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OUTER HOUSE, COURT OF SESSION

[2006] CSOH 187

A1165/03

OPINION OF LADY DORRIAN

in the cause

GORDON CONNOLLY and

MRS ANN TERESA CONNOLLY

Pursuers;

against

NEVILLE STUART BROWN

Defender:

________________

Pursuers: Robertson; Turcan Connell

Defender: Kinnear; Semple Fraser

6 December 2006

Background

[1] The pursuers in this action seek count, reckoning and payment, failing which, payment, from the defender who formerly acted as their agent in the sale and marketing of an area of land owned by them in West Lothian. The pursuers lived in a house erected on the land, which extended in total to approximately 3.52 acres in the Murieston area of Livingston.

[2 ] In or about March 1995 the property was zoned for low density residential development. The pursuers engaged the defender as their agent to achieve a sale of the property for development purposes. The defender is a Chartered Surveyor and was then in business as a property consultant. The pursuers wished to maximise the price achievable. By letter dated 20 December 1995 the defender advised the pursuers on marketing the land. The parties agreed terms and the pursuers instructed the defender to commence marketing the land. Three options were considered: outright sale of the whole property; sale of part with retention of the existing house and some land; and a sale of the whole property which also secured for them a new house with some land attached. The third of these was the preferred option.

[3 ] An informal closing date was fixed, by which time two indicative proposals had been received, one from Cala Homes and one from Tulloch Homes Ltd. The Cala proposal had an overall value to the pursuers in the region of £390,000. Cala were not in a position at that stage to increase the value of their proposals.

[4 ] On 25 September 1996 The Tulloch Homes proposal was followed up with a formal offer to purchase the land, at a price of £450,000. The offer was subject to a number of suspensive conditions, the most important of which, for present purposes, were (a) that the purchasers obtained all necessary planning consents on terms acceptable to them; and (b) that the purchasers obtained, at no cost to themselves, such extra land as was required to allow the access from Murieston Road to be improved to an adoptable standard.

[5 ] These conditions reflected two issues which had been identified at an early stage, namely, the effect of the low density planning which was envisaged and secondly, an access problem.

[6 ] The land had been zoned for about 17 or 18 houses. Prior to receipt of the indicative proposals, several builders had shown some interest in the site but had generally expressed concern at the likely cost resulting from the low density.

[7 ] The access problem arose because of the realignment, at an earlier stage, of the nearest main road, Murieston Road. As a result, a strip of woodland, under the control of the Woodland Trust, lay between the land and that road. The existing access was insufficient for development purposes and would require to be widened, which would involve purchase of an additional strip of land. This was the main issue in relation to access. There was also a question over the pursuers' existing access rights which was likely to require the grant of a servitude.

[8 ] By late 1997 the issues of density and access had not been resolved to the satisfaction of Tulloch Homes and no contract had been agreed. In a letter to the pursuers in November 1997, the defender wrote that "things have moved ahead in the residential market and I think we should be looking at reviewing the level of value and indeed possibly asking a small number of parties to re-tender". In December 1997 the defender intimated that he would be interested in purchasing and developing the land himself, as a joint venture with another company, and the pursuers agreed to this. Both parties instructed independent solicitors.

[9 ] After negotiation, missives were concluded on 18 December, planning permission for 27 houses having been granted on 15 December. Unknown to the pursuers, on 7 December 1998 a third party, Bryant Homes, had made an offer to the defender to purchase the land from him for £1.1 million. The Bryant contract was finalised in June 1999, at a purchase price of £1.21 million. In this action the pursuers seek accounting for and payment of the profit so made by the defender.

History of the case and pleadings

[10 ] In the case as originally pled the pursuers advanced two cases against the defender. They asserted that at the time of the conclusion of the contract between them and the defender's company, the defender was still acting as their agent in relation to the sale of the land. Alternatively, they averred that, esto the agency had ended before that, the defender continued to owe fiduciary duties which required him to disclose to them, before they concluded missives with his company, the offer from the third party. The basis of this was that the confidence created by the agency still existed at the time of the transaction between the parties.

[11 ] The pleadings in respect of that first case were discussed on the procedure roll in 2004, when the Lord Ordinary concluded that as soon as the defender intimated his interest in purchasing the property himself "he effectively terminated the agency or at least offered to do so, which was, on the averments, accepted by the pursuers" and that the agency thus terminated in December 1997. He felt unable to determine the alternative case without proof and it was on this matter that the case came before me.

[12 ] The pursuers aver that at all material times they reposed confidence and trust in the defender, as their agent and thereafter, to obtain for them the best price reasonably obtainable for the land. They aver that a number of fiduciary duties were incumbent upon the defender as agent, adding that, esto the agency relationship had been terminated, those duties continued on the basis that:

"From the time when the pursuers first consulted the defender in relation to the land, a relationship had developed between them whereby the defenders reposed considerable trust and confidence in the defender. The said relationship of trust and confidence continued after the defender proposed his own purchase."

