): Andrew L. M. Thomson and Mrs Laura A. Thomson

Subjects: 32 Fruin Avenue, Newton Mearns, Glasgow."

It is in the following terms:

"We shall be pleased if you will act on behalf of the bank in the constitution of a Standard Security in our favour. Details of the transaction together with the amount on which to base your fees are shown in Part 1 of the attached Schedule of Particulars, and in addition we enclose some General Instructions, as to our requirements regarding the taking of Standard Securities which form an integral part of our instructions. The Schedule of Particulars is in duplicate and we shall be obliged if you will complete Part 2 of the Duplicate and return it to us in accordance with paragraph (1) of our General Instructions. We would stress that the accurate and prompt completion of this Schedule is essential for our purposes.

We have to advise that the owner of the subjects are married and we shall be pleased if you will arrange for the required documentation to be obtained to cover the Bank from the implications of the Matrimonial Homes (Family Protection) (Scotland) Act 1981, as amended, if appropriate.

The Standard Security, title deeds and any other documentation delivered by you will not be checked by the Bank upon receipt. It is therefore imperative that you comply fully with our instructions which are provided on the basis that the normal Solicitor/client relationship will apply between you and the Bank.

As a Standard Security in our favour is to be held in support of a Guarantee on account of the above named customers we would draw your attention to General Instruction Number 4 and advise that our Security should be drawn in ordinary First Party form. The Deeds should be framed to secure the obligations of the Guarantor and no reference should be made in the Security Deeds to either the Guarantee or the above named customers.

We shall be pleased if you will take all steps necessary to provide us with an effective security as soon as possible. In the meantime kindly acknowledge receipt of this letter and our enclosures."

Part 1 of the attached Schedule of Particulars contained the following wording, at its head "Security being obtained for increased overdraft". Box 1 of Part 1 of the Schedule was in the following terms:

"1(a) Full name and address of borrower(s).

Thomson Loudon Limited

43 Bath Street

Glasgow

(b) Full name of any Guarantor(s) granting the Standard Security in support of a Guarantee

Andrew Loudon Michael Thomson"

Box 2 of Part 1 of the Schedule was in the following terms:

"2. Full name and address of owner(s) of subjects

Andrew Loudon Michael Thomson and

Mrs Laura Agnes Thomson

32 Fruin Avenue

Newton Mearns

Glasgow"

Box 3 of Part 1 of the Schedule contained the following:

"3. Brief description and address of security subjects

Semi-detached house at 32 Fruin Avenue,

Newton Mearns, Glasgow."

Box 4 of Part 1 of the Schedule was in the following terms:

"4. Details of Prior Charges/Banking arrangements

Bank of Scotland, Waterloo Street,

Glasgow

£32,000 or thereby

Bank to obtain second charge."

The estimated value of the security subjects was stated in Box 5 as being £82,000. Box 6 was left blank. Box 7 was in the following terms:

"7. Name and address of customer's Solicitors (also state Partner acting if known)

McLeod (sic)

Solicitors

43 Bath Street

Glasgow (Partner Colin McLeod[sic])"

At the foot of the first column of Part 1 of the Schedule it was stated as follows:

"Name of Solicitors to act on behalf of Bank

McLeod (sic)

Solicitors

43 Bath Street

Glasgow."

[20] Mr MacLeod said, in evidence that when he received the letter of instruction, just referred to, he understood that he was being asked to act for Thomson Loudon Limited, the company and the first defenders in the transaction. He was Thomson Loudon's solicitor and was acting for them in the purchase of the other business. He said that, at no time, would he have informed the first defenders that he was acting for either the pursuer or the second defender and that it never was the case that he did act for either of them. He accepted that it was likely that prior to the receipt by him of number 7/6 of process, he would have been in contact with representatives of the first defenders regarding acting for them in obtaining the standard security. He recalled having meetings with the second defender and another director of Thomson Loudon, Mr Anderson, regarding the purchase of the other business. He had a vague recollection of discussions regarding the financing of the purchase and that this was to be done by means of finance provided by the first defenders. His evidence was, moreover, that, having looked at his file dealing with the matter, Mr Anderson was to provide a guarantee to the first defenders in respect of his funding and that he had advised Mr Anderson to seek separate independent legal advice. He gave no such advice, however, to the second defender. He gave the advice he did to Mr Anderson because he had acted for him as his solicitor previously and considered that there was a conflict of interest arising in relation to the transaction. Moreover, he was aware that the pursuer and the second defender had their own solicitor, Miss Christine Henderson and he assumed that the second defender had sought Miss Henderson's advice regarding the transaction. While he did not know if the second defender had in fact sought Miss Henderson's advice, he said he would have been surprised to discover that he had not.

[21] Following the receipt of the instructions contained in number 7/6 of process Mr MacLeod said he considered that he was acting for Thomson Loudon and the first defenders in the transaction. He said that it was normal practice in 1992 for solicitors to act for both lenders and borrowers in such situations. He knew that there were special obligations placed upon solicitors in such a situation but these, he understood, to be primarily to make sure that the bank got a valid security and that the borrower obtained the money in proper time. The witnesses' attention was drawn, in cross-examination, to the Solicitors (Scotland) Practice Rules 1986. Rule 3 thereof provides: "A solicitor shall not act for two or more parties whose interests conflict". Rule 5(1), however, provides as follows:

"(1) Without prejudice to the generality of Rule 3 hereof, a solicitor, or two or more solicitors practising either as principal or employee in the same firm or in the employment of the same employer, shall not at any stage, act for both seller and purchaser in the sale or purchase or conveyance of heritable property ... or for lender and borrower in a loan to be secured over heritable property; provided, however, that where no dispute arises or might reasonably be expected to arise between the parties ... this rule shall not apply if:- ... (f) in the case of a loan to be secured over heritable property, the terms of the loan have been agreed between the parties before the solicitor has been instructed to act for the lender, and the granting of the security is only to give effect to such agreement."

[22] Mr MacLeod said that he considered that his actings in relation to preparing the standard security fell within that exception in that it was his understanding that the borrower, Thomson Loudon, and the lender, the first defenders, had previously agreed the terms of the loan and the granting of the security was only to give effect to such agreement. Counsel for the first defenders then drew the witness' attention to Rule 7. It is in the following terms:

"A solicitor acting on behalf of a party or prospective party to a transaction of any kind specified in Rule 5 hereof shall not issue any deed, writ, missive or other document requiring the signature of another party or prospective party to him without informing that party in writing that:-

(a) such signature may have certain legal consequences, and

(b) he should seek independent legal advice before signature"

Mr MacLeod's position in respect of the relevance of that rule in relation to the transaction was that while he, as previously noted, advised Mr Anderson, who he had thought was to provide a guarantee in respect of the loan, to obtain separate legal advice, he gave no advice on the matter either to the pursuer or the first or the second defenders. He then went on to say:

"I should have sent a separate letter to each of Mr and Mrs Thomson - it was my practice to do so at that time. It would have been reasonable for the bank to assume I had done that because that was my practice."

That answer, however, has to be considered in the context of the witness' evidence that at no stage was he, in fact, acting for the pursuer or the second defender in the transaction and had assumed that they had obtained separate legal advice. If he was not acting on behalf of either the pursuer or the second defender, then the provisions of Rule 7 would not have required him to give them the information specified therein. Having accepted in cross-examination that the heading to number 7/6 of process describes "the customers" as being the pursuer and the second defender, the witness was then taken through the correspondence which has been lodged and which followed on from 7/6 of process. Number 7/7 of process is a copy of a letter from Mr MacLeod dated 2 November 1992 to the first defenders. It is headed:

"Customer(s): Andrew L. M. Thomson and Mrs Laura A. Thomson

Subject: 32 Fruin Avenue, Newton Mearns, Glasgow"

It states:

"We refer to your letter of 29 October 1992 and acknowledge receipt of your instructions. We confirm that we would be pleased to act on behalf of the Bank in the constitution of the Standard Security in your favour.

We shall keep you advised of progress."

Number 7/8 of process is a copy of a letter from Mr MacLeod dated 7 December 1992 to the first defenders. It is headed as the previous letters had been headed and it states:

"We refer to your instructions of 29 October 1992.

We are pleased to advise you that we are now in possession of the Executed Standard Security and we are now in a position to settle.

Could you please confirm arrangements for release of the funds."

