Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 160
CA25/09	OPINION OF LORD GLENNIE in the cause FRANK HOULGATE INVESTMENT COMPANY LIMITED Pursuers; against BIGGART BAILLIE LLP Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: Dewar, Q.C.; Wilson Terris & Co SSC

Defenders: Hanretty, Q.C., Patterson; HBM Sayers

30 August 2011

Introduction

[1] The pursuers are a company set up by Mr Frank Houlgate as a vehicle for investment in stocks, shares and the like. He and his wife each own 50% of the shares. The pursuers claim damages of £300,000 against the defenders, a well known firm of solicitors. The action arises out of a fraud on the pursuers perpetrated by a fraudster who persuaded the pursuers to advance significant sums of money, as security for which the fraudster offered a standard security over a property, Balbuthie Farm in Fife, which he pretended to (but did not) own. The defenders (or, strictly, their predecessors in title, but I shall simply refer to them as "the defenders") became involved in the transaction in connection with preparing and witnessing the standard security on behalf of the fraudster, and subsequently in connection with a deed of variation. Being unable to recover from the fraudster, and the standard security over a property not owned by the fraudster obviously being worthless, the pursuers look to recover from the defenders.

[2] This action has had an untidy history. Initially the pursuers put their claim in two ways: first, they said that the defenders were in breach of a duty of care owed to them while acting on behalf of the fraudster in connection with the transaction; and, second, they claimed that the defenders were in breach of an implied warranty or authority. The defenders tabled a plea to the relevancy of the action and, after hearing a debate on that plea, the Lord Ordinary, Lord Drummond Young, sustained that plea to the relevancy and dismissed the action. His Opinion is reported as Frank Houlgate Investment Company Limited v Biggart Baillie LLP 2010 SLT 527. The pursuers reclaimed. In the course of that reclaiming motion, they sought to amend. The Inner House allowed their Minute of Amendment to be received and, in due course, without hearing argument, recalled the interlocutor dismissing the action and remitted the case to the Lord Ordinary to proceed as accords. After further amendment and adjustment, the matter came before me for debate, again on the defenders' plea to the relevancy of the action. In the course of the debate the pursuer amended yet again to attempt to deal with issues raised in argument on behalf of the defenders. In consequence of these various amendments since Lord Drummond Young issued his opinion in December 2009, some of the averments critical to the pursuers' case have altered, and it would be unhelpful (and potentially confusing) if I were simply to adopt his summary of the pursuers' averments in the action. I must therefore set them out anew, while trying to point out the main differences between my summary and his.

The pursuers' averments

[3] This debate proceeds, of course, on the basis that the pursuers' averments are to be taken pro veritate. The action will only be dismissed at this stage if it is clear that the pursuers' case cannot succeed even if they prove everything which they offer to prove: see Jamieson v Jamieson 1952 SC (HL) 44, 50 and Mitchell v Glasgow City Council 2009 SC (HL) 21, 26. Because this case involves allegations of negligence and participation in fraud by professional people, it is important to emphasise that no evidence has yet been led in the case. The account that follows is an account only of the pursuers' case. It does not set out facts found by the court to be true.

[4] The pursuers aver that in about May 2004 Mr Houlgate was introduced by his investment advisers, St. James Place Partnership (formerly Rothschild's), to a man called "John Cameron". Mr Houlgate was told that the said Mr Cameron resided at Flat 3, 191 Roundhay Road, Leeds, LS8 5AN. The pursuers aver, for the avoidance of doubt, that Mr Houlgate did not know until around July 2007 that the said Mr Cameron's full name was John McGregor Cameron or John M Cameron. (This part of the pursuers' case differs materially from that presented to Lord Drummond Young, where the averment was that the pursuers were introduced to a man called "John M Cameron" (see para.[2] of his Opinion), and consequently the abbreviations used in the up-to-date pleadings and in this Opinion differ to some extent from those used by Lord Drummond Young.) The "John Cameron" to whom the pursuers were introduced in May 2004 is referred to in the pursuers' pleadings, and in this Opinion, as either "the said Mr Cameron" or "JMC". At that stage, i.e. in or around May 2004, because the introduction to him was made through the senior partner of St James Place Partnership, who indicated that he had acted for the said Mr Cameron for a number of years, Mr Houlgate carried out no research of his own as to the identity or background of the said Mr Cameron. It is averred, and this is admitted by the defenders, that the said Mr Cameron, or JMC, was and is a fraudster, though this was not known to Mr Houlgate when he was first introduced to him - he understood JMC to be a businessman who was looking for investors in his company, Securimax, which carried on business in connection with the provision of secured storage for motor cycles. Between June and August 2004, the pursuers advanced the sum of £100,000 to JMC by way of investment in Securimax.

[5] In about the middle of 2005, Mr Houlgate, acting on behalf of the pursuers, had discussions with JMC about further investment in Securimax. Mr Houlgate indicated that the pursuers were willing to increase their investment in Securimax to £500,000 but that they would require to be given some security for that further investment. JMC told him that he had an ancestral estate in Scotland known as "Balbuthie", which was valued at £2.6 million, which could be offered as security. That property was Balbuthie Farm, in Fife. At about this time, Mr Houlgate's son found out from the internet that Balbuthie Farm was owned by a man called John Cameron, who the pursuers understood to be JMC. There were, however, no pictures on the internet of the John Cameron who owned the property. No inquiry was made on any official website such as that of the Registers of Scotland. The pursuers and JMC agreed that the pursuers would advance a further £500,000 to JMC by way of investment in Securimax, to be secured on Balbuthie Farm, in return for which they would in due course be paid £800,000. Mr Houlgate and JMC also discussed the possibility of setting up a company for the purpose of converting Balbuthie Farm into a luxury golf course development. The details of that proposal do not matter for present purposes.

[6] In due course JMC instructed the defenders to act on his behalf in respect of the transaction. Mr Mair, a partner in the firm at the time, handled the matter on his behalf. The pursuers, for their part, instructed the firm of AB & A Matthews ("ABAM") to act as their solicitors. The first contact between ABAM and the defenders was in late January 2006.