The duties which it is said the defender continued to labour under are exactly those which are averred to have applied to him as agent, including the duty not to allow his interests to conflict with theirs.

[13 ] The defender avers that

"from the time the defender indicated, and the pursuers accepted, the defender's proposal for the purchase of the land, the relationship was one of arm's-length dealing. Both parties were separately represented by law agents in the negotiation of the sale of the land."

He avers that none of the duties averred by the pursuer were incumbent upon him.

Evidence/facts

[14 ] The pursuers initially engaged the defender as their agent to act for them in marketing the property and to get "the best deal possible" for them, having been introduced by his brother whom they knew. He advised them to market the property by targeting specific builders known to be active in the area and undertook to do this on their behalf. As a result of his efforts a number of builders voiced an interest, with an actual offer finally being made by Tulloch Homes Ltd in September 1996 in terms of which a price of £450,000 would be paid by instalments. A new house would be built for the pursuers, the cost being deducted from the overall price. There were numerous conditions in this offer which had not been resolved when the defender wrote to the pursuers suggesting a rethink. Shortly after this, the defender, at a meeting with the pursuers, made the proposal that he would become involved in developing the site, having by now become involved in doing some development work. The pursuers understood that this would be a joint venture between the defender and Cala Finance. There was some discussion of the price being increased by £40,000 or £50,000. The defender said, and I accept it, that it was the pursuers who wished to get the sum to amount to £500,000 in total and he later came up with a mechanism (a top-up for each house sold) to achieve this. The pursuers responded favourably to the defender's offer. Asked why, the first pursuer replied:

"Well, I trusted him. I also felt that it was protracted negotiations all the way up till then. Things hadn't seemed to go as fast as I would have thought they would have gone."

"He was going to increase it (the offer) by £50,000 and he was going to make it a lot faster and speedier, and that seemed a positive overture."

He also added:

"I felt comfortable that he was acting in my interests at that time and that that was a fair offer."

"It looked as if it was going to be speedier, it looked attractive and there was more money on the table and I trusted Neville Brown."

[15 ] The pursuers' evidence was that they took no independent advice on whether the price was a good one, explaining that the defender was aware of market values and they trusted his advice, guidance and support in this exercise.

[16 ] The defender's solicitor, Mr. Haniford, contacted the pursuers' solicitor, Mr. McFarlane, by telephone, after which Mr. McFarlane had a meeting with the pursuers to advise them that if they intended to withdraw from negotiations with Tulloch, he would feel compromised and unable to negotiate with the defender on their behalf. He had given an assurance on their behalf that they would negotiate in good faith with Tulloch. As a result of this Mr. McFarlane ceased to act for them, (apart from completing work already well underway in relation to the access issue), considering himself to be professionally compromised

[17 ] Mr Haniford prepared a draft offer which was sent by the defender to the pursuers on 6 April 1998. The pursuers replied that they were agreeable in principle and had engaged the services of Mr. Vause of Peterkin & Kidd, who would prepare a draft acceptance. Mr. Vause wrote to Mr Haniford on 21 April that "... the offer is, in principle, acceptable to our clients, subject of course to negotiation of the particular terms and conditions".

[18 ] Mr. Vause wrote to the pursuers on 22 April 1998, commenting in detail on the draft offer and saying "we assume that the overall price of £450,000 plus £2,000 for each dwelling house has been agreed. Obviously the number of houses which are built will have a direct bearing on calculating the final value." Mr. Vause offered advice on a number of technical points. However, advice was tendered in relation to two matters which took on a greater significance in the negotiations in due course. First, a proposal to qualify the condition regarding planning permission; and secondly, a suggestion that the defender, rather than the pursuers, should bear the cost of securing the access rights.

[19 ] The pursuers, in the meantime had received letters from both Cala and Tulloch, the first indicating a willingness to increase their offer and the second expressing their dismay at what had happened. There was some evidence that Cala had increased their offer, directly to the pursuers and unknown by the defender, to £425,000 but this evidence was too vague to place much reliance in. The first pursuer sent the two letters to the defender with a letter dated 30 April in which he says "despite the depressing news I get from builders crying about costs viability servicing number of houses etc etc, we are still getting positive overtures..." The defender took this as a "warning shot" to keep him up to the mark.

[20 ] Mr. Vause replied to the draft offer on 21 May 1998 indicating agreement to the basic price of £450,000 and the method of calculating additional payments (£2,000 per house sold), but suggesting that the additional payments be guaranteed at a minimum of £40,000. He also proposed that the defender bear the cost of securing the access. Other proposals were made the most relevant being a security in respect of future payments and a long stop of one year to purify the planning clause.

