Scottish Court of Session Decisions

Pursuer: Party

Defender: Watts, Morisons LLP

8 March 2013

[1] The pursuer seeks reduction of a trust deed for creditors granted by him in favour of the defender on 19 September 2007. He further seeks payment of the sum of £7200, the total payments that he made under the trust deed for creditors, and interdict ad interim against the defender's applying for an award of sequestration of the pursuer's estates. The defender is an insolvency practitioner with Buchanan Roxburgh Ltd. It is a matter of agreement that on 19 September 2007 the pursuer granted the trust deed for creditors whose reduction is now sought and that the defender was the trustee acting under that trust deed.

[2] The pursuer's averments are as follows. In September 2007 he approached Buchanan Roxburgh Ltd for advice in relation to management of his financial affairs. On 14 September he spoke to an employee of the company, Clare Craig, on the telephone. She advised him that if he signed a trust deed for the benefit of his creditors he would be able to pay an agreed contribution towards his debts for a period of three years, after which he would be debt free. The pursuer owns a property in Methil, jointly with his former cohabitant, a Miss Kirk. He avers that he told Clare Craig that he was concerned about what would happen to that property if he signed a trust deed. She told him that a representative of Buchanan Roxburgh Ltd would call at his home to discuss the legal issues involved. On 19 September 2007 a representative of the company called at the pursuer's home for the purpose of obtaining the pursuer's signature to the trust deed. The individual concerned is not identified in the pleadings, but in his note of written submissions the pursuer identifies him as a Mr Robin Davies. The pursuer avers in relation to Mr Davies that "He repeatedly told the pursuer and Shona Kirk that their home was not at risk. He told them that provided the pursuer continued to make payment of his secured borrowings together with a contribution of £200 per month to his unsecured debts, he would be discharged from his debts after three years on payment of his share of the equity, which he calculated to amount to £4,000".

[3] The pursuer goes on to aver that Mr Davies knew or ought to have known that his representations regarding the legal effect of the trust deed were false. The effect of the trust deed was to convey the whole of the pursuer's estate to the defender, and after the expiry of three years the defender had called upon the pursuer to realize the whole of his share of the equity in the house in Methil. The pursuer avers that but for the misrepresentations made by Mr Davies he would not have signed the trust deed. His first plea in law is to the effect that, because he had been induced to grant the trust deed as a result of fraudulent or alternatively negligent misrepresentations made on behalf of the defender, decree of reduction should be pronounced, and the pursuer should be entitled to repayment of the contributions that he made under the trust deed.

[4] When the action called in the procedure roll on the motion of the defender, her counsel submitted that the pursuer's pleadings were irrelevant and that the action should accordingly be dismissed. I should record that the defender has made substantial averments setting out the most important terms of the trust deed and stating that the pursuer had failed to comply with the obligations imposed on him under the trust deed or to cooperate with the instructions and requirements of the defender as his trustee. The defender further avers that the pursuer had been clearly and repeatedly advised by the defender in relation to his position and obligations and as to the realization of his interest in the house in Methil. The present action is concerned with the relevancy of the pursuer's averments, however, and consequently it is not necessary to consider those matters further.

[5] The pursuer challenges the trust deed on two bases: first, that he was induced to grant the deed by fraudulent misrepresentations made on behalf of the defender; and secondly, that he was induced to grant the deed by negligent misrepresentations. So far as fraud is concerned, it is clear that detailed and specific factual averments are required. This is established in a long series of cases. For example, in Shedden v Patrick, 1852, 14 D 721, Lord Fullerton stated (at 727):

"It is not enough for a party, founding a reduction on the head of fraud, to state that fraud has been committed. Fraud is a general term to be inferred from specific acts. The party then must state in what the fraud consists, and what are the acts are from which the existence of fraud is to be inferred. And if the facts which he does state are clearly insufficient to support such an inference, ... the objection of irrelevancy must be sustained".

In Milne and Co v Aberdeen District Committee, 1899 2 F 220, Lord Kinnear stated (at 231):

"I think, in the first place, there is no relevant averment of fraud in this condescendence, and I confess to thinking that that is an averment which ought not to be introduced into pleadings for the purpose of setting aside any kind of instrument unless the pursuer really means it, and has specific grounds of fact which he is prepared to aver and to undertake to prove in support of so grave a charge. Now, there are no specific grounds of fact alleged in this record which it would be possible to send to proof, and indeed we are told by counsel for the pursuer that it was not possible to imagine specific grounds of fact in support of the allegation. Facts which cannot be specifically alleged cannot be proved, and I am therefore of the opinion that the case of fraud is altogether out of the question".

Thus it is imperative, if a case of fraud is to be properly stated in pleadings, that specific allegations must be made. This point was developed further by Lord Macfadyen in Royal Bank of Scotland v Holmes, 1999 SLT 563, when he stated (at 569):

"It is in my view essential for the party alleging fraud clearly and specifically to identify the act or representation founded upon, the occasion on which the act was committed or the representation made, and the circumstances relied on as yielding the inference that that act or representation was fraudulent. It is also, in my view, essential that the person who committed the fraudulent act or made the fraudulent misrepresentation be identified".

A similar point was made by Lord Pentland in Royal Bank of Scotland v Hill, [2012] CSOH 110, at paragraph [17], and by Lord Hodge in. Grant Estates Ltd v Roll Bank of Scotland, [2012] CSOH 133, at paragraphs [85]-[93].

[6] In the present case it is quite clear in my opinion that the pursuer does not adequately specify the basis on which he alleges fraud. The individual who is alleged to have made fraudulent statements is not identified in the pleadings, although he is said in the pursuer's note of argument to be Mr Davies. The failure to identify the person responsible in the pleadings is of itself fatal to the validity of the allegations, but for present purposes, because the name is now known, I am prepared to overlook this defect. More fundamentally, the pursuer does not aver circumstances that can be said to yield the inference that the representations made by Mr Davies were false. The representations are averred, but it is not stated what the true position was and in what respects they were false.

[7] Indeed, if the statements that Mr Davies is said to have made are considered against the general background of a trust deed for creditors, a well-established type of legal transaction, it is in my opinion inherently likely that the representations were true. It is averred first of all that Mr Davies repeatedly told the pursuer and Miss Kirk that their home was not at risk, but that statement must be read in the context of what follows. What is stated immediately afterwards is that, provided that the pursuer "continued to make payment of his secured borrowings" together with a contribution to his unsecured debts, he would be discharged from his debts after three years on payment of his share of the equity in the house. That amounts to a statement that the pursuer had to continue paying the company who had provided finance for the house in accordance with the loan agreement; that is clearly what is meant by the expression "continued to make payment of his secured borrowings". That is plainly correct; if the pursuer did not continue paying the heritable creditor obviously the house would be at risk. Mr Davies is then said to have stated that the pursuer had to make a contribution towards paying his unsecured debts. Once again, that is plainly correct. Under the trust deed he was required to make regular payments, amounting to £200 per month. All that Mr Davies did was to point out this obligation. Finally, Mr Davies is said to have mentioned that after three years (the duration of the trust deed) the pursuer would be discharged from his debts "on payment of his share of the equity in the house". That is an indication that the value of the pursuer's interest in the house, under deduction of the debt owed to the secured lender, would have to be contributed towards the payment of his unsecured debts. Once again, that is an accurate statement of what is normally required by a trust deed for creditors. In these circumstances it is quite impossible to draw any inference of fraud; what Mr Davies said was correct.

[8] In relation to the supposed falsity of Mr Davies' representations, it is averred that the effect of the trust deed was to convey the whole of the pursuer's estate to