[7] In about the middle of 2006, Mr Houlgate was taken to see the property by JMC. During the course of the visit, JMC told him that the farmhouse was let out to the Church of Scotland and that the tenants were not at that time aware of his proposals. They therefore retired to a local public house to discuss matters further. JMC said that they should be discrete because the local community were not aware of his proposals. Thereafter, they went to meet planning consultants who had been engaged by JMC in relation to the proposed development.

[8] So far as concerns the position of the defenders, the pursuers say that they reasonably do not know what instructions, information or documents were given to them by JMC concerning his identity and his right and title to grant security over the property. They say, however, that, when accepting instructions from JMC, the defenders were obliged by the Money Laundering Regulations 2003 to obtain satisfactory evidence of his identity, and that they, the pursuers, were entitled to assume that they had done so. They also refer to statements recorded as having been made by Mr Mair in disciplinary proceedings brought against him by the Council of the Law Society, from which, so they say, it appears that, when acting for JMC at various times in 2004, 2005 and 2006, Mr Mair had been given a number of different, conflicting and implausible explanations by JMC as to ownership of Balbuthie Farm and the fact that a property search revealed it to be registered not in his name but in the name of JBC. The pursuers aver that they had had no reason to doubt that JMC was the proprietor of Balbuthie Farm during their earlier dealings with him. They also aver that during the whole course of the dealings between ABAM and the defenders, the defenders did not at any time indicate that they were not acting for the registered title holder of Balbuthie Farm. To the contrary, so they say, the defenders' consistent conduct throughout was to the effect that they were acting for "John Bell Cameron, residing at Balbuthie Farm, ... ("JBC") who was at all material times and still is the registered title holder." That conduct culminated, they say in Article 4 of Condescendence, with Mr Mair witnessing deeds which bore to be executed by JBC, the registered title holder, but which he knew were not so executed. I should, however, note here the defenders' submission that the averment that Mr Mair knew when he witnessed it that the standard security was not executed by JBC is an inference which is not justified by the averments which I have summarised, since one of the explanations said to have been given to Mr Mair was that "John Bell Cameron" was a name which JMC sometimes used to keep him "at arm's length" from potential creditors arising from "his involvement as a Lloyds Name". This may be a hangover from a previous version of the pleadings. I shall return to this point later in this Opinion.

[9] ABAM proceeded to negotiate with JMC the terms of a standard security to be granted by him over Balbuthie Farm. The standard security was ultimately executed on 24 August 2006 and was registered in the Land Register on 28 September 2006. It secured the sum of £300,000. Although it bore to have been executed by John Bell Cameron, residing at Balbuthie Farm, it was in fact signed by JMC in the presence of Mr Mair. It was witnessed by Mr Mair. The pursuers aver that, on the basis that he knew that the deed ran in the name of John Bell Cameron but was signed by JMC, Mr Mair knew that JMC was forging JBC's signature. I have already noted that on the basis of one of the explanations apparently given by JMC to Mr Mair, that inference may go too far.

[10] In the period between the first contact between ABAM and the defenders (late January 2006) and the execution of the standard security on 24 August 2006, the pursuers advanced to JMC the total sum of £80,000, made up of a payment of £10,000 on 10 March 2006, £50,000 on 31 March 2006 and £20,000 on 9 May 2006. After the execution of the standard security on 24 August 2006, the pursuers advanced further sums to JMC in reliance on that security, viz, £50,000 in August 2006 and a further £50,000 in December 2006. Following further correspondence between the parties' agents, a deed of variation of the standard security, increasing the sum secured from £300,000 to £800,000, was executed by JMC on 20 December 2006, again in the name of John Bell Cameron. This deed of variation was also witnessed by Mr Mair. Thereafter, in January 2007, the pursuers advanced two further sums totalling £200,000 to JMC, £100,000 on 2 January and £100,000 on 30 January.

[11] This was not the only fraud practised by JMC using the name of JBC. Another such matter came to light in December 2006 when JBC was informed of a County Court judgment obtained against him in respect of a transaction ostensibly between himself and a company called Galen but of which he was wholly unaware. As a result of this, JBC contacted his solicitors who on 10 January 2007 wrote both to Galen and to the defenders (who had not in fact been involved in the transaction but who were named in correspondence as JBC's solicitors) to explain that JBC had had no dealings with Galen and did not live in Leeds. It is averred that the effect of that letter made clear to the defenders, if they had not already realised (as, it is said, they ought to have done), that their client JMC did not reside at or own Balbuthie Farm, and was a fraudster. Mr Mair met JMC on 16 January 2007 and JMC confessed to him that he had acted fraudulently in respect of the transactions with the pursuers. I should note that the defenders admit that from this date, 16 January 2007, they had actual knowledge that JMC was a fraudster. Despite this, the defenders did not tell the pursuers that JMC was a fraudster. Indeed, it is averred that at a further meeting on 5 February 2007, JMC instructed Mr Mair not to tell the pursuers of the fraud, on the basis that JMC was going to resolve matters with the pursuers directly. On 30 January, as noted above, the pursuers advanced a further sum of £100,000 to JMC.

[12] So far as the pursuers are concerned, they first became aware of the fraud in about July 2007 when Mr Houlgate noticed an article in an evening newspaper in Leeds relating to a man who had been convicted of fraud. Mr Houlgate recognised the guilty man as the said Mr Cameron (i.e. JMC) with whom he had been dealing. He was anxious about the funds he had lent to him. Mr Houlgate's son and daughter-in-law made inquiries on the internet and found a telephone number for Balbuthie Farm. They were able to do so because they had the relevant details relating to JBC and to Balbuthie Farm from the standard security executed on 24 August 2006, a draft of which had been sent to Mr Houlgate, just before execution. It was apparent from photographs posted on the internet that the true owner of the property, John Bell Cameron, was not the said Mr Cameron (JMC). Mr Houlgate spoke to John Bell Cameron's wife and explained the position. She was able to tell him that she and her husband had had previous problems with JMC fraudulently impersonating her husband.