[21 ] Following further discussion between the parties, a fax dated 28 May 1998 from the defender's solicitors recorded what was understood to have been agreed, which included: payment of £440,000 in full rather than stages (in which case no security was required); that the planning long-stop would be removed to allow for appeal; that the pursuers would be responsible for the cost of securing the access route and that the additional payments would reach a guaranteed minimum of £40,000.

[22 ] It is clear, however, that the pursuers remained concerned about the effect payment to the Woodland Trust would have on the final sum obtained by them. To allay this concern the defender raised the prospect of a profit share, in which he would take 20% of development costs and thereafter profits would be split on a 50/50 basis. The pursuers' replied that this might be attractive, but would need to be discussed in more detail. It indicated that they had asked Mr. Vause to reply on the matter.

[23 ] Mr. Vause wrote to Mr. Haniford on 7 July in that connection and in response to the suggestions referred to at paragraph 21 above, saying that the price of £440,000 payable on entry was acceptable but removal of the planning long stop was not. He said that a period of twelve months represented "a generous concession to your clients". The profit share suggestion was rejected with the comments:

"Having taken expert advice, we understand that the construction industry generally works on 'on site' profit margins of up to 20% but rarely over that level. In addition the net profit made is often less than 10% return on investment once ... (certain costs) (are) taken into account."

The letter goes on to make a further counter proposal, namely that the pursuers would settle for 10% of the sale price of each plot as it was sold.

[24 ] At some stage in the summer of 1998 the impression was created that the pursuers were concerned that the defender was going to make an excessive profit from the development. It remains unclear where that suggestion came from: in evidence no-one could say. Undoubtedly, the defender had that impression. In a letter of 10 July, Mr. Haniford wrote that the profit share proposal was to be in addition to, and not in substitution for, the earlier proposals and that it came about "as a response to your firm's suggestion that as the developers were going to make significant profits our clients should pay for any additional land required". Mr. Haniford reminded Mr. Vause that the defender was paying for relocation of the electricity equipment, a cost currently estimated at £80,000. His letter also asked that the defender be allowed scope to appeal any planning decision in the event that, for reasons beyond his control, determination of the application was delayed.

[25 ] The defender then advanced to the pursuers two options: payment of £440,000 plus £2,000 per house, the pursuers paying for the cost of the access route, but with a profit share agreement in addition, to provide an opportunity of recouping some of that cost; or a deal whereby whatever the cost of the access route, the pursuers received a minimum payment of £400,000. In this way the cost to the pursuers of the access route would be limited to £94,000, on the assumption that 27 units were sold.

[26 ] The pursuers' response indicated that a 50/50 deal on the access route would be more attractive to them.

[27 ] Further discussion took place and Mr Vause indicated (16 July) that the pursuers might require to compromise. The first pursuer indicated that he had accepted that the access matter would require to be settled by his paying for it up to a limit of £90,000 with a guaranteed minimum payment to him of £400,000. There then followed a formal offer dated 2 September 1998. This provided for (a) payment of £440,000; (b) payment of £2,000 per unit sold; and (c) that payment for the access route would be met by the seller by deduction from the price, subject to a guaranteed minimum payment of £400,000. The planning long stop was proposed at 18 months. This letter was met, not with a qualified acceptance, but with a further letter from Mr. Vause commenting on the offer. Eventually a qualified acceptance was sent on 6 October, containing substantially altered instructions in relation to the house to be provided for the pursuers. The bargain was eventually concluded on 18 December.

[28 ] The defender's planning application, for 27 houses, had been granted on 15 December. On 7 December 1998, Bryant Homes had made an offer to purchase the site from the defender at a price of £1.1 million pounds. The defender's intention all along was to develop the site himself. He had instructed architects for that purpose and submitted a planning application on that basis. Again on that basis, he approached Mr. John Brown of DTZ to seek advice on pricing and marketing of the houses he proposed to build, and how to present those to the market as well as possible. During this discussion, John Brown indicated that Livingston was becoming something of a hot spot, having gone from over-supply to demand. It was explained that the defender could proceed to build himself, as intended, or that other routes might be available, including that of finding an alternative buyer. The defender took time to consider these possibilities before agreeing that it would be worth while for Mr. John Brown to make further inquiries. John Brown contacted Bryant, who were major clients of his, and whose initial interest was quickly followed by an offer. The period of time which elapsed from Bryant first expressing an interest to their offer of 7 December was a matter of weeks. Hitherto they had not known of the site and had not had contact with anyone about it. They first entered the picture in mid to late November and had no prior dealings with the defender.

[29 ] The pursuers were unaware of this offer or of the involvement of Bryant until sometime in the summer of 1999. Exactly how that information came to them was unclear, but it seems likely that the first pursuer learned of Bryant's involvement from a plumber on site. In any event a meeting took place with Bryant, the defender and the pursuers, at which Bryant produced a plan showing 30 houses. The first pursuer initiated discussion on what the pursuers might get from the fact that the proposal was now to build 30 houses. The result was an agreement that Bryant would provide the pursuers with an extra plot (as well as the house which was being built for them) and an additional payment of £50,000.