The first defenders replied to that last mentioned letter by letter dated 10 December 1992, a copy of which is number 7/9 of process. The heading in this case is:

"Andrew L. M. Thomson and Mrs Laura A. Thomson

32 Fruin Avenue, Newton Mearns, Glasgow. "

The letter states:

"We refer to your letter of 7 December when you confirmed that you were now in possession of the executed Standard Security and that you were now in a position to settle. We advise that we have requested a final meeting with our customers regarding this transaction and we shall be in touch with you hopefully in early course regarding the release of the funds."

Mr MacLeod accepted that the first letter in that correspondence, particularly having, regard to its heading, gave the impression that the pursuer and the second defender were customers of the first defenders and he could give no satisfactory explanation as to why the description "customers" was no longer applied to the names of the pursuer and the second defender in that last mentioned letter, but, in any event, he did not consider the change was significant. He said that, having reviewed the file relating to the transaction, it was disappointing to note the absence of file notes and other correspondence setting out the circumstances of his instructions. He informed the Court that he was the defender in a Court action at the instance of the pursuer in relation to the transaction, and was being sued in that action by her for professional negligence. The action was, in part, based on the hypothesis that he had acted for the pursuer in the transaction and had owed her a duty of care. In re-examination Mr MacLeod maintained that the references to the pursuer and the second defender in the correspondence arose simply as a matter of picking up the heading of the initial instructions and continuing to use the same reference thereafter (with the deletion, in due course, of the word "customers",).

[23] An employee of the first defenders, Miss Anne Marie Sweeney was led, as a witness, on behalf of the first defenders. She is presently employed as a team manager in the financial services group of the first defenders. She has been employed by the first defenders for 27 years. During 1992 she was employed at their Shawlands branch in Glasgow. At that time she dealt with security and personal credit transactions. She was employed as a level 3 clerk. She said that she had been involved with the paperwork required in relation to securities being obtained for personal loans. Her reference appears on 7/9 of process. She had, however, no specific recollection of the transaction, or its surrounding circumstances. Miss Sweeney was taken through the correspondence between Mr MacLeod and the first defenders. She advised the Court that the person in overall charge of the transaction was a Mr McCafferty. Mr McCafferty was not adduced as a witness. I was informed that this was due to his ill health.

[24] Having been taken through the correspondence, Miss Sweeney said that she would have assumed, from the terms of that documentation, that the pursuer and the second defender were customers of the bank and that Mr MacLeod was acting on their behalf in the transaction. She said that her understanding of the word "customer" in this context was someone who operated an account with the first defenders or was involved in some way in obtaining finance from the first defenders. She did say, however, having considered the terms of 7/6 of process and the Schedule attached, that, as Thomson Loudon were described as the borrowers, they were the customers of the bank who would be borrowing and receiving the money. She could not, therefore, explain why Thomson Loudon were not described as the customers in the heading of the letters emanating from the first defenders. It would not have surprised her if she had been told that Mr MacLeod was, in fact, the solicitor for Thomson Loudon. She was unaware of any meetings between representatives of the first defenders and the second defender having taken the place in relation to the transaction. On this chapter of the case I am entirely satisfied that Mr MacLeod was not acting for the second defender nor for the pursuer in the transaction. Mr MacLeod was acting for Thomson Loudon and the first defenders. In this respect the first defenders have failed to prove their averments in Answer 5 to the effect: "Esto the said Mr MacLeod did not act on behalf of the pursuer in the constitution of the standard security. He acted for the second defender." The first defenders go on, however, to aver that the first defenders reasonably believed that Mr MacLeod acted for both the pursuer and the second defender and that Mr MacLeod represented to them that he acted for both the pursuer and the second defender. On the evidence, the only way in which it could be said that Mr MacLeod made any such representation was by his reference to the pursuer and the second defender in the headings of his letters to the first defenders, referred to previously. This is a matter to which I will require to return to consider in due course. For the time being I am satisfied that neither the second defender nor the pursuer had any solicitor acting for them when they executed the standard security in favour of the first defenders.

Submissions

The pursuer's case
[25] In opening her submissions senior counsel for the pursuer invited me to sustain the pursuer's first, second and third pleas-in-law, to repel the pursuer's remaining pleas-in-law and to grant decree in terms of the first conclusion. She also invited me to repel the first defenders' pleas-in-law.

[26] Senior counsel submitted that the pursuer had proved all the essential factors which entitled her to reduction in terms of the first conclusion of the summons. On the other hand, the first defenders had failed, crucially, to prove an essential element of their defence, as pled, namely that Mr MacLeod acted as the pursuer's solicitor in the transaction. Senior counsel then turned to consider the authorities in relation to undue influence which have been the subject of very detailed consideration in a series of recent cases. I was referred in the first place, to the case of Gray v Binny (1879) 7 R. 832 and, in particular, to passages from the Opinions of Lord President Inglis and Lord Shand in that case. Most stress was, however, placed on the passage from the Opinion of Lord Shand, at pages 347-348 where his Lordship was to the following effect:

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

[27] Senior counsel for the pursuer significantly, and correctly, in my view, accepted that, on the evidence of this case there was nothing of the character of pressure having been exercised by the second defender upon the pursuer to sign the security deed. What she focused on, in the passage from the Opinion of Lord Shand just quoted, was the phrase "ignorance of material facts, the knowledge of which was material". Subject to the concession that no pressure was actually used in the present case, senior counsel submitted that otherwise the evidence had established circumstances which met the criteria set out by Lord Shand for establishing undue influence. I should, however, observe, at this stage, that in the passage cited from Lord Shand's opinion, after having set out features which may allow a Court to hold undue influence has been exercised, his Lordship appears to have been dealing then with a very specific kind of case where both pressure was actually used and the grantor of the deed was in ignorance of facts the knowledge of which was material. The pressure and the lack of knowledge are two features which when they arise together may make a strong case of undue influence in particular circumstances. Senior counsel for the pursuer, however, submitted that, having regard to the first part of the passage from the Opinion of Lord Shand, the following matters had been established, on the evidence, in this case, namely a relationship which created a dominant or ascendant influence, confidence and trust arising from that relationship, a gratuitous benefit given to the prejudice of the grantor and no independent advice or assistance having been given to the pursuer. Senior counsel then referred to the case of Ross v Gosselin's Executors 1926 SC 325. That was a case in which a proof before answer was allowed where undue influence and facility and circumvention were pled on averments which alleged that the nephew of a testatrix, who was also her law agent, had induced her to execute a will in his favour, by failing to disabuse the testatrix of a misunderstanding about certain facts relating to another potential beneficiary, which the nephew knew to be untrue. Senior counsel relied on that case to support her position, in this action, that a case of undue influence might arise through a failure by the person in the dominant or ascendant position to inform the other party of certain facts. Reference was then made to the case of Honeyman's Executors v Sharp 1978 SC 223 and to the speeches of Lord Jauncey and Lord Clyde in Smith v Bank of Scotland 1997 S.C. (H.L.) 111 at page 115H and 118E respectively.

[28] As the submissions of senior counsel for the pursuer developed it was plain that her main complaint, directed against the second defender, was, indeed, that he had failed to disclose to the pursuer the effect of her granting the standard security in favour of the first defenders, and the possible consequences thereof, and furthermore his failure to advise her, therefore, to seek independent legal advice before doing so. Support for that approach to the case was sought from the case of Woodward v Woodward (1910) 2 S.L.T. 163. It must be noted immediately that that case was not a case pled, or decided, on the basis of undue influence but was a case involving essential error. It was a case in which the pursuer sought to have it declared that a disposition of certain property by him to his late father had been granted by him under essential error. The Lord Ordinary, in the event, found that the disposition of the property in question was granted by the pursuer to his father gratuitously and under essential error induced by his father's misrepresentation. The pursuer had been induced to grant the disposition by his father in an attempt by the father to extricate himself from difficulties which had arisen because of his own breach of trust. At page 166 the Lord Ordinary, Lord Skerrington said:

"I am of the opinion that Mr Woodward abused the trust and confidence which the pursuer reposed in him as his father and as one of the trustees of the Manderson Trust. Mr Woodward's duty was to protect the interests of the pursuer, whereas he took advantage of his position in order to further his own private interests. Before asking the pursuer to sign the factory, the discharge and the disposition, he ought to have given him all the information in his own possession and to have seen that the pursuer had independent legal advice. On these grounds I should have been prepared to decide that it may upon Mr Woodward or those in his right to prove that the transaction was in no way prejudicial to the pursuer (see Dougan v Macpherson, 1902, 4F (H.L.) 7; Smith, Cunninghame v Anstruther's Trustees 1872, 10 M.(H.L.) 39 pp.47-8). The pursuer, however, in his pleadings asks relief, not on the equitable ground of undue influence, but on the legal ground of essential error".