[13] Mr Houlgate then instructed fresh solicitors and intimated a claim against the defenders in July 2007. In the meantime, however, without the knowledge of the pursuers or their solicitors, JMC instructed the defenders to draft a discharge of the standard security over Balbuthie Farm. JMC forged Mr Houlgate's signature on that document and returned the discharge to the defenders who presented it to the Keeper for registration in the land register. It is not suggested that the defenders knew of the forgery of Mr Houlgate's signature. The pursuers do, however, aver that at no point during this latter episode did the defenders contact the pursuers or the pursuers' agents, even though they knew that JMC was not the owner of Balbuthie Farm and that he was a fraudster.

[14] Certain other detailed averments are made which are relevant to the issue of negligence and fraud. I shall deal with these in more detail when considering the claim under those heads.

The pursuers' present heads of claim

[15] As I have said, the initially pursuers put their claim in two ways. First, they claimed damages for negligence, claiming that the defenders were in breach of a duty of care owed to them while acting on behalf of the fraudster in connection with the transaction. Second, they claimed damages for the defenders alleged breach of an implied warranty or authority. Both of those heads of claim were held by Lord Drummond Young to be irrelevant, the first on the ground that no special circumstances existed to take the case out of the ordinary rule that, in general, a solicitor acting for one party in a conveyancing and security transaction does not owe a duty of care to the other party to the transaction; and the second on the ground that an agent did not generally warrant the capacity of the person for whom he purported to act (i.e., in this case, his ownership of or title to property) as opposed to his identity. Those claims are still pursued, though in the amended pleadings material changes have been made both to the case in negligence and also to the claim for breach of warranty of authority. The defenders again say that these claims are irrelevant and should be dismissed.

[16] There was some discussion as to the approach I should take as to these two matters which had been considered in detail by Lord Drummond Young, in circumstances where his interlocutor dismissing the action had been recalled, though without any discussion in the Inner House. Mr Dewar QC, who appeared for the pursuers, candidly accepted that it would be artificial for me wholly to ignore it. But nor, he argued, should I slavishly follow it, particularly in areas where there had been material changes to the pleadings. He submitted that I should simply treat it with the respect due to a decision by a Lord Ordinary on similar facts, to be considered along with the other authorities to which I might be referred. I think that this is the correct approach.

[17] In addition the pursuers now plead a third head of claim based on what they characterise as the defenders' knowing participation in and furtherance of JMC's fraud. This picks up on a brief discussion of the subject by Lord Drummond Young in para.[21] of his Opinion. This head of claim, which Lord Drummond Young noted at para.[25] was "expressly disclaimed" by the pursuers in argument before him at that time, has been added by amendment.

Duty of care

In relation to the transaction as a whole

[18] This question was considered by Lord Drummond Young, on the pleadings as they then stood, at paras.[13]-[25] of his Opinion. Before considering the submissions made to me, it is convenient to summarise his reasons for holding that the defenders owed no duty of care to the pursuers. These were that a solicitor acting for one party to a conveyancing and security transaction would not normally owe any duty of care to the other party: para.[19]. He acted for his own client, and his dealings with the other party were conducted on behalf of that client. He was not instructed to act for that other party; who would normally instruct his own solicitor to look after his own interests and to give him such advice or make such inquiries as might be required. In those circumstances it was not generally fair or reasonable that a solicitor should be under any duty of care to the other party. However, the solicitor might owe a duty of care when he could be said to have assumed personal responsibility for the advice or information given by him to the other party: paras.[20] and [22]. The test was objective. All would depend upon the circumstances of the particular case.

[19] The general rule, however, related only to a solicitor's duty of care: para.[21]. In circumstances of fraud, or awareness of fraud, different considerations might apply; but in such circumstances any liability would not involve a duty of care. To my mind, therefore, the case of fraud is not an exception to the general rule. I shall consider it further under the next head of claim.

[20] Lord Drummond Young recognised that any general rules such as he had sought to describe were likely to be subject to exceptions. The particular exception argued by the pursuer in this case was sought to be justified by their averment that the defenders had impliedly represented, by their conduct throughout the transaction, that they had authority to act for John Bell Cameron, the registered title holder to and owner of Balbuthie Farm. But that led to two further questions: (a) what was the theoretical basis for such an exception? and (b) why did that basis justify an exception? He considered that there were two possible bases for such an exception, summarised below, both of which he rejected.

(1) First, it might be argued that the defenders' conduct amounted to an implied representation by them that they had authority to act for JBC, the registered title holder and owner, and that this amounted to an assumption of responsibility: see para.[23] of his Opinion. The difficulty with that route, in his view, was that the representation relied on was implied, not express. None of the reported cases dealing with the undertaking of responsibility had involved an implied representation rather than an express one. That was hardly surprising, because if the solicitor merely proceeded with a conveyancing or security transaction on behalf of his client, it was highly unlikely that he could be taken to assume a specific personal responsibility towards the other party. On that ground alone, he considered that the case did not involve any undertaking of responsibility by the defenders. In addition, however, he pointed out that until all was revealed in January 2007, the transaction proceeded "as a normal security transaction", with only one apparent specialty, namely that although the loans were to be made to a company controlled by John M Cameron, the standard security was apparently granted by John Bell Cameron. Whatever the uncertainties to which that gave rise (and there might be perfectly legitimate explanations), the fact was that both names were known to the pursuers and their solicitors as well as to the defenders. The pursuers' solicitors could have asked for an explanation, but there was no indication in the pleadings that they had done so. In those circumstances, he concluded that it was not fair and reasonable to impose a duty on the defenders to check that they were acting for the registered title holder. There was therefore no basis for any exception on that account.

(2) Second, it might be said that the defenders' failure to ensure that they were acting for the registered title holder, a matter peculiarly within their knowledge and the knowledge of their client, and not within the knowledge of the pursuers, justified the exception: see para.[24] of his Opinion. However, the fact that a matter was peculiarly within the knowledge of one party could not justify the imposition of a duty of care on that party's solicitor in favour of the other party. A solicitor might know many things about his client and about the transaction and reasons for it that the other party did not know, but there could not be any duty to disclose such matters, even if they were clearly relevant to the particular transaction. Many of them would be confidential. That conclusion was strengthened in the present case by the fact that the pursuers and their solicitors were well aware of the discrepancy in the names and took no steps to investigate matters or to obtain any assurance from the defenders. He concluded in this way: "To the extent that a party's personal circumstances are relevant to a contract, it is possible for the other party to make appropriate inquiries of the first party's solicitors, or to obtain an express certificate from those solicitors, or to insert an appropriate warranty into the contract. Otherwise, short of dishonesty, there is in my opinion no basis for holding that a solicitor should be under a duty of care to disclose personal circumstances to the other party to the transaction. Consequently, unless he is put on notice of dishonesty, a solicitor is in my opinion entitled to assume that his client is behaving honestly and is not, for example, attempting to perpetrate an identity fraud. In these circumstances it seems to me that it would not be fair and reasonable to impose a duty of care on the defenders in favour of the pursuers in relation to whether they were acting for the registered title holder."