[30 ] Various suspensive conditions in the missives between the parties were waived by letter dated 29 July 1999 and the rest were waived by letter dated 16 December. On 25 January 2000 the first pursuer wrote to the defender indicating his unhappiness with the way things had developed, expressing the view that he had lost income on the sale and stating:

"I intend to take whatever steps are necessary to recover a substantial amount of this loss of income. No doubt, during any lengthy processes involved a lot of other issues may be addressed and obviously the press and various professional bodies may have a field day."

In that letter he impugned the defender's integrity, although he also stated: "I am however, at this late stage prepared to negotiate a settlement with you if we can agree terms." Mr. Haniford replied to the letter insisting that they adhere to the bargain as concluded or as per a revised draft which accommodated the additional payment from Bryant and the additional plot. The transaction settled eventually on that basis.

[31 ] It is convenient at this point to consider the evidence in the context of certain specific issues which were of importance at the proof.

Density

[32 ] When the land was zoned for development in the local plan it was for low density development which meant about 2 houses per acre. In his letter of December 1995 the defender advised the pursuers that the low density was a "potential downside" because of the high development costs associated with it. He noted that this "may have a depressing effect on the final value". The density for which the land had been zoned was for about 17 or 18 houses, and as indicated above, this appears to have been off-putting for developers. Compared with this proposed density of 2 houses per acre, Cala were developing sites nearby at 8-10 per acre. It was anticipated that any interested builder would seek to have the density increased. Cala's proposal, for example, had been for 24 houses, the defender reporting to the pursuers that if the existing house were taken into consideration it appeared that the planners were willing to see the density increased slightly. Tulloch Homes Ltd had been seeking permission for 27 units, a proposal which the planning officer indicated was unacceptable. In a letter dated 22 November 1996 to agents for Tulloch, he suggested that the number of houses should be limited to 18 or 19 although "I may be prepared to agree to a proposal which slightly exceeded this number of houses if your client can provide a satisfactory justification for the increase ..."

[33 ] The defender's original intention was to build 20 houses. In time he told the first pursuer that he was in fact looking at 27 houses as a possibility. Certainly the first pursuer was aware of that by 25 May, as a fax from him refers to the "extra number of houses".

[34 ] From the evidence of Mr. George McNeill, a former planning officer with the Council, it appears that during 1997/1998 there was, unofficially, a slight relaxation of the local plan in relation to Ardnaree. The density allowed for in the local plan had been artificially low in order to promote building in other areas. However, by 1997/8 a decision had been made that this could be relaxed somewhat, so long as the proposal was for large, high quality expensive houses with large gardens. No announcement was made of this and developers were reliant on making successful applications to be treated as an exception to the local plan.

Access

[35 ] The problems with access were identified at an early stage, certainly by the time of the Tulloch offer, which was conditional on these problems being resolved at no cost to them.

[36 ] When the defender became involved, his proposal from the outset was that the cost of resolving the access issue required to be deducted from the price and he intimated this in his letter to the pursuers dated 3 February 1998. There was also an issue in relation to payment of the cost of re-aligning electricity poles. The first pursuer's evidence was that: "We agreed that he'd pick up the cost of the telegraph (sic) poles removal and I would contribute to the access issue". The first pursuer's evidence was that he had agreed in principle that the defender would pay for the "telegraph" poles and the pursuers would pay for the access. He said:

"I knew that Neville had agreed that he would be looking after the telegraph poles and to develop the site we would need to get this land, and I thought that was fair at the time. ... ... so I was aware that it would have to be purchased to allow the development to be placed, and I thought at that time that the onus was on me to try and get that."

Q: "You accepted that ultimately you were going to have to pay for this?"

A: "I would have liked to have said no, but it did seem a bit unfair on my behalf, you know, that Neville Brown was going to pick up the £90,000 for telegraph poles and £90,000 for that as well."

The evidence from Mrs. Connolly also was that the pursuers knew from the outset that they were expected to pick up the cost of securing the access to the site.

Meetings between the parties

[37 ] There was evidence that the Connollys and the defender continued to meet from time to time to discuss certain matters between themselves. Mr. Vause and Mr. Haniford both said that this was fairly normal, although Mr. Vause thought the previous relationship between the parties was an "odd" element. But for that, it would not have been unusual. He said:

"Sometimes in the middle of a commercial transaction, the clients knocking their heads together is the only way to get the lawyers to get the transaction done... I would regard it as a fairly normal element for clients to speak direct".