It was upon that passage that senior counsel for the pursuer, in the present case, founded. In the circumstances, however, it is clear that the remarks contained in it are obiter and for reasons which I will endeavour to explain, in due course, it cannot, in my judgement, having regard to other authorities, be regarded as being authority, as senior counsel for the pursuer submitted, for the proposition that, in the circumstances of the present case, there was a duty on the second defender to have seen to it that the pursuer had independent legal advice.

[29] Senior counsel for the pursuer accepted that, on the authorities, for the pursuer to succeed, in the present case, she had to establish that the second defender has been guilty of "an actionable wrong" against her. Reference was made in that respect to the decision in the case of Braithwaite v Bank of Scotland 1999 S.L.T. 25. Senior counsel for the pursuer then proceeded to refer to the decision in the case of Broadway v Clydesdale Bank 2003 S.L.T. 707, recognising, I think, that, at least at first sight, this case was, in some respects, against the submissions she was making. In that case, the pursuer sought reduction of a standard security in favour of a bank, granted by her along with her husband and her son, in a loan transaction to the family company. The pursuer claimed that she was induced to grant standard security by undue influence exercised by her husband or her son, or both, and that the defenders (the bank), had not acted in good faith as they were aware that there existed among the pursuer, her husband and her son, personal relationships of the sort that might have led a reasonable man to believe that the pursuer's consent was not fully informed or freely given, but did not warn her of the consequences of granting the standard security. The defenders maintained, inter alia, that they had acted in good faith, believing the pursuer to have been advised by a solicitor whom they had instructed to prepare the standard security. After proof, the Lord Ordinary, Lord Macfadyen held, inter alia¸ that the relationship between the pursuer and her husband was one of trust and confidence but that the pursuer had failed to establish undue influence on the part of her husband, where the security was over the family home which had originally been in his name alone, the company was a family asset, and that it could not be said that when viewed from the perspective of the family, as a whole, the transaction was inappropriate. The pursuer, in that case, was a director and shareholder of the company. She was aware, before signing the standard security in question, that further working capital for the company was to be obtained by borrowing from the defenders. Her understanding was that any security for the borrowing would be over her son's share in the family home and that her share would not be effected. She signed the security without appreciating that it in fact burdened her interest in the home. The Lord Ordinary held, as a matter of fact, the pursuer's husband at the time she executed the security had told her that she "could safely sign it" see p.714 I-J of Lord Macfadyen's opinion. As to the husband's remark that it was "it would be alright" to sign the standard security, the Lord Ordinary at p.720L-721A was of the opinion that the evidence did not exclude the possibility that in saying to the pursuer that it was "alright" to sign the security, what the husband was intending to convey was that, on balance, there was no "unacceptable risk". His Lordship went on to say:

"While on a strict analysis, the granting of the security was to the pursuer's disadvantage in that she put her share of Westquarter (the family home) at risk with no corresponding benefit to herself, I do not consider that it is likely that it occurred to (the husband) to view the matter in that formal way."

Having regard to the evidence, as a whole, the Lord Ordinary at p.721E-F concluded in relation to this chapter of the case as follows:

"The history of the relationship between the pursuer and Leslie (the husband) in my view supports the inference that it is unlikely that he intended to mislead her, or to trick her into a transaction which would be prejudicial to her interests. In all these circumstances I am of the opinion that it would not be right to hold that the evidence established that Leslie abused the relationship of trust and confidence and exercised undue influence over the pursuer."

[30] Senior counsel for the pursuer, in the present case, had to accept that there was no suggestion in that case that an actionable wrong was committed by the husband, because of his failure to tell the wife the full implications of her granting the standard security and/or that she should obtain independent legal advice in relation to it. Senior counsel, nevertheless, did not shrink from submitting that that was, or at least should be, the position in law. She also submitted that Lord Macfadyen had in the case of Broadway, erroneously, introduced a hurdle for the pursuer to surmount viz that the husband had intended to mislead her in acting in the way he did. On the evidence, in the present case, the second defender had failed in a "duty of candour" owed, in the circumstances, by him to the pursuer. Senior counsel referred to the case of Fraser v Fraser (1834) 13 S 703 at p.711, where in charging the jury, Lord President Hope said:

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

That last quoted dictum was referred to, with apparent approval, by Lord Clyde in the case of Smith at pps. 119-120. The second defender, it was submitted, in the present case, had, on the evidence, breached his duty of candour.

[31] Senior counsel accepted that the second defender's motive and intention in asking the pursuer to grant the standard security were that thereby they both would benefit as a result of the expansion of the business, which the loan would provide for, but, she said his motive and intentions were irrelevant and, in that respect, insofar as Lord Macfadyen's judgment in Broadway had, to some extent, apparently turned on the subjective intentions and motives of the husband, senior counsel invited me not to follow that approach. For all the foregoing reasons, senior counsel submitted that the pursuer had established that the standard security was impetrated by undue influence exercised by the second defender upon the pursuer.

[32] Senior counsel for the pursuer then turned to consider whether or not the first defenders had, in any event, established that they had acted in good faith in the matter. She submitted that, on the evidence, the first defenders had failed to establish this defence. In the circumstances, they had a duty to advise the pursuer to obtain independent legal advice before signing the standard security. They had not done so. The requirement arose because of the following factors, which had been established in the evidence. Firstly, the first defenders knew that the security subjects were jointly owned by the pursuer and the second defender and that they were husband and wife. They knew that the security was being taken in respect of a business loan to a limited company. These facts were sufficient to put the first defenders on notice and to require that they follow what the House of Lords had to say in the case of Smith, by taking certain steps if they were to remain in good faith. It would have been sufficient, in the present case, for the first defenders to have warned the pursuer of the possible consequences of entering into the transaction, and to recommend to her that she took independent advice about the matter. Senior counsel then turned to certain Scottish authorities in which the question of whether or not a bank had maintained good faith in such circumstances was considered. In the case of Forsyth v The Royal Bank of Scotland 2000 S.L.T. 1295, a wife and husband executed a standard security, to secure advances in connection with the husband's business. The wife subsequently claimed that she had been induced to execute the deed by the husband's misrepresentation. She averred that the bank had owed her the duty to contact her and advise her to obtain independent legal advice and that they had failed to do so. In that case, the pursuer admitted that the bank had instructed a firm of solicitors to act on their behalf in the transaction and it was accepted, on her behalf, that the solicitor, in question, was in fact the husband's solicitor. It was, furthermore, conceded on the pursuer's behalf that, in their dealings with the bank, in relation to the standard security, the solicitors had given the appearance of representing both the pursuer and her husband as grantors of it (see the opinion of Lord Macfadyen at p.1297, column 2). In that situation, the Lord Ordinary, Lord Macfadyen, held that the bank were entitled to infer from the apparent involvement of the solicitors on the pursuer's behalf, even though they appeared to be acting for both the pursuer and her husband, that she would be properly advised as to the nature and consequences of the transaction and the defenders did not require, in order to preserve their good faith in the matter, to undertake the task of advising her, nor to seek express confirmation that the solicitors had done so. Accordingly, the pursuer's averments of lack of good faith, on the part of the bank, were irrelevant. Lord Macfadyen's decision in that case in that respect, was referred to by Lord Clyde in the subsequent English House of Lords case of Royal Bank of Scotland Plc v Etridge (No.2) (2001) 3 WLR 102 1 at pps. 1051-1052, without any apparent disapproval. It has, moreover, as will be seen later in this opinion, been authoritatively approved of in Scotland. Lord Macfadyen followed his approach in the case of Forsyth, in the later case of Broadway, when he held that the bank had not been in bad faith when the pursuer was represented in the transaction by the family's solicitor, even though he was also acting for the bank in the security transaction. In such a case, they had "acted in the reasonable belief that they did not require to warn her of the risk of the transaction or advise (her) to take separate advice because she had the benefit of the advice of her own family solicitor in relation to the transaction" see Lord Macfadyen's opinion at page 726H-I. Senior counsel submitted that the issue in the present case was whether or not the first defenders had any reasonable belief that the pursuer was being provided with independent legal advice. On the evidence, it was clear that Mr MacLeod, the solicitor, acted for neither the pursuer nor the second defender. He had considered that he was acting for the company, Thomson Loudon, and the first defenders in the transaction. Those facts took the present case away from the circumstances in both Forsyth and Broadway. The only remaining question, in the present case, was whether the first defenders were entitled to claim to have acted in good faith because they had a reasonable belief that the pursuer was receiving independent legal advice, when, in fact, she was not. It was of some significance to note, it was submitted, that, in their pleadings, the first defenders had averred that Mr MacLeod was acting as the representative of both the pursuer and the second defender. That critical point of the defence, as pled, the first defenders had failed to prove and the contrary was what had, in fact, been established. It appeared, however, that the first defenders, nevertheless, sought to set up a reasonable belief on their part by reference to the terms of the correspondence passing between the first defenders and Mr MacLeod and certain other documents in the case. The circumstances in which, the first defenders headed their letter 7/6 of process, to Mr MacLeod instructing him to act on their behalf with the words "Customer(s): Andrew L M Thomson and Mrs Laura A Thomson", and the reason for doing so remained obscure. In any event, the evidence of the pursuer and the second defender, which was not contradicted, was that they had never been customers of the first defenders. The schedule of particulars, in any event, referred to the borrowers, in Part 1, box 1, as being Thomson Loudon Ltd. It was true that in box 7 the reference was not to "the borrower's" solicitor but to the "customer's" solicitor but, at best, for the first defenders there was confusion arising from their own document about whether Thomson Loudon was the customer (which was a fact) or whether the customers were Mr and Mrs Thomson, which was not the fact. The references in the headings, in the correspondence passing between Mr MacLeod and the first defenders, to the pursuer and the second defender being customers, did not advance matters for the first defenders and did not entitle them to claim that they had a reasonable belief that Mr MacLeod was acting for the pursuer and the second defender, or even the second defender alone. The first defenders had adduced no evidence that any information was given to them, otherwise, that Mr MacLeod would be acting for either the pursuer or the second defender or both in the transaction. When one looked at the text of the correspondence passing between Mr MacLeod and the first defenders it was plain that there was nothing in that to suggest that Mr MacLeod was acting on behalf of the pursuer and the second defender. In 7/15 of process, a copy of the letter from the first defenders and Mr MacLeod of 16 December 1992, it was significant that the first defenders referred in that letter to Mr Andrew Thomson, director of Thomson Loudon Ltd. This, if anything, pointed to the first defenders considering that their customer in this transaction was, indeed, the company Thomson Loudon Ltd. But, in any event, the position was that there was nothing in the letters emanating from Mr MacLeod, which could lead the first defenders reasonably to believe that he was acting for the pursuer and/or the second defender in the transaction. The first defenders themselves appeared to have simply used a loose way of referring to the various parties involved but that, in itself, could not entitle them, thereafter, to say that they had a reasonable belief that Mr MacLeod was acting for the pursuer and/or the second defender.