[21] As I pointed out earlier, in the amendment process following on from Lord Drummond Young's Opinion, the pursuers have refined their averments about what they say they knew about the JMC to whom they were introduced. In their averments, summarised in para.[4] above, they now say that they did not know until around July 2007, after the standard security and other documents were executed, that the full name of the person to whom Mr Houlgate was introduced and to whom the pursuers had made significant advances was John McGregor Cameron or John M Cameron. They did not know his middle name or initial. They simply knew him as John Cameron. On that basis they can argue that they were unaware, until well after the security documentation was executed, of any apparent discrepancy between the individual (JMC) to whose company the loans were made and the individual (JBC) who, so they believed, granted the standard security over Balbuthie Farm. There was no known discrepancy to excite their enquiries. Accordingly, that part of Lord Drummond Young's analysis of the pursuers' case which relies on the fact that both names were known to the pursuers and their solicitors as well as to the defenders is no longer applicable.

[22] But that does not undermine the remainder of his analysis. Having heard argument on the point, and having been referred to many of the cases to which Lord Drummond Young had been referred and also to some others, I am not persuaded that I should come to a different conclusion from that to which he came. My reasons, which are substantially the same as his, are set out briefly below.

[23] First, for the reasons given by Lord Drummond Young, I consider that, as a general rule, a solicitor acting for one party to a conveyancing and security transaction does not normally owe any duty of care to the other party. I need not elaborate on this. I did not understand this general rule to be seriously challenged. Although Dean v Allin & Watts [2001] PNLR 921, which was cited to me, and the cases cited to Lord Drummond Young on this point, such as Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 1 All ER 865, Midland Bank plc v Cameron, Thom, Peterkin & Duncans 1988 SLT 611 and Bolton v Jamieson & Mackay 1987 SLT 222, were cases involving solicitors in conveyancing type transactions, not unlike the present, the general rule, so it seems to me, applies to anyone acting as agent for one party in his dealings with another party (see e.g. per Lord Steyn in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, at 835B-C, a case dealing with the position of a company director in his dealings with third parties).

[24] Like all general rules, there will be exceptions. An established exception, which is potentially relevant here on the pursuers' arguments, is where there has been an assumption of responsibility by the agent such as to create a special relationship between himself and the other party. This exception is established by the above mentioned authorities, and is the basis on which Hobhouse LJ in McCullagh v Lane Fox & Partners Ltd. [1996] PNLR 205 at 229 criticised the sweeping terms in which the general rule was stated in Gran Gelato. The test of whether there has been an assumption of liability is explained in Midland Bank plc v Cameron, Thom, Peterkin & Duncans at p.616E-F and Williams v Natural Life Health Foods at p.835F-837C. The test is objective. It is necessary to look to what was said or done by the agent in his dealings with the other party. Those statements and actings must be understood in light of the relevant contextual scene. The focus must be on exchanges which cross the line between the agent and the other party, as opposed to the internal arrangements between the agent and his principal. The question is whether the agent expressly or impliedly conveyed to the other party that, albeit he was acting in the transaction as agent, he was assuming personal liability for what he told them. It also has to be shown that the other party reasonably relied upon the agent's assumption of personal responsibility, and that the agent knew or ought to have been aware that the other party might so rely.

[25] I can see no proper basis in this case for holding that there is anything in the pursuers averments to instruct a case that the defenders, while acting as solicitors for JMC, can be said, objectively speaking, to have assumed personal responsibility to the pursuers for the information given to them. Before Lord Drummond Young the pursuers argued that the defenders impliedly represented, by their conduct, that they had authority to act for John Bell Cameron, and that he was the registered title holder to and owner of Balbuthie Farm. By so representing, they impliedly made it clear that they were making this representation on their own authority or, in other words, that they were assuming personal responsibility for it. Lord Drummond Young rejected that argument primarily, if I understand his Opinion, because the representation relied upon (i.e. that they acted for John Bell Cameron, the title holder to and owner of Balbuthie Farm) was implied, not express. For my part, I am not persuaded that the fact that the underlying representation is implied rather than express makes any difference in principle, though in practice it may be harder to establish. Whatever can be done expressly can be done by implication. Nor do I think that there is any real difficulty in spelling out of the defenders' conduct throughout the period of their involvement, when combined with the prior and current statements and actings of their client, an implied representation that JMC, the person introduced to Mr Houlgate and in whose company the pursuers had invested money, was the registered title holder to and owner of Balbuthie Farm. However, the real question seems to me to be whether that representation, to the extent that their statements or actings contributed to it, was a representation by the defenders on their own responsibility or was simply a representation made by them of behalf of their client. I have no doubt, on the pursuers' current averments on record, that it was the latter. The difficulty for the pursuers is, as Lord Drummond Young pointed out, that the conduct on which they rely as giving rise to the implied representation is no different from the ordinary conduct of a solicitor proceeding with a conveyancing and security transaction on behalf of his client. Whether or not such conduct amounts to an implied representation that the client owns the property which is the subject of the transaction, I cannot see anything in the pursuers' averments to suggest that it amounts to such a representation by the solicitor on his own account rather than as agent for his client. There would need to be something out of the ordinary, otherwise there would be a representation by a solicitor on his own responsibility in every such transaction, and the exception to the general rule established by the cases would be co-extensive with the rule itself.