The pursuers maintained that throughout the transaction the defender called at their home on a very regular basis, as it was on his way home. The defender on the other hand said that there were a few meetings at the beginning, when he was their agent, but once Tulloch came on the scene these dwindled away. There were more meetings after he became involved as developer, mainly to discuss matters in relation to the house. (This element was regarded by all but the Connollys as a complicating factor. Mr. McFarlane thought it was "bound to cause complications" and tried to talk them out of it. As events progressed they changed their minds several times about the exact nature of the house they wanted and it is clear that a great deal of time and discussion was spent on this issue).

The role of Mr. Vause

[38 ] The pursuers both said that Mr. Vause was going to do the legal paperwork to get them from A-Z in the legal transaction and he did not discuss the price with them in any particular depth. He was there to sort out the legal technicalities. That had also been the role of Mr. McFarlane, who described the pursuers as quite naïve in business matters. However, he added that Mr. Connolly was an intelligent man and a good client. By that he meant someone who listened to what was said, digested it and typically would rely on the advice that was given. Mr. Vause's own evidence was that he did not give advice on "whether they were getting a fair basic price for the land".

[39 ] However, it is clear that the advice which Mr. Vause gave was not purely restricted to conveyancing technicalities. In particular his advice in relation to payment for securing the access rights was significant, and resulted in what was clearly a counter proposal which would have a considerable effect on the price received by the pursuers. In his letter of 22 April Mr. Vause advised the pursuers that the need to obtain the access strip might lead to a "ransom" situation and that the defender "should be well aware of this and the price which he has submitted should take this into account". Accordingly, he proposed putting this cost back on the defender.

[40 ] The sum which might have to be paid to the Woodland Trust was at that stage unknown but might have been significant, possibly as much as £90,000. (It was eventually £60,000). Mr. Vause's letter of 22 May to Mr. Haniford made a counter proposal regarding this payment. During negotiations he also proposed a long stop of a year to purify the planning clause, describing this in later correspondence as a "concession". In addition, the profit share was rejected on the basis that expert advice had been taken and a further counter proposal - 10% on each sale - was made.

[41 ] Mr. Haniford considered that he and Mr. Vause were dealing with non‑conveyancing matters and still negotiating terms. It was unusual for solicitors to be involved almost as principals in negotiating terms rather than simply to document an agreement. "Something new was always coming out of the bag". His impression was certainly that Mr. Vause was giving commercial as well as conveyancing advice and he described him as a "formidable negotiator".

The market

[42 ] At the time of the Tulloch proposal, and again at the time of the defender's offer, the market in Livingston was fairly flat. Mr. Ross, the Managing Director of Cala Finance, and the defender's Joint Venture partner, had carried out an appraisal of the land in May 1998. This was essentially a residual valuation carried out with a view to seeing what could be paid for the land. It is an exercise carried out by all developers, and although there may be an element of caution in it, they cannot be too conservative with their calculations regarding the price to pay for land or they would cease to be competitive. Mr. Ross felt at the time that £450,000 represented a reasonable sum for the land, although it was perhaps a bit "toppy".

[43 ] Craig Brown, a surveyor with J & E Shepherd had been asked to prepare for the defender a valuation of the land as at 1998. On a comparison basis and on a residual valuation he estimated £450,000, although that was based on a density of 24.

[44 ] Mr. McNeill mentioned, as several other witnesses had, that in 1996 or thereabouts there had been a "glut" of land available in Livingston because of the sell-off of assets of the Development Corporation.

[45 ] The evidence was divided about when the market began to move significantly. Mr. McNeill's evidence was that there were significant increases from then on and into 1997/1998. Other witnesses suggested it was much later. Even Mr. John Brown, who perhaps, as matters turned out, had his finger closer to the pulse than most, only suggested that the area was "becoming" a hot spot.

The legal principles.

[46 ] Counsel were in general agreement about the legal principles which applied although obviously they differed as to their application. Reference was first of all made to Bowstead and Reynolds on Agency, 18^th Edition article 45, page 212 which deals with the situation of an agent dealing with his principal. The general principle is set out at paragraph 6-063 which states that:

"Where an agent enters into any contract or transaction with his principal, or with his principal's representative in interest, he must act with perfect good faith, and make full disclosure of all the material circumstances, and everything known to him respecting the subject matter of the contract or transaction which would be likely to influence the conduct of the principal or his representative."

Specifically dealing with the situation where an agent makes a purchase from a principal, paragraph 6-064 states that:

"A long-established line of cases indicates that a person who stands in a position of a confidential character in respect of the property of another, which would include many types of agent, cannot purchase it for himself without full and fair disclosure of all the facts to the principal. The onus in such a case is on the agent to show that the price was adequate, that the sale was as advantageous to his principal as any other sale he could have obtained from a third party, and that he disclosed all the relevant facts to his principal before the purchase and that the principal gave his informed consent."