[33] Senior counsel for the pursuer submitted that to put them in good faith, in the circumstances, the first defenders could have done the following things. In the first place, they should have contacted the pursuer and/or the second defender directly and enquired as to whether they had a solicitor acting for them in the transaction. Secondly, they should have contacted Mr MacLeod and discovered whether or not he was acting for the pursuer and/or the second defender. Thirdly, they could have arranged a meeting with the pursuer and given her advice about the effect of signing the deed and advising her to seek independent legal advice. They did none of those things and they had not established the basis of a reasonable assumption that the pursuer was in fact in receipt of independent legal advice.

[34] Senior counsel, lastly, referred me to the decision of the Extra Division in the case of Clydesdale Bank Plc v Black 2002 S.L.T. 764. In that case Lord Coulsfield and Lord Sutherland, were of the opinion, apparently, that the development of the law brought about by the decision of the House of Lords in cases such as Barclays Bank v O'Brien (1994) 1 AC 180 and Smith v Bank of Scotland with regard to what banks required to do to protect themselves in such cases, were not retrospective in effect. Lord Marnoch, in that case, appeared, however, to take another view of that matter. Senior counsel for the pursuer submitted that the majority in Black may have been wrong in that respect, by apparently failing to take on board the implications of the speech of Lord Clyde in Smith. The facts relied upon in Smith had all taken place in 1984, yet Lord Clyde appeared to consider that whether or not the bank could be regarded as having been in good faith, should be judged according to the law which he was stating in that case. Senior counsel invited me, accordingly, to test the first defenders' position, in this case, against the law set out in Smith, notwithstanding that the transaction in the present case pre-dated the decision in Smith.

The first defenders' case
[35] In reply, junior counsel for the first defenders, Mr McLean, invited me to sustain the defenders' pleas in law, to repel the pursuer's pleas in law and to grant decree of absolvitor. At the outset of his submission, counsel emphasised that the pursuer's case was predicated upon the execution of the standard security having been brought about by the exercise of undue influence by the second defender upon her. It was not a case pled on misrepresentation or any other vitiating factor. The pursuer, in order to succeed against the first defenders, in this case, had to surmount two hurdles. The first was to establish that the execution of the standard security by her was induced by undue influence on the part of the second defender. Even if she surmounted that hurdle, she had, then, to surmount the hurdle of establishing that the first defenders were not acting in good faith at the time the standard security was granted to them. While, of course, accepting that the law in relation to such situations had in recent years been developed by the House of Lords, both for England and for Scotland, counsel for the first defenders submitted that while the developments had occurred in parallel, they were not identical in their effect. In particular, the Scottish position as set out in Smith, and as applied in subsequent cases, as regards what steps had to be taken by the bank, or other lending institution, in such a case, was less formulaic or prescriptive than appears now to be the position in English law, particularly following from the case of Etridge. The Scots approach was also different from the English approach in that, as Lord Clyde had made clear in Smith, the Scottish approach did not proceed on the basis of any presumptions. For these reasons, counsel for the first defenders urged the Court to treat at least certain of the dicta in the English cases with a degree of caution.

[36] Counsel then turned to address the Court in detail in relation to the concept of undue influence. He criticised, in the first place, the way in which senior counsel for the pursuer had sought to rely on the case of Gray v Binny in support of the pursuer's position in the present case. That reliance had focused largely, if not exclusively, on the passages cited from the opinion of Lord Shand, as if those passages contained the beginning and end of anything that required to be said in relation to undue influence. In doing so, senior counsel for the pursuer had ignored, or at least understated, the importance of certain passages from the opinion of the Lord President, in that case, and also the importance of developments of the law in this area since the decision in Gray itself. The basic starting point of any discussion of the concept of undue influence was to recognise the significance and force of the word undue. It was quite possible for there to be a relationship of trust and confidence which was productive of legitimate influence. While it might be difficult to provide a precise definition of the word "undue" in this context, having regard to what was said in the decisions on the subject, particularly the more modern ones, the inference was that the influence, if it was properly to be described as undue, was something that was nefarious, involving, in effect, a breach of trust. While the conduct might arise from facts falling short of coercion or fraud, it was, nevertheless, conduct which could properly be described as either legally or morally wrong, in some way. Whether or not the conduct of the person accused of such behaviour was undue influence or not, fell to be determined not on the basis of presumptions, but on the facts as disclosed in the evidence. I was referred by counsel to what Lord Clyde had to say, albeit in the context of an English case, in Etridge at page 1050 para.92 where, speaking of undue influence, his Lordship said:

"That concept is in any event not easy to define. It was observed in Allcard v Skinner (1887) 36 Ch D 145 that 'no Court has ever attempted to define undue influence' (Lindley LJ, at p 183). It is something which can be more easily recognised when found than exhaustively analysed in the abstract."

His Lordship later on continued as follows, at para. 93:

"English law has identified certain relationships where the conclusion can prima facie be drawn so easily as to establish a presumption of undue influence. But this is simple a matter of evidence and proof. In other cases

the grantor of the deed will require to fortify the case by evidence, for example, of the pressure which was unfairly applied by the stronger party to the relationship, or the abuse of a trusting and confidential relationship resulting in for the one party a disadvantage and for the other a collateral benefit beyond what might be expected from the relationship of the parties. At the end of the day, after trial, there will be either proof of undue influence or that proof will fail and it will be found that there was no undue influence. In the former case, whatever the relationship of the parties and however the influence was exerted, there will be found to have been an actual case of undue influence. In the latter there will be none."

Counsel for the first defenders then referred to the speech of Lord Scott of Foscote in Etridge at p.1077, para.162 where his Lordship said this under reference to the case of Barclays Bank Plc v O'Brien:

"In the surety wife cases it should, in my opinion, be recognised that undue influence, though a possible explanation for the wife's agreement to become surety, is a relatively unlikely one. O'Brien itself was a misrepresentation case. Undue influence had been alleged but the undoubted pressure which the husband had brought to bear to persuade his reluctant wife to sign was not regarded by the judge or the Court of Appeal as constituting undue influence. The wife's will had not been overborne by her husband."