[26] The pursuers' argument advanced at debate before me differed in some respects from that advanced earlier. Whilst accepting the general rule that a solicitor in a conveyancing and security transaction does not owe a duty of care to the other side, and that claims against solicitors in such circumstances had failed on a number of occasions on the ground that no duty of care was owed by them to the other side, they argued that there was no authority for the proposition that a solicitor could never owe a duty of care other than in a case where he had personally assumed responsibility for the advice or information given to the other party. A duty of care might be owed "in exceptional circumstances". The exceptional circumstances averred here were such that the three reasons identified by Sir Donald Nicholls V-C in Gran Gelato at p.570 (quoted at para.[13] of Lord Drummond Young's Opinion) would not provide a proper basis for excluding a duty of care in this case. Thus, they argued:

(1) The issue here was not about the quality of the title possessed by the defenders' client, about which the buyer or his solicitors could make their own enquiries; it was about the existence of his title. Once the defenders accepted instructions from JMC, in their dealings with the pursuers' agents they represented that they were acting for John Bell Cameron residing at Balbuthie Farm. It was for the defenders to have taken steps to satisfy themselves as to that before making that representation, not for the pursuers or their agents to be satisfied that the defenders had in fact been so instructed. Thus, the context was different. This was not a case of the buyer "formally seeking information from the seller about the land and title to it", with a remedy against the seller if the answers were given without due care.

(2) Second, the assumption made in Gran Gelato that the seller will be "as much liable for any carelessness of his solicitor as he would be for his own personal carelessness" does not apply here, because in this case the duties owed were duties owed by the solicitors themselves, relating to their own conduct "in relation, for example, to such fundamental matters as whether his client is who the solicitor represents he is to the other side" (I quote from the pursuers' Note of Argument).

(3) Third, whilst recognising the need for caution (emphasised in Gran Gelato and in Dean v Allin & Watts at para.28) before holding that an agent acting within the scope of his authority for a known principal owes a duty of care personally to third parties independently of the duty of care owed to his principal, the circumstances of this case were "very far removed from the type of enquiry which might arise in the 'normal conveyancing transaction' which the court in Gran Gelato had in mind". In the normal transaction, the principal would be liable to the other side for the negligence of his agent, and the agent would owe his principal a duty of care covering the same ground. Here it could not be said that the defenders owed JMC a duty of care covering "the same ground as the duties founded upon by the pursuers in the present action, not least since JMC's instructions were fraudulent". Further, it was not for the pursuers' solicitors to make enquiries and give advice as to whether JMC was who the defenders represented him to be (i.e. JBC, residing at Balbuthie Farm); responsibility for that lay with the defenders.

I am not persuaded that these three matters advance the pursuers' case. They all depend, so it seems to me, upon the assumption that the defenders themselves made a representation of their own as to the registered title to and ownership of Balbuthie Farm. They therefore assume a case of assumption of liability, rather than present a basis of liability alternative to that. For reasons set out earlier, I have rejected the assumption of liability argument. I have held that the pursuers' case that the defenders made a representation (on their own account) that their client was the registered title holder to and owner of Balbuthie Farm fails. These three arguments do not alter that conclusion. In addition, these arguments appear to some extent to seek to look into the relationship between the defenders and their client in order to distinguish the case from the normal case assumed in Gran Gelato. For example, they raise questions about the duties owed by the defenders to JMC. Such an approach, in my view, is misconceived. Just as the internal arrangements between the agent and his principal are irrelevant to the question of whether there has been an assumption of responsibility (as made clear in Williams v Natural Life Health Foods), so too they are irrelevant to the question of whether it is fair, just and reasonable to impose a duty of care in the absence of an assumption of responsibility. The assessment of the factors giving rise to the imposition of a duty of care is similarly an objective exercise, depending on the known relationship of the parties in the context known or assumed to be known to both of them. The question of whether it is fair, just and reasonable to impose a duty of care is not affected by matters of which one party is wholly ignorant.

The position after 10 January 2007

[27] The new case advanced by the pursuers is that certain duties arose once the defenders knew of JMC's fraud. I have already noted, in paras.[8] and [9] above, that the pursuers plead, by way of inference, that the defenders knew, at the time of witnessing it, that the standard security was not executed by JBC. It is not clear whether this remains part of the pursuers' case, or whether it remains by accident from an earlier version of the pleading. To my mind there is nothing in the averments of primary fact to support that inference, and that case should not be allowed to go to proof. However, of more direct importance for the future of this action, the pursuers now say that in January 2007 it became clear to the defenders not only that JMC had acted fraudulently in using the name John Bell Cameron and in pretending to be the registered title holder to and owner of Balbuthie Farm, but also that they, the defenders, had inadvertently been directly concerned in the carrying out by JMC of the fraudulent transaction. From that time on they had a duty to inform the pursuers of the fraud. This case did not feature in the pursuers' pleadings as they were at the time of the debate before Lord Drummond Young (see para.[29] of his Opinion), or if it did it was not focused as a discrete ground of liability.

[28] After laying out their case concerning the defenders' duty to take reasonable care to satisfy themselves as to their client's identity as the registered title holder to and owner of Balbuthie Farm, the pursuers now say this:

"Having in fact become aware that JMC was not the registered title holder, i.e. the owner, of the Property and indeed that he had no connection therewith as he had apparently claimed and that his instructions in relation to the granting of a security over the Property had been part of a fraud in his part, it was the duty of the Defender to relay that information immediately to the Pursuer and to refuse to accept further instructions in the matter from JMC. ... By at least 10 January 2007, the Defender further knew that the security documents which it negotiated, had executed and witnessed, were not in fact executed by the registered title holder. It knew that these matters were of the essence of the transaction. The imposition of a duty to withdraw from acting on behalf of JMC and to inform the Pursuer or its agents of JMC's fraud once the Defender was actually aware that JMC's instructions in the security transaction had been fraudulent is no more than a recognition of Mr Mair's existing professional obligations. "

This new case is concerned both with a duty not to accept further instructions and with a duty to inform the pursuers of the fraud. The points overlap. They overlap also with the new head of claim seeking to hold the defenders liable for having knowingly participated in and furthered JMC's fraud. That new head of claim is dealt with below and for present purposes I shall leave that new claim to one side.