[47 ] These passages are dealing with the situation of an agent, not of someone who has ceased to be an agent. That situation is addressed in paragraph 6-067:

"Difficult questions arise if the agent deals with his principal after he has ceased to be an agent. It appears that the duty to disclose can continue, but whether it does so in any particular case in fact will depend on all the circumstances of the case. For example, if the confidence created by the agency's relationship still exists at the time of the transaction, or if the agent has a personal ascendancy over his principal, or if he has acquired special knowledge during his employment relating to the subject matter of the transaction, a court will be inclined to hold that the duty of disclosure is still binding on the agent. Thus a solicitor's duty to disclose may last longer than the duty of a less confidential agent e.g. a stockbroker. An agent who resigns in order to exploit an appropriate opportunity remains subject to fiduciary obligations at any rate in respect of that matter."

[48 ] The pursuers are relying on the first of the examples given here, claiming to be in a situation where "the confidence created by the agency's relationship still exists at the time of the transaction".

[49 ] I accept that in certain circumstances an agent may continue to be under fiduciary duties to his former principal after the termination of the agency. The second and third of the examples given in the passage in Bowstead (6.067), personal ascendancy and special knowledge acquired during the agency, are situations in which one can readily see that some form of fiduciary duties might remain binding on the former agent. The first of these is something which one can see might more readily arise in the case of a confidential agent such as a solicitor. In the case of a less confidential agent, the extent of it is less apparent, but it would be open to a pursuer to prove that such confidence existed and continued to exist. The question of whether the trust and confidence reposed in the agent was such as to survive the termination of the agency and cause the agent to continue to be subject to fiduciary duties would be a matter of fact in each case.

[50 ] Moreover, in cases other than that of a confidential agent, it is hard to think of circumstances in which the obligations could extent beyond the matter which had previously been the subject of the agency. The statement in Bowstead, that "an agent who resigns to exploit an appropriate opportunity remains subject to fiduciary obligations, at any rate in respect of that matter" is too broadly stated. Such an agent may remain under such duties but I do not think that it can be said that he always will be. It really must be a question of circumstances. For example, if an agent resigns specifically and openly in order to exploit an opportunity, explaining that to the principal, who then willingly transacts with him at arm's length, I do not consider that he would remain subject to the fiduciary obligations imposed on him as agent.

[51 ] As to the nature of the fiduciary duty, Counsel referred to Jackson and Powell on Professional Negligence 5^th Edition, chapter 2, section 5, which deals with fiduciary obligations. In paragraph 2-125 it is stated that:

"Fiduciary obligations ... are based upon the trust reposed by a client in his professional adviser, and in particular the trust that the professional will act solely in his client's interest and not in his own. This is sometimes described as a 'duty of loyalty', but in effect it amounts to an inhibition: a professional should not put himself in a position in which his duty to act in his client's interest is in conflict with his own interest, let alone prefer his own interest to those of his client should there be a conflict. The obligations which flow from this general proposition are called fiduciary obligations."

Paragraph 2-129 states:

"Fiduciary duties or obligations are a difficult area of the law. In essence they represent equity's attempt to regulate the conduct of those whom it regards as bound to act in the interest of others rather than for themselves. While one person (the principal) is to be taking his trust in another (the fiduciary) to act in the principal's interest, equity will not allow the fiduciary to act in his own interests or those of a third party. The obligation of the fiduciary is not to allow his own self interest to conflict with his duty to act in the principal's interests. The extent of that duty will depend upon the extent which he is trusted to act in the interests of the principal so that it is not possible to postulate a series of fiduciary duties which apply to all fiduciaries."

[52 ] These duties clearly arise in relation to an agent, but in relation to someone who has ceased to be an agent and who has transacted with his former principal, Counsel for the defender submitted that the application of the duty set out in these paragraphs will be problematic. Where the parties are at opposite ends of a transaction it is inevitable that their interests will in some way conflict. I agree. However, to some extent the answer comes in a later passage in Jackson & Powell, paragraph 2-136, which tempers these earlier observations by noting that the duty:

"will apply where the fiduciary has sufficient duty to act in the interest of the principal in respect of a transaction that he will not be permitted to advance his own interest unless he obtains the informed consent of the principal and gives full value."

[53 ] This accords with the view I record above that an agent who resigns openly, frankly stating the reason for doing so, and explaining the opportunity he is seeking, and who does so with the consent of his principal, will be unlikely to continue to be under fiduciary duties. The phrase "informed consent" may in some cases give rise to questions of interpretation, but in most cases it will simply involve disclosure of relevant information to the principal, as an aspect of the duty of fair dealing. In the present case, Counsel for the pursuers did not suggest that the duty, if it applied, went beyond that of disclosure, observing that the extent of even that duty will vary according to circumstances. He submitted that it may be that there will be circumstances which lessen the need for disclosure of certain facts, for example in relation to specific sorts of information on which the pursuers have taken specific advice. That in turn accords with Jackson & Powell at paragraph 2-130:

"So, in each case it is important to establish the extent of the trust, for that will define the extent to which equity will intervene. The trust and confidence which gives rise to fiduciary obligations is not, or need not, be emotional. ... Nor is it simply reliance on another party to a contract to perform his obligations under it. Rather it is the fact that the principal so relies on the fiduciary as to leave the principal vulnerable to any disloyalty by the fiduciary and so reliant on his good faith. It follows that a commercial relationship at arm's length, with both parties on an equal footing is unlikely to give rise to fiduciary obligations."