[37] The Etridge case was heard by the House of Lords, together with a number of other conjoined appeals, but in relation to the case of Etridge itself, Lord Scott at page 1088 para.221 said this:

"In the present case, the judge's conclusion that there had been no actual undue influence was reached after considering all the evidence. There was evidence of the relationship between Mr and Mrs Etridge. Their relationship was, as one would expect of a married couple living together with the family income being provided by the husband's business activities and with financial decisions affecting the family being taken by the husband, a relationship of trust and confidence by her in him. But there was no evidence of abuse by Mr Etridge of that relationship, or of any bullying of Mrs Etridge in order to persuade her to support his decisions. Both the transactions under attack had been entered into in part in order to provide finance for the purchase of The Old Rectory and in part to obtain financial support for Mr Etridge in his business enterprises. Both had elements disadvantageous to her and elements that were to her advantage. To draw a distinction between the two charges as to inferences of undue influence that might be drawn was, in my opinion, unreal. In my view, the judge's conclusion that there had been no undue influence was well justified on the evidence. That conclusion should have been an end of the case."

[38] Reverting to the case of Gray v Binny, counsel drew my attention to the Opinion of the Lord Ordinary in that case, Lord Young (which was approved by the Inner House) at p.338, where his Lordship, in discussing the concept of undue influence, used the words "some abuse of influence and confidence" and counsel also highlighted the somewhat extreme facts that were found established in that case. Counsel, furthermore, referred to the Opinion of Lord President Inglis at p.342, where his Lordship said:

"It is not enough, however, for the pursuer of such an action as this to prove that he has given away valuable rights for a grossly inadequate consideration, and that he had been betrayed into the transaction by his own ignorance of his rights, without proving deceit or unfair dealing on the part of those who take benefit by his loss."

The passage from the Opinion of Lord Shand, upon which senior counsel for the pursuer so heavily relied, had to be seen in the context of the particular facts of that case and having regard to the dicta just referred to. The case of Ross v Gosselin's Executor, upon which senior counsel also relied in support of her submission that silence might be enough to constitute undue influence, was a quite different case from the present one, on its facts, since it clearly involved, in effect, a trick being played upon the testatrix and there was no difficulty in seeing that the conduct in question involved an abuse of the relationship in question. The case of Forbes v Forbes 1957 S.C. 325 was then examined by counsel for the first defender. It was of some significance, he submitted, to note the distinction drawn by the Lord Ordinary, Lord Guthrie, between undue influence and bad advice at p.334-335 in a passage where his Lordship stressed, "it is...essential to the conception of 'undue influence' in the law of Scotland that there has been a breach of fiduciary or quasi fiduciary duty, confidence acquired and abused." At this point, in his submissions, counsel for the first defenders contended that, in the present case, the pursuer would have been quite happy about having granted the Standard Security if everything had turned out, as the second defender genuinely hoped and expected, but now came to the Court because of extraneous circumstances, whereby she appeared to have been let down by her husband. It was a completely false characterisation of the position to describe the second defender's conduct, at the material time, as an abuse of trust, as involving conduct which was either legally or morally wrongful. Reference in this connection was made to the Opinion of Lord Maxwell in Honeyman's Executors where his Lordship explained the requirement of identifying conduct which might in some way, or to some extent, be described as immoral. Counsel for the first defenders invited me to hold that the case of Woodward was of no assistance in the determination of the issues raised in the present case as it was concerned with another area of the law, namely the law of error. The dicta of their Lordships in the case of Smith regarding undue influence were, strictly speaking, obiter, since that was not a case in which the wife said that the transaction was brought about by the undue influence of the husband. It was a case based on alleged misrepresentation by the husband. Nevertheless, nothing in the case of Smith gave the pursuer support for her approach to undue influence in the present case. Counsel referred me, for example, to the opening paragraph of the speech of Lord Clyde at p.116, where his Lordship referred to the facts of the case being that the husband had required the security for the purpose of enabling him to obtain a loan for a business, which he ran in partnership with another, there was no hint in the speech of Lord Clyde that the conduct of the husband in that case brought into play the concept of undue influence. His Lordship had, however, stressed under reference to the previous authority, that the conduct, if it was to be described as undue, would involve an abuse of trust (see p.120B). In other words, even in relation to such facts as were averred in Smith, there could be legitimate influence. For the influence to be illegitimate required conduct which was an actionable wrong, - reference was made to the case of Braithwaite at p.33A-D. Counsel for the first defenders turned next to consider the issue of causation. This is a subject which is discussed by Lord Macfadyen in Broadway at p.721I - 722B. In that case, while his Lordship held that no undue influence had, in fact, been established, by the pursuer, he went on to consider what the position would have been had he held otherwise. In the first place, he held that the onus of proof rested on the pursuer, in a case like the present, as against the lender, to show that she would not have executed the Standard Security but for the undue influence. His Lordship then continued:

"The pursuer herself did not say that if she had understood the nature and effect of the Standard Security she would not have granted it. She went no further than to say that in that event she would have taken advice.... Her direct evidence on the point is not, of course, essential, because there may be cases (of which Gray v Binny is an example - see pps.341 and 349) in which the circumstances are so clear that no other inference is reasonable."

His Lordship then continued:

"Clear and acceptable evidence from the pursuer that she would not have granted the Standard Security would probably have been enough to outweigh those other circumstances. In the absence of such evidence, however, I am of the opinion that it has not been proved that the pursuer, if fully informed about the nature and consequences of the Standard Security, would have declined to grant it".

Under reference to those passages from the Opinion of Lord Macfadyen, counsel for the first defenders submitted that while, in the present case, the pursuer, in evidence, said that she would not have granted the Standard Security, if she had received independent advice and had been made fully aware of the nature and consequences of the transaction, counsel submitted that the pursuer had been adamant on this matter to the point which went beyond reasonableness. He contended that, in fact, it was more than likely, even if advised of the nature and consequences of the transaction, the pursuer would have gone ahead with the execution of the Standard Security. Realising, however, the importance of denying that, she was not even prepared to contemplate it as a possibility, and, in doing so, she had gone beyond the credible. Standing the close relationship between herself and her husband, and the fact that the transaction was being entered into for the purpose of expanding the business, which produced the sole source of the family income, it was likely that she would have signed the Standard Security, in any event, even if fully informed as to its nature and possible consequences. It was legitimate to ask what would have been the consequences for the relationship between the pursuer and second defender had she refused to execute the Standard Security. Counsel emphasised that the evidence was that the pursuer had clearly left all questions relating to family finances to the second defender, and was in the habit of signing legal documents, when asked to do so, by her husband, without reading them. The company for whose benefit the advance was to be made was in all practical terms, the husband's, in the sense, at least, that, without, him there would have been no company. The second defender acted in good faith in that he genuinely thought that the purchase of the new business was an exciting business opportunity which would benefit his family. He had never let the pursuer down in the past in relation to family finances and there was no reason to anticipate at the time the deed was executed that he would do so in the future. On the evidence there was simply nothing underhand, aggressive or wrongful in the second defender's conduct. Counsel for the first defenders invited me to accept the second defender's evidence that he had told the pursuer that the purpose of the deed was to secure the company's overdraft.

[39] I was also reminded by counsel for the first defenders, that in 1994 the pursuer granted another Standard Security over her interest in the matrimonial home without, apparently, making any enquiries regarding its effect or possible consequences. The true position, on the evidence, was that the pursuer was simply disappointed with the second defender, once his company ran into difficulties, some years after she had granted the Standard Security. In 1992, at the time of its execution, there was a relationship between the pursuer and the second defender in which the pursuer placed confidence in the second defender, but the influence he exercised was reasonable, normal and intended to be benevolent influence - it was not undue as that expression is defined in the authorities. In any event, as had been submitted on the evidence, the pursuer would have been more likely than not to have signed the security deed even if she had been fully informed of its nature and possible consequences. For all these reasons, the first defenders were entitled to decree of absolvitor.