[29] In para.[21] of his Opinion, Lord Drummond Young, in the context of a solicitor's obligation not knowingly to further the fraud, said that a solicitor

"may, for example, help his client to extricate himself from the consequences of a fraud, but in doing so he must be entirely honest about the fraud in all his dealings with other parties." (emphasis added)

He added this:

"If ... the solicitor becomes aware of some fact that points towards a fraud on the other party to the transaction, it appears to me to be a matter of fundamental professional integrity that he should refuse to act further in the transaction. In some cases the duty may go further, and require that the solicitor disclose the fraud to the other party; it is unnecessary to say more about that in the present case because the pursuers' case is not based on fraud or dishonesty. If the solicitor does continue to act, he becomes party to the fraud, and is liable accordingly." (emphasis added)

The pursuers' new case on duty of care seeks to build on these comments. Mr Hanretty QC, for the defenders, submitted that this passage went further than was warranted by authority, but it appears to me to be sound.

[30] In considering the case based on breach of a duty of care, I am not concerned with the defenders' accepting further instructions from JMC. That did occur, in that, after discovering the fraud, Mr Mair agreed to assist JMC in drafting a discharge of the standard security over Balbuthie Farm, without informing the pursuers of the fraud in the execution of the standard security. The discharge of a valueless standard security is of itself unlikely to cause any loss to the other party; but that does not in my view relieve the solicitors of their obligation in such circumstances to be entirely honest about the fraud in all his dealings with the other party. But consideration of that matter belongs more to the next chapter of this Opinion, which is concerned with knowingly participating in JMC's fraud.

[31] For present purposes, the more important part of the passage quoted above is that in which, having said that, once he becomes aware of some fact pointing to there having been a fraud committed on the other party to the transaction, the solicitor should refuse to act further in that transaction, Lord Drummond Young suggests that: "In some cases the duty may go further, and require that the solicitor disclose the fraud to the other party". I am persuaded that this is correct, at least where the solicitors have, albeit innocently, played a part in the perpetration of the fraud. The policy considerations which militate against the imposition of a duty of care owed personally by a solicitor (as opposed to his principal) to the other party to the transaction to take reasonable care as to the accuracy of information given to that other party, do not come into play in these altered circumstances. In Primosso Holdings Ltd v Alpers [2006] 2 NZLR 455, to which Lord Drummond Young referred in para.[14] of his Opinion, the New Zealand Court of Appeal, though they ultimately did not have to decide the point, expressed their reluctance to accept the proposition that a solicitor acting for a client in a transaction was under a duty of care to the other party "to take reasonable steps to be satisfied that the client is not using the solicitor to facilitate the deceit of such other party." I agree with that view. But, as Lord Drummond Young pointed out, the Court of Appeal in that case allowed proceedings to be brought in deceit. That supported the proposition that although a solicitor acting for his client does not normally owe a duty of care to the other party to the transaction, he does owe him a duty of honesty.

[32] Quite apart from the case of the solicitor knowingly participating in and furthering the fraud, therefore, I accept as accurate the proposition that a solicitor, who discovers that information which he has previously passed on in good faith to the other party to the transaction is false, has a duty to inform that other party of that fact or, at the least, to inform him that that information can no longer be relied upon.

[33] The theoretical basis for the existence of such a duty was not explored before me in any detail. It cannot arise from any general duty of care owed by the solicitor to the opposite party, because there is no such general duty. Nor can it arise from any general assumption of responsibility by the solicitor for the correctness or truthfulness of any advice or information passed on to the other party, because the case where the solicitor has assumed responsibility is the exception, arising out of exceptional circumstances, not the rule, and such a duty, if it exists, must surely apply in every case. It seems to me that the duty might be said to arise in this way. Although a solicitor in a normal conveyancing and security transaction, indeed an agent in any transaction, will not usually undertake personal responsibility for the accuracy or truthfulness of the advice or information passed on by him to the other party, he must surely be taken to represent that he, as agent, does not know that advice or information to be false or untrue. This places no undue burden on a solicitor, or on any agent, and is consistent with the duty of honesty referred to above. That representation is a continuing one, at least for so long as the transaction is live. If, having passed on information in good faith, the solicitor discovers that the information is false, at a time when the transaction is live and the information may yet be acted upon by the other party, he must take steps to correct it, i.e. to inform the other party that his implied representation (that he did not know the information to be untrue) no longer holds good; and he must do so promptly. That is consistent with a duty of care on his part, arising out of his previous involvement in the transaction and his subsequently acquired knowledge of the fraud, to take reasonable steps to ensure that the other party to the transaction does not rely on false information which he has previously provided in the belief that it was true.

[34] One of the difficulties in the way of there being a general duty of care owed to the other party to the transaction is the existence of solicitor client confidentiality or privilege. This militates particularly against the notion that there may be a duty to inform the other party of facts particularly within the knowledge of the solicitor and his client: see para.[24] of Lord Drummond Young's Opinion. I was referred to the re-iteration of the importance of solicitor client privilege in such cases as R v Derby Magistrates' Court, ex parte B [1996] 1AC 487 and Three Rivers District Council v Bank of England (No. 6) [2005] 1AC 610. Those were English cases, but the importance attaching to privilege is no less in Scotland. However, this is not a problem in the limited field under discussion, where the solicitor is only required to correct his earlier communication to the other party, a communication which, unknown to him at the time, was part of the instrumentality of the fraud. The decision in Micosta SA v Shetlands Islands Council 1983 SLT 483, a case concerned with recovery of documents, is authority for the proposition that no confidentiality or privilege attaches where the solicitor has been directly concerned in the very transaction constituting the fraud.

[35] Applied to the facts of this case, on the pursuers' averments the defenders assisted in the negotiation of a standard security which stated that it was executed by the registered title holder to and owner of Balbuthie Farm. They witnessed the signature on the document. They passed that document to the pursuers' agents. They believed it to be the case that JMC, who signed the standard security, was the registered title holder to and owner of Balbuthie Farm. In passing that document to the pursuers or their agents, they did not represent that JMC was the registered title holder to and owner of Balbuthie Farm, nor that they themselves had taken reasonable care to check that he was. But they did, in my opinion, represent that they did not know that he was not the registered title holder and owner of Balbuthie Farm; and that they did not know that the standard security had been executed with fraudulent intent by a person who was not the registered title holder and owner of Balbuthie Farm. On 10 September 2007, at latest, they discovered the truth. They discovered that, contrary to the information which they had passed on to the pursuers, JMC was not the registered title holder to and owner of Balbuthie Farm and the document had been executed as part of a fraudulent scheme. In my opinion, they then came under a duty to inform the pursuers of the correct position, and to do so promptly.