[54 ] In relation to this passage, Counsel for the defender submitted that it required "unusual" trust and reliance to be shown before a court will be entitled to intervene. Trust and confidence is an ordinary concomitant of the relationship of agency, there must therefore be something else which justifies the continuation of the duty. The pursuers must show first, trust and reliance on the defender to an extent beyond that which is usual and customary; and second, trust and reliance to an extent which makes them vulnerable to disloyalty and reliant on the agent's good faith. He did not assert that some peculiarity or special aspect of trust and reliance need be shown in all cases, rather that the issue is whether the extent and nature of the trust and reliance in the circumstances makes the principal vulnerable. The ordinary trust and reliance arising from the contract of agency may suffice in certain circumstances, for example, where a former agent and principal transact on the subject of the agency without the intervention of legal or other advisers. Where independent legal advice has been taken, more may be required before a duty of disclosure will be imposed. In each case it will depend on the nature and circumstances of the trust, and of the transaction.

[55 ] Reference was then made to the case of Allison v Clayhills (1904-7) All ER 500 which illustrates the principles already referred to. Reference was also made to McMaster and Another v Burn (1952) 1 All E R (PC) 1362 for the propositions that (a) the necessity for full disclosure was to be tested, not by the probable reaction of the individual, but by what would be the natural reaction of the reasonable man; and (b) that the material date for determining whether a duty of confidence subsisted was the date when the option was granted and not when it was exercised.

[56 ] Counsel for the pursuer submitted that one had to ask whether the new role excluded the trust and confidence existing in the previous role. Here, it is a question of whether the actual trust and confidence reposed in the defender continued or whether it was supplanted by the taking of independent legal advice. He referred to the case of Horne v Whyte an unreported decision of Lord Drummond Young dated 25 November 2003, a case of undue influence in which the court observed that it was not the case

"... that the mere existence of independent advice is by itself sufficient to hold that undue influence cannot exist. Much will inevitably depend on the nature and quality of the advice."

[58 ] I was also referred by Counsel for the defender to Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 in passages at pages 67 to 73, 96 to 97, 118 to 119, and 146 to 147 and Nordisk Isulinlaboratorium v Gorgate Products Limited 1953 1 Ch 430 at page 446. These cases added nothing beyond the obvious point that caution is to be exercised in applying equitable principles to commercial transactions.

Submissions on the facts

Pursuers

[59] The submissions for the pursuers addressed the following issues:

(1) Did a relationship of trust and confidence exist in the first place?

(2) Did that continue after January 1998? and subsist to December 1998?

(3) Was it affected by the pursuers' own dealings with other parties?

(4) Availability of other advice: Was it broken by the role of Mr Vause?

(5) Do the discussions about the "profit share" proposal break the link?

(6) Were there material circumstances known to Mr Brown, undisclosed to the pursuers, which he had a duty to disclose, and which might have affected their decision to proceed with the sale to Mr Brown?

(7) Are the duties affected by amendment of the missives in Jan 2000?

[60 ] Did a relationship of trust and confidence exist in the first place?

Counsel submitted that the relationship was one of trust and confidence in which the pursuers depended on the defender as their agent for advice on value and marketing of their property. When negotiating with him as a principal, this left them vulnerable to disloyalty on his part. They lacked experience and expertise in these matters, and were "naïve" in business matters. The defender dealt with prospective purchasers for them and was a good negotiator on their behalf. The pursuers say he called frequently at their house in this period and that the friendly nature of these meetings fostered the relationship of trust and confidence into one with a particularly close bond. The defender disputed the extent of the visits but, given how important successful marketing of site was to the Connollys, their evidence should be preferred.

[61 ] Did the relationship continue after January 1998? and subsist to December 1998?

Under reference to Bowstead & Reynolds at paragraph §6-067 he submitted that an agent who resigns in order to exploit an appropriate opportunity remains subject to fiduciary obligations, at any rate in respect of that matter. That was precisely the situation here. The matters in respect of which they reposed trust and confidence in him were the value which could be expected to be obtained for subjects and all circumstances affecting the market for the subjects. The continuing close contact was not unusual, but the manner of it suggested continued trust and confidence. There were frequent informal meetings at the pursuers' house and discussions about the new house. The defender took Mrs Connolly to Ayr to view kitchens and made a jocular reference to the site becoming known as "Anne's View". The pursuers continued to rely on him for land values and were not getting advice on land prices from anyone else. All along they worked within the context of the money offered by him.

[62 ] Was the relationship affected by the pursuers' own dealings with others? The letters from Cala and Tulloch had come out of the blue, it was not the case that Mr. Connolly was actively checking the market himself. It was accepted that Cala might have contacted the first pursuer direct with an increased offer but it was unlikely that the defender had been unaware of it. The reference in that letter to news from "other builders" was to what the defender had told him.

[63 ] Was the relationship broken by the role of Mr Vause?

Counsel submitted that the instruction of a separate law agent does not necessarily break the trust and confidence in the defender. The question will be whether the role fulfilled by the new agent actually excludes or overrides the trust and confidence in the previous agent. Peter McFarlane, the pursuers' original solicitor, stressed that his role was for legal work only, not marketing or advising on value. When Mr. Vause was instructed, it was to assume the same role. The transaction came to him as a "done deal" in which the essential terms were agreed. He did negotiate on aspects of price - minimum figure for "top-up", the "unknown" aspects, and their likely effects - but said that the pursuers believed they were getting fair value for the land and the negotiation was about peripherals. There was no significant alteration of the basic price of around £440,000/450,000.

[64 ] Mr. Vause suggested that the cost of access should be put back to the defender because he understood it to be a new demand. This appears to be misunderstanding on his part, but his was accepted, as the pursuers did seek to put the cost back to defender and this led to the profit share proposal. They were negotiating about a share of the value of the asset but were relying on defender as to what that value was. The involvement of Mr. Vause did nothing to change that.

[65 ] Do the discussions about the "profit share" proposal break the link?

If the duty of disclosure continued, these did nothing to change it. They were brief and led nowhere. The pursuers and Mr. Vause all said that they did not really understand the proposal. The defender considered that the proposal would not in fact offer anything to the pursuers. To that extent, while it might be designed to allay any fears about excessive profits, it was hardly calculated to address fears about the unknown access land costs, as it was made on the basis of the pursuers bearing the whole of those. The counter proposal of 10% of sales was not a serious proposal.

[66 ] Were there material circumstances known to Mr Brown, undisclosed to the pursuers, which he had a duty to disclose and which might have affected their decision to proceed with the sale to Mr Brown?

The duty was to disclose any material fact within his knowledge which would have assisted or affected a reasonable person in the position of the pursuers in deciding whether or not to enter the contract with the defender in the terms proposed. The duties of confidence could subsist up to the conclusion of missives, until which point there was locus poenitentiae. An agent who chooses to contract with lay principals, in relation to the subject matter of his agency owes them a continuing duty of fair dealing, including full and fair disclosure, up to the point when a binding contract is concluded. There were two specific areas to consider:

Land values

[67 ] If the defender knew that a change in the market was underway, that would be a material fact which would affect the decision of a reasonable person whether to enter into the contract. Counsel referred to the planners' change of attitude, submitting that whilst there was no guarantee of a committee decision along these lines, there was a clear policy imperative. The defender said he did not know about the change in attitude, which was not generally announced. However, he was active in discussions with planners in early 1998 and it would be surprising if he was unaware of the change. Counsel did accept that the cost appraisal, in May, proceeded on the basis of a density of 27, which was what they got planning for, and was the basis of the initial deal with Bryant.

[68 ] John Brown told the defender that Livingston was becoming a development hot-spot for reasons connected with Edinburgh planning restrictions and absorption of the earlier glut of land. John Brown was very experienced and had particular expertise in this field so his evidence should be preferred to that of Craig Ross.

[68 ] John Brown's evidence was consistent also with Mr. McNeill's evidence of a generally rising market in 1997-98. John Brown's advice was a material circumstance which would have affected a reasonable person in the position of the pursuers in deciding whether or not to enter the contract and it should have been disclosed.

[69 ] The Cala appraisal figures would be cautious to protect the developer and the defender from proceeding with unviable projects. The house sale figures clearly were cautious, when seen against Bryant's figures only 7 months later.

Bryant Homes

[70 ] Counsel submitted that the pursuers and Mr. Vause were not aware of any involvement of Bryant until well into 1999. They appear to have become involved in late 1998, around November. Their interest would in itself be a material circumstance which would have affected a reasonable person in the position of the pursuers in deciding whether or not to enter the contract and should have been disclosed. The offer is clearly a major divergence from the market and should have been disclosed.

[71 ] Does the amendment of missives in Jan 2000 affect the defender's duties?

This proposal was a "take it or leave it" deal, to account for the increase to 30 units. In order to permit them to build on two further plots, they gave the pursuers the 30^th plot gratis and a payment of £50,000. It also regularised the fact that Bryant were not going to build for the pursuers the customised house the defender had contracted to give them. In substance it was a consideration by Bryant to the pursuers.