[40] Counsel for the first defenders went on to submit that, in the event of the Court being against him on this branch of the case, the first defenders, nevertheless, were entitled to absolvitor because, in the circumstances, they had acted in good faith. They had, in the circumstances, been under no obligation to take any other steps than those they had actually taken. The fact that the pursuer was not professionally represented in the transaction was not determinative of the matter. What had to be considered was, the conduct of the first defenders and the reasonableness or otherwise of the understanding upon which that conduct was based. Counsel for the first defenders accepted that the evidence established that, as a matter of fact, no solicitor was acting for the pursuer in the transaction but, he contended, the evidence had established that the first defenders had believed that she had a solicitor acting for her. That evidence, it was submitted, came from the witnesses Mr MacLeod and Miss Sweeney, Mr MacLeod had accepted that it would have been reasonable for the first defenders to have assumed, giving the terms of his correspondence with them, that he would have given advice to the pursuer about the transaction, though it was accepted by the first defenders that no advice, in fact, was given. Counsel for the first defenders invited me to apply to the facts of the present case, certain passages in the Opinion of Lord Macfadyen in the case of Forsyth, accepting, however, that, in that case, unlike the present, it had been conceded on behalf of the pursuer that the solicitor acting in the transaction was the husband's solicitor and that in dealing with the bank in relation to the Standard Security the solicitor gave the appearance of representing both pursuer and her husband as grantors of it. The passages to which counsel, however, wished to refer, were at pps.1303-1305 of Lord Macfadyen's Opinion, and counsel submitted that these came to suggesting that, provided the Bank had a reasonable belief that the wife had a solicitor acting for her in the transaction, they could be said to be acting in good faith. Counsel for the first defenders, under reference to the opinions of the majority in the case of Clydesdale Bank v Black, submitted that in judging the good faith, or otherwise, of the Bank in such a case, one had regard to what was "good faith practice" at the date of the actual transaction. Judging matters as at 1992, the first defenders had not fallen foul of any desiderated practice which had been established at that time.

[41] Returning to the evidence in the present case, counsel for the first defenders submitted that since the solicitor acting for the Bank had no actual knowledge of other solicitors acting for the pursuer and or the second defender, and since he had said, in his evidence, that he was surprised and disappointed that he did not seem to have written to the pursuer and the second defender, advising them to obtain legal advice, it was reasonable for the Bank to have expected him to have done that and, indeed, Mr MacLeod accepted that as being the position. The first defenders were never put on notice by anyone that Mr MacLeod was not acting for the pursuer and or the second defender. The letters consisting of 7/7, 7/8. 7/12 and 7/13 of process, were all conceded, by Mr MacLeod, to be capable of being read to the effect that Mr and Mrs Thomson were his clients. Miss Sweeney said that that is how she would have read the headings to that correspondence. If this had not been the position, she would have expected the matter to have been corrected by the solicitors. On the authority of the decision in the case of Forsyth, the first defenders were entitled to assume that the pursuer and the second defender were separately represented and were obtaining advice. There was no obligation on the Bank to embark on an enquiry as to who, if anyone, was in fact acting for the pursuer and her husband. The first defenders had, accordingly, been acting in good faith in the circumstances and were entitled to absolvitor for that reason alone.

The pursuer's reply
[42] In reply, senior counsel for the pursuer accepted that in relation to undue influence, the pursuer had to prove something in the nature of an actionable wrong. The actionable wrong in the present case, she submitted, was a breach of the duty of candour described in Fraser v Fraser's Trustees and referred to by Lord Clyde in Smith. While she accepted that the decision in Fraser did not go so far as saying that the duty, in a case like the present, extended to requiring the husband to send his wife for separate legal advice, she, nevertheless, submitted that that should now be regarded as the law in modern times, in a case like the present, and she once again sought support for that proposition from the case of Woodward. Senior counsel went on to say that her submission could be reformulated in this way - the fact that the husband, in the present case, had not advised the pursuer to obtain independent legal advice, enabled her to say that the components in the passage cited from the Opinion of Lord Shand in Gray v Binny were established.

[43] As far as the first defenders' good faith was concerned, the submission on behalf of the first defenders was going beyond what was decided in Forsyth. The onus was on the first defenders to establish their good faith and they seemed, in this case, to rely simply on the failure of their own solicitor to explain his position, to allow them to claim that they acted in good faith.

The case of Royal Bank of Scotland v Wilson
[44] After I had taken the case to avizandum, it came to my attention that the Second Division had, at avizandum, a case in which certain of the issues which arose in the present case fell to be determined by that court. The case in question is Royal Bank of Scotland v Wilson which was, in the event, advised on 9 July 2003. It seemed to me appropriate, having regard to the content of the opinions in that case, to have the present case put out By Order, so that counsel could, if so advised, address me on what, if any, were its implications in relation to the decision I have to arrive at in the present case. The decision in The Royal Bank of Scotland v Wilson was concerned with appeals from the sheriff court, in which the Royal Bank of Scotland sought to enforce two standard securities granted by two married couples over their respective homes (the two couples happened to be related) in respect of loans obtained from the Bank. Both wives sought to resist enforcement of the standard securities on the basis that they had been induced to execute them due to misrepresentation on the part of their respective husbands and that, in the circumstances, the Bank had not been in good faith. The wives failed in their defences before the sheriff and they failed on appeal to the Inner House.

[45] In the course of their opinions, the judges of the Second Division made certain observations which are germane to the present case. In the first place, Lord Justice Clerk Gill reaffirmed the need for cautioner wives in such situations to establish that they had been victims of actionable wrongs and, thereafter at p.11 of his Opinion, observed that neither of the wives had made any case of positive misrepresentation to her by her husband. They relied, rather, on failures by the husbands to disclose to them certain information regarding the transactions. At p.11 para.26 of his Opinion, the Lord Justice Clerk said:

"The basic rule is that in such transactions the cautioner is expected to look to his own interests and to make his own enquiries (Smith, supra, at pps.117E - 118B). There is no duty on the part of the creditor to disclose to his cautioner the sort of information to which the second defender's averments refer. Counsel for the second defenders have given us no authority for the proposition that there is any such duty on the part of the principal debtor. In my view, there is no such duty. There is liability for silence only where the circumstances are such as to impose an obligation to speak, for example where the prospective cautioner expressly asks for such disclosure as a condition of his giving caution."

As regards the banker's duty of good faith, the Lord Justice Clerk, at p.9 of his Opinion, left open for another day the question as to whether the extension of the law in Smith v Bank of Scotland applied to pre-existing transactions. In that respect he said this, at para.20 of his Opinion

"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 S.L.T. 392). In Clydesdale Bank plc v Black 2002 S.L.T. 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 (Barclays 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 it is appropriate that we should proceed on that basis."

In any event, the Lord Justice Clerk went on to approve of the decision in Forsyth and, before doing so said this, at para.(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 a 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."

It is of some significance, in my judgment, to note also that his Lordship expressly held that the detailed steps which the House of Lords had prescribed in the case of Etridge, which the creditor should take to avoid having constructive notice of any potential undue influence or the like, are not part of the law of Scotland. His Lordship in that respect said, at para.(34):

"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 appeared 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."

[46] Lord Osborne agreed that the decision in Forsyth was good law and that the prescriptions set out in Etridge did not apply in Scotland. He, furthermore, held that the wives had failed to aver actionable wrongs having been committed by their husbands, in the context, because of their mere failure to give them information about the transaction, see p.22 of his Opinion. On the last mentioned point from the third member of the court, Lord Hamilton, at p.3 of his Opinion, para.(68) said this

"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 when 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 have had effect) itself created a obligation of disclosure by the husband (see also Lord Clyde in Smith at p.106H-I)."

I note that in the last sentence of that dictum, Lord Hamilton might be read as having at least left open the possibility of there being a duty of disclosure case to be made in the context of averments claiming that undue influence has been exerted. His Lordship does, of course, not elaborate on that matter any further. It seems to me, however, that, in all probability, what his Lordship had in mind, were the dicta in Gray v Binny in the opinion of Lord Shand and in cases such as Ross v Gosselin's Executors referred to above. Lord Hamilton agreed with the other judges that Forsyth was correctly decided and that Scots law did not require creditors to carry out the prescriptive steps set out by the House of Lords in Etridge, see pps.8-9 of his Opinion. At pps.10-11 of his Opinion, Lord Hamilton expressed agreement with Lord Marnoch's view in Clydesdale Bank v Black, that the law enunciated in Smith was to be taken as the applicable law, notwithstanding that the relevant transaction pre-dated that decision.

[47] In Wilson, the Lord Justice Clerk gave, at the outset of his decision, another ground for dismissing the appeals, that was that the standard securities in both cases provided as follows:

"We (name) and (name), Spouses.... (hereinafter referred to as 'the Obligant')

hereby undertake to pay to T he 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 became 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; ....".

In both cases, in Wilson, the loans in respect of which the standard securities were granted were made both to the husband and wife, in the first case for the purchase of the home itself and in the second, for the construction of a conservatory. In that situation the Lord Justice Clerk was of the view that the obligations incurred by the wives in respect of those loans, were not cautionary in nature. His Lordship, however, continued as follows, at para.22 of his Opinion:

"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."

Lord Osborne, pps.19-20 of his Opinion, appears to have been prepared to dispose of the appeals on that basis also. Lord Hamilton, at p.11 of his Opinion, in relation to this point was to the following effect:

'The security, however, being in the form of one for "all sums", extended potentially, though not at the time of the grant, to other obligations which might be incurred by either the husband or the wife or both of them, whether as principals or as cautioners for third parties. On one view the nature of such a deed might be thought to take it out of the whole lines of authority discussed. However, the solicitor advocate for the respondent urged us to approach the matter on the basis that these lines of authority, in so far as otherwise applicable, would fall to be applied to an 'all sums' security on the basis that, while such a deed might give rise to an obligation undertaken for consideration, it also gave rise potentially to other obligations for which no consideration or no additional consideration was given. While having some doubts about the appropriateness of that course, I am prepared for the purposes of these appeals to proceed on that basis."

[48] In addressing me, at the By Order hearing, on the effect of the decision of the Second Division in Wilson, senior counsel for the pursuer made the following points. In the first place she accepted that, in the light of that decision she could not maintain that, in any sense, the prescriptive steps set out by the House of Lords in Etridge had to be followed in Scotland, if a creditor bank was not to be in bad faith. She, nevertheless, invited me, to follow Lord Hamilton's apparent view that the law in Smith affected pre-Smith transactions. As to the "new" point taken by the Lord Justice Clerk, Lord Osborne and referred to by Lord Hamilton as to the non-applicability of the law in Smith to "all sums due" securities, senior counsel for the pursuer had to accept that the Standard Security in the present case is in identical terms, for present purposes, to those which were being considered by the Court in Wilson, but she submitted that the position was different in the present case from that which obtained in Wilson. In Wilson, the standard securities in question had been granted in respect of loans which benefited both the husbands and wives directly. In the present case the Standard Security was granted in security of a loan to a third party - Thomson Loudon, the company. The granting of the Standard Security clearly involved conferring by the pursuer of a gratuitous benefit on a third party and the law in Smith should be applied to such a case.

[49] Counsel for the first defenders submitted that the decision in Wilson was broadly supportive of the first defenders' case. He invited me to apply the reasoning of the Lord Justice Clerk and Lord Osborne in relation to standard securities, which were granted "for all sums due", to the present case where the standard security was, for all practical purposes, in the same terms as those in Wilson. In any event Wilson reinforced the need for the pursuer to establish an actionable wrong having been committed against her by her husband, the second defender. The case also, in his submission, clearly ruled out any wrongful conduct in the failure of the second defender, in the circumstances of this case, to have disclosed more than he actually said to the pursuer at the time she had signed the security, far less that there was any duty on him to advise her to seek separate legal advice. The case of Wilson also removed any remaining doubt to whether the prescriptive steps set out in Etridge applied to banks in Scotland.

Decision
[50] While I have set out fairly extensively the evidence and submissions in the present case, it does appear to me that the recent decision of the Second Division in

Wilson, to a very large extent, puts paid to the basis upon which the present case was presented on behalf of the pursuer. The very clear, and, indeed, robust way, in which the Court in Wilson has set out the law in relation to such cases, as the present, in my respectful opinion, has removed any lingering doubts that the law of England and the law of Scotland have converged in this area. In addition, the opinions, in that case, appear to me to have demonstrated the danger of falling, whether consciously or unconsciously, into the trap of believing that the law of Scotland considers that there is anything even approaching an automatic presumption that a wife who grants a security over the matrimonial home, jointly owned with her husband, when that security is granted in respect of borrowings by a business in which the husband has an interest, has, if not separately advised, had an actionable wrong committed against her. As the Lord Justice Clerk in Wilson put it at p.13 para.32 of his Opinion, "A wife will normally have an interest, indirect but nonetheless significant, in the success of her husband's business." That succinct statement finds, in fact, a more elaborate echo in the speech of Lord Nicholls of Birkenhead in Etridge at pps.1033-1034 paras.27-30. There his Lordship said this:

"[27] The problem has arisen in the context of wives guaranteeing payment of their husband's business debts. In recent years judge after judge has grappled with the baffling question whether a wife's guarantee of her husband's bank overdraft, together with a charge on her share of the matrimonial home, was a transaction manifestly to her disadvantage.

[28] In a narrow sense, such a transaction plainly ('manifestly') is disadvantageous to the wife. She undertakes a serious financial obligation, and in return she personally receives nothing. But that would be to take an unrealistic blinkered view of such a transaction. Unlike the relationship of solicitor and client or medical adviser and patient, in the case of husband and wife there are inherent reasons why such a transaction may well be for her benefit. Ordinarily, the fortunes of husband and wife are bound up together. If the husband's business is the source of the family income, the wife has a lively interest in doing what she can to support the business. A wife's affection and self-interest run hand-in-hand in inclining her to join with her husband in charging the matrimonial home, usually a jointly-owned asset, to obtain the financial facilities needed by the business. The finance may be needed to start a new business, or expand a promising business, or rescue an ailing business .

[30] ... I do not think that, in the ordinary course, a guarantee of the character I have mentioned is to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband. Wives frequently entered into such transactions. There are good and sufficient reasons why they are willing to do so, despite the risks involved for them and their families. They may be enthusiastic. They may not. They may be less optimistic than their husbands about the prospect of the husbands' businesses. They may be anxious, perhaps exceedingly so. But this is a far cry from saying that such transactions as a class are to be regarded as prima facie evidence of the exercise of undue influence by husbands."

Once again in Etridge, at p.1050 paras.92-93, Lord Clyde, after saying that the concept of undue influence was not easy to define, and that it was something which could more easily be recognised when found than exhaustively analysed in the abstract, continued as follows:

"[43] There is a considerable variety in the particular methods by which undue influence may be brought to bear on the grantor of a deed. They include cases of coercion, domination, victimisation and all the insidious techniques of persuasion."

[51] While the Inner House has made it clear that the law in Etridge does not represent the law of Scotland, I nevertheless consider that those statements are highly relevant to the present type of case in Scotland.

I, furthermore, find the following passage from the speech of Lord Scott of Foscote in Etridge at p.1076 para.159 to be particularly apt in relation to the present case:

"For my part, I would assume in every case in which a wife and husband are living together that there is a reciprocal trust and confidence between them. In the fairly common circumstance that the financial and business decisions of the family are primarily taken by the husband, I would assume that the wife would have trust and confidence in his ability to do so and would support his decisions. I would not expect evidence to be necessary to establish the existence of that trust and confidence. I would expect evidence to be necessary to demonstrate its absence. In cases where experience, probably bitter, had led a wife to doubt the wisdom of her husband's financial or business decisions, I still would not regard her willingness to support those decisions with her own assets as an indication that he had exerted undue influence over her to persuade her to do so. Rather I would regard her support as a natural and admirable consequence of the relationship of a mutually loyal married couple. The proposition that if a wife, who generally reposes trust and confidence in her husband, agrees to become surety to support his debts or his business enterprises a presumption of undue influence arises is one that I am unable to accept. To regard the husband in such a case as a presumed 'wrongdoer' does not seem to me consistent with the relationship of trust and confidence that is part of every healthy marriage."

On the facts, as I have found them in the present case, in my judgment, the pursuer has completely failed to establish that the second defender was guilty of any legal wrongdoing at the time he asked her to sign the Standard Security. As noted, senior counsel for the pursuer accepted that there was no evidence in this case of the second defender having exerted anything in the nature of pressure upon the pursuer. There is no case made against the second defender that he misrepresented the position in any way. It will be recalled that the Second Division in Wilson has now made it clear that, absent any special circumstances, there is no duty on the husband in such a case to volunteer information which is not sought by the wife. The reason for the information not being sought is often, as in the present case, because of the implicit trust (based on previous experience) that the wife has placed in her husband's judgement. It is not the function of the law, in my judgment, to subvert such relationships of trust. It is its function simply to provide protection against abuses of such relationships in certain circumstances. It would, in my judgment, be a distortion of language to describe what the second defender was doing in asking the pursuer to execute the Standard Security in this case as an abuse of trust. As I have recorded above, senior counsel for the pursuer ultimately sought to persuade me that undue influence could arise simply from a failure by the husband to volunteer information about the transaction, which had not been asked for and/or to direct the wife that she should obtain independent legal advice in relation to the transaction. While such an approach, if adopted, would be good news to lawyers, and while it was advanced forcefully in the present case, there is simply no warrant in either principle or authority for it in the law of Scotland. To desiderate the taking of such steps, in every such case, as senior counsel for the pursuer seemed to submit should be the position would, in many cases, be at odds with the recognition of a healthy relationship of trust and confidence in a modern day marriage. As recent Scottish authorities have made clear, a wife, in the normal marriage situation, must be expected, to some extent, to be looking after her own interests by, at least, asking the questions that she thinks are appropriate. If she chooses not to ask these questions, it does not follow that the husband is guilty of undue influence. Again, while of course she is free to seek independent legal advice if she wishes, if her husband does not advise her to do so, that does not, in my judgment, amount to his exercising undue influence or abusing what was, until then, a relationship of genuine trust and confidence. The case of Woodward, upon which senior counsel for the pursuer ultimately largely relied for her proposition in this respect, does not, for the reasons advanced by counsel for the first defenders, provide any support therefor.

[52] I should stress that in reaching these views I have, in no respect, overlooked the fact that, in this case, the facility which was being secured by the Standard Security was being made available to a company in which there were shareholders, other than the second defender, who apparently gave no security in respect thereof. It does not appear to me that that fact, in a situation where the second defender regarded the company as his business, where he was the only person deriving a salary from it and where it was the sole source of the family income at the material time, converted his conduct, which, otherwise, would have been perfectly legitimate, into some form of wrongdoing. The transaction was genuinely and reasonably thought by him to be in the joint interests of himself and the pursuer, which would provide them with benefits, without any undue risk. The second defender, in my judgment, genuinely thought that the risk to himself and the pursuer was minimal.

[53] For the foregoing reasons the pursuer has failed to surmount the first hurdle in any such case. She has failed to prove undue influence and the first defenders fall to be assoilzied. While it is not, in that situation, necessary for my decision to consider the other issues raised in this case, it is right that I express my views on them.

Causation
[54] Having regard to the evidence of the pursuer and the evidence of the second defender in this case, as to the nature of their relationship, at the material time, I am not satisfied that the pursuer has established (notwithstanding her own evidence on the matter), on the balance of probabilities, that had the second defender, or anyone else spelt out in detail to her, the risks involved in granting the Standard Security, she would have refused to execute the Standard Security. It seems to me a passage from the Opinion of Lord Macfadyen in Broadway is particularly appropriate in the context of the present case. At p.721L his Lordship said this:

"This is not a case in which the transaction was not only against the pursuer's interests but also contrary to any objective that she might reasonably be supposed to have wished to achieve. It is, instead, a case in which it is quite conceivable that she would have been willing to take a broader view of family interest. That such was a possible view of the situation is evidenced by the fact that it is the one that Leslie (her husband) evidently took so far as his own interest was concerned."

In my judgment those words can be applied to the circumstances of the present case. It seems to me more probable than not that, even if the risks involved in granting the Standard Security had been spelt out to the pursuer, she would have balanced those against the judgment of the second defender at the time that, as he put it, "the figures would stack up" and that this was an exciting business opportunity which would outweigh any potential risks and, in the event would have signed the deed. Her evidence on this aspect of the case, in my judgment, was filtered through the benefit of hindsight. Accordingly, if I had held that there had been any element of undue influence exercised in this case, for these reasons I would, nevertheless, have granted decree of absolvitor.

The defenders' duty of good faith
[55] In the most recent authoritative decision in this branch of the law in Scotland, the case of Wilson, the Lord Justice Clerk, at p.12 para.29 of his Opinion, enunciated, as has been seen, the position in relation to this chapter of the law in the following terms:

"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."

Applying that dictum, in isolation, to the facts of the present case, it might be said that, on an objective judgment of the circumstances, the first defenders had no reason to think that the wife's consent to granting the security might have been vitiated by undue influence by the husband. That dictum, however, was uttered in the context of his Lordship seeking to apply the law enunciated by the House of Lords in Smith and, in the context of cases where there had been solicitors acting for the wives in the constitution of the securities. What was being argued, in those cases, was that the bank, who were aware of the solicitors acting for the wives, should have verified the content and quality of any advice given by the solicitors to the wives. That argument was rejected. It is as well, I think, to remind oneself of what the House of Lords had held to be the law of Scotland in this respect. That is to be found principally in the speech of Lord Clyde, at p.121H, of Smith where his Lordship said this:

"In the first place 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 were 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. Of course if the creditor, acting honestly and in good faith, has no reason to believe that there is any particularly close relationship between the debtor and the proposed cautioner, the duty will not arise... Secondly, if the duty arises, then it requires that the creditor should take certain steps to secure that he remains in good faith so far as the proposed transaction is concerned. Whether there has in fact been or may yet be any conduct by the debtor directed at the cautioner which might vitiate the contract is not a matter necessarily to be explored by the creditor. 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."

Lord Clyde, in the case of Etridge, as has been seen, impliedly accepted the soundness of the approach contained in the judgment in the case of Forsyth which has itself now received the approval of the Second Division in Wilson. This means that the Bank will normally be held not to be in bad faith if it has a reasonable belief that a solicitor is acting for the wife in the transaction. It was on that basis that the first defenders sought to establish their good faith in the present case.

[56] Unlike other aspects of this case, I have not found this question an easy one to answer, having regard to the state of the evidence. The first defenders were not, as has been seen, in a position to lead as a witness the individual who was apparently in charge, at the material time, of this transaction. As also has been seen they led a witness, Miss Sweeney, whose involvement in the transaction was simply in the processing of the paperwork to some extent and it was clear to me that her mind was not, at the material time, addressing whether or not there was anything in the transaction which demanded some special enquiry. The first defenders, of course, also relied upon the evidence of Mr MacLeod, but the de quo of that evidence is that he never acted for either the pursuer nor the second defender in the transaction. The evidence indeed is that no solicitor acted for either of them. Moreover, it does appear that the references, in the headings of the correspondence emanating from Mr MacLeod, to the pursuer and the second defender, appeared there simply in response to their appearing on the first defenders' original letter of instruction. I am, ultimately, not satisfied that, had there been wrongful conduct by the second defender in relation to this transaction, the first defenders could be held to have established that they had a belief that Mr MacLeod was acting for the pursuer, far less that it was a reasonable belief. If they did not have a Forsyth type of defence, the question would have been whether they were, in any event, in good faith applying the dictum of Lord Justice Clerk Gill in the Wilson case cited above. The one matter which leads me to the view that they could not be said to have met the requirement of good faith, is the fact that they knew that the Standard Security was being granted in respect of an overdraft facility being provided to a third party company, and, in that situation, applying Lord Clyde's approach to matters in Smith, it might be said, that that fact taken together with the fact that the security was being granted by the wife over her share in the matrimonial home should have put them on enquiry as to whether there might have been conduct on the part of the second defender which vitiated the contract. For these reasons I would, had it been necessary, have decided that the first defenders had not, in the special circumstances of this case, satisfied the requirements of the law as set out in the case of Smith, in relation to good faith.

[57] As to whether or not the law in Smith affects transactions, such as the one to which the present proceedings relate, if they pre-dated the decision in that case, that question remains to be settled authoritatively, since there is a split of obiter opinions of the judges of the Inner House in relation thereto. I doubt if it really assists in producing another obiter opinion on the matter, but since the question was canvassed before me, I am content to say that my inclination is to agree with the view expressed by Lord Hamilton, in the case of Wilson, on this subject.

[58] Lastly, for completeness, I should say that, as has been seen, the majority in the case of Wilson were of the view apparently that, in any event, the law as set out in Smith and subsequent cases, does not apply to securities granted by husbands and

wives "for all sums due". As has also been seen, the Standard Security in the present case is one "for all sums due" and is, for all practical purposes, identical, in its terms, to the securities involved in the Wilson case. The first defenders did not, however, present their case on that basis before me and while at the By Order hearing in relation to the decision in Wilson, counsel for the first defenders invited me to decide the case on that basis also, I consider that it would be wrong, in the circumstances, for me to say anything more on the matter than simply that I have been unable to discern any reason, arising from the different facts in the present case, as to why the view held by the majority in Wilson would have been any different in relation to the present case in this respect.

[59] In the whole circumstances, and for the reasons given, I shall grant decree of absolvitor.