[36] Accordingly, I consider that the pursuers have pled a relevant claim in so far as it is focussed on the defenders' failure to inform them of the fraud after becoming aware of it themselves. They aver in Article 8 of Condescendence that, had they been told about the fraud in January, they would not have advanced any further sums to JMC and, in particular, they would not have advanced the sum of £100,000 at the end of January 2007. The claim on this basis is, as I understand it, limited to that amount.

Knowing participation in and furtherance of JMC's fraud

[37] The pursuers seek damages on the basis of the defenders' knowing participation in and furtherance of JMC's fraud. This head of claim is new since the previous debate. It is inspired, no doubt, by what Lord Drummond Young said at para.[21] of his Opinion. I have quoted a part of this at para.[29] above, but set it out more fully here to put this new head of claim in its proper context:

"[21] ... If the solicitor becomes aware of dishonesty on the part of his client that amounts to a fraud on the other party to the transaction, he will plainly be under a duty to ensure that he does not further that fraud in any way. If he does anything in furtherance of the fraud, he will be liable to the other party to the transaction as a participant in the fraud. It is essential that the dishonesty should affect the other party in the transaction; it is self-evident that a solicitor may act for someone who is or has been dishonest, provided that he does not in any way further a dishonest purpose. Thus a solicitor may, for example, help his client to extricate himself from the consequences of a fraud, but in doing so he must be entirely honest about the fraud in all his dealings with other parties. More precisely, I consider that this form of liability will arise in any case where the solicitor becomes aware of facts from which the dishonesty of his client can reasonably be inferred. It is important to emphasize that such liability does not involve a duty of care; there is no duty on a solicitor, in the words of the Court of Appeal in Primosso Holdings, "to assume that the client might be acting deceitfully and to take reasonable steps to ascertain whether or not that was the case". If, however, the solicitor becomes aware of some fact that points towards a fraud on the other party to the transaction, it appears to me to be a matter of fundamental professional integrity that he should refuse to act further in the transaction. In some cases the duty may go further, and require that the solicitor disclose the fraud to the other party; it is unnecessary to say more about that in the present case because the pursuers' case is not based on fraud or dishonesty. If the solicitor does continue to act, he becomes party to the fraud, and is liable accordingly." (emphasis added)

[38] In their amended pleadings, the pursuers now aver that on 10 January 2007 the defenders were made aware of JMC's fraudulent use of John Bell Cameron's name and property. On 16 January 2007 JMC made a confession to the defenders, admitting his fraud. On that date, and again at a further meeting with Mr Mair on 5 February, the defenders were instructed by JMC not to tell the pursuers or their agents about the fraud. They were assured by JMC that he would "resolve matters" with the pursuers directly. The pursuers say that Mr Mair ought to have realised that JMC was not to be trusted. The defenders did not tell the pursuers or their agents of the fraud. Instead, they accepted instructions from JMC to draft a discharge of the standard security, witnessed JMC's signature on that discharge, and thereafter presented the signed discharge, on which JMC had forged Mr Houlgate's signature, to the Keeper for registration in the Land Register. This conduct, they aver, amounts to knowing participation in and furtherance of the fraud.

[39] There cannot, in my opinion, be any doubt that a person (be he a solicitor who has already innocently had some involvement in the transaction in question or some other person who is otherwise a stranger to it) who acts at the behest of another and takes part in a fraudulent transaction knowing it to be fraudulent, may be held liable in damages to the innocent victim of the fraud. On this I agree with the views expressed by Lord Drummond Young in the passage cited. Indeed, I did not understand the principle to be seriously challenged.

[40] The defenders say that the averments in support of this claim are irrelevant, for two reasons. First, they argue that for any liability to arise in fraud, there must be a positive act or representation by the defenders which causes loss to the pursuers. The pursuers must specify the act or representation founded upon, and the circumstances. I was referred to Shedden v Patrick (1852) 14 D 721 and Royal Bank of Scotland v Holmes 1999 SLT 563. They failed to do so. Second, they emphasised, by reference to Royal Bank of Scotland v Holmes, the particularity required for a pleading of fraud. The pursuers' pleadings, they said, were vague and self-contradictory.

[41] I accept, of course, the need for a case of fraud to be pleaded with great care and full particularity. I accept also, for present purposes, that a fraud will usually consist of a representation by the fraudster, which was untrue to his knowledge (or as to the truth of which he was reckless), which was intended to be relied upon and was relied upon by the victim; or of some other positive act by the fraudster which causes loss to the victim. But I fail to see how this is relevant to the criticism of the pursuers' pleadings. Put very simply, the pursuers' case is that the fraud was committed by JMC. He committed it by falsely pretending to be the registered title holder to and owner of Balbuthie Farm, by falsely offering that property as security for the monies paid over by the pursuers, by forging the signature of the real owner of the property (JBC) and by not revealing to the pursuers the fraudulent nature of what he had done. The pursuers, as he knew they would, advanced money to his company in the belief that he owned the property, and had granted a valid security over it. Their loss flows from that. That account of the fraud involves the various elements required for the establishment of a claim for damages. The role played by the defenders, on the pursuers' pleadings, was quite different. They innocently assisted in the execution, delivery and registration of the security. At a later stage, when it was still likely that the pursuers might advance further sums, they became aware of the fraud. The pursuers say that, rather than tell them about the fraud, the defenders (a) accepted instructions from JMC to keep quiet about it and (b) helped with the drafting and execution of a discharge of the standard security (itself containing a forgery, though it is not alleged that the defenders knew about that), the execution of the discharge no doubt being intended (by JMC) to stop information about the forged standard security reaching JBC and, through him, the pursuers. Those acts are alleged to amount to participation in or furtherance of the fraud, because by keeping quiet on his instructions, and by conniving at the execution of a discharge without directly contacting the pursuers to tell them of the fraud, they allowed the pursuers to make a further payment in the mistaken belief that all was above board. Those are the specific acts complained of, and as a result of those specific acts the pursuers, so they contend, suffered loss. They advanced a further £100,000 at the end of January 2007, after the time when they alleged that the defenders accepted JMC's instructions to remain quiet. It is not clear on the pleadings when the pursuers received instructions in relation to the discharge. If it was before the end of January 2007, then the loss may flow from their silence about it in the same way. If it was later than that, it may be that the pursuers can claim other heads of loss. But that is for another time. On the basis of a payment of £100,000 at the end of January, I consider that the pursuers have pled a claim habile for proof.

[42] The summary does not pick up every detail of the case made by the pursuers, but it gives the flavour and bare bones of the pursuers' case. It seems to me that this adequately identifies the acts or representations necessary for the case made. It also seems to me that the pleading gives full notice of that case. I therefore do not accept the argument that the case as pled is irrelevant and should be dismissed.

Breach of warranty of authority

[43] I propose to deal with the breach of warranty of authority case briefly. Lord Drummond Young held this case to be irrelevant, essentially because any warranty given by the solicitors related only to the fact that they had authority from the person for whom they purported to act to do on his behalf the thing which they in fact did. It did not relate to his capacity or his title to or ownership of any particular property.

[44] As the pleadings stood at the time of the debate before Lord Drummond Young, the pursuers' averments of breach of warranty of authority were as follows:

"Separatim by acting on behalf of [John M Cameron] qua registered title holder, i.e. the owner, of the Property, the Defender impliedly warranted that it had authority as agent of the registered title holder, i.e. the owner, of the Property so to do".

Lord Drummond Young said this:

"The representation that is averred is accordingly that the defenders had authority to act for John M Cameron as registered title holder. The critical part is not the authority to act for John M Cameron; it is a matter of agreement that the defenders did in fact have authority to act on his behalf. The critical part of the representation relates to John M Cameron's capacity as registered title holder. In other words, the representation relates to the property owned by John M Cameron, or his title to that property, and not to authority to act for John M Cameron himself. In my opinion that does not fall within the principle of breach of warranty of authority. The matter can be tested by considering an example. A solicitor purports to enter into a contract on behalf of a client for the sale of the client's house. The client has undoubtedly given him instructions for the sale, but it transpires that the client's title to the house is defective because the last registered proprietor was the client's mother and in her will she left the house equally between the client and his sister. When the defect comes to light, the client will be liable for breach of contract, but the solicitor will not be liable for breach of warranty of authority; the solicitor had authority to act for his client, and the problem is a defect in the client's title. I am accordingly of opinion that the pursuers have not stated a relevant case based on breach of warranty of authority."

I agree entirely with that reasoning.

[45] In the amended pleadings the pursuers have altered slightly the way their case is put. They now say this:

"Separatim by acting on behalf of JMC in the security transaction, in which the Defender represented that it was acting for John Bell Cameron, residing at Balbuthie Farm, Kilconquhar, Elie, Leven, KY9 1EX, a person who actually existed and who was the registered title holder of the Subjects, the Defender impliedly warranted that it had authority as agent of John Bell Cameron, residing at Balbuthie Farm, Kilconquhar, Elie, Leven, KY9 1EX, to act on his behalf in the constitution of a security over the subjects".

Many of the problems highlighted by Lord Drummond Young apply equally to this formulation. Although, on the basis that his was the name on the standard security, it is now averred that the defenders impliedly warranted that they had authority from John Bell Cameron, nonetheless the critical part of the representation still, so it seems to me, relates to the capacity of the defenders' client, whoever he might be, as registered title holder to and owner of the property. The pursuers did not know or care who owned the property, so long as a valid standard security over it in favour of the pursuers was executed by the person entitled to do so. What mattered to them, therefore, was that the person executing the document had the requisite capacity, i.e. was the registered title holder and owner. That does not fall within the principle of breach of warranty of authority.

[46] There is however a further point which, to my mind, is also fatal to the pursuers' case under this head. The pursuers were aware from as early as May 2004 of the "identity" of the person with whom they were dealing. He was Mr Cameron. They had been personally introduced to him and had met him. They had had discussions with him, and had advanced money to his company. They had asked him for security before advancing further sums, and it was he who spoke to them about the possibility of their being granted a standard security over Balbuthie Farm, which he told them was his property. All this had happened directly between the pursuers and the man calling himself John Cameron. It was only then and on this basis that the defenders first became involved in this transaction. They were to carry out the legal work required from his side in connection with the grant of that security. So far as the defenders were concerned, they were acting for the same individual who had made the arrangements thus far with the pursuers. That is not in dispute. So far as the pursuers were concerned, the defenders were acting for the very man (John Cameron) with whom they were already engaged in business. That too cannot be in dispute. They both knew the identity (if not the name and attributes) of the person they were both dealing with. In those circumstances, it is impossible to suggest that the defenders warranted that they acted for John Bell Cameron, if by that was meant someone other than the John Cameron whom they both knew. They simply warranted that they acted for the person known to the pursuers as John Cameron, whom the pursuers knew to be the person engaged in the proposed security transaction in respect of Balbuthie Farm. They did in fact act for the person they said they were acting for. The fact that he falsely used another name (JBC) to pretend that he owned certain property does not found a claim for breach of warranty of authority.

[47] I heard the debate in this action immediately after concluding the hearing of a proof in another case which raised a very similar issue about breach of warranty of authority. I have since given my decision in that case: Cheshire Mortgage Corporation v Grandison (CA100/09, 23 September 2011). I refer to that decision in support of this last part of my reasoning in this case.

Disposal

[48] For the reasons given above, I consider the pursuers' case to be irrelevant save in so far as based on the defenders' alleged knowledge of the fraud and, to the extent that this goes further, their alleged knowing participation in and furtherance of it.

[49] I shall put the case out By Order to hear parties on the precise terms of the interlocutor to give effect to this decision. It would be helpful if parties could by then have attempted to identify and, if possible, agree what averments should be deleted to give effect to my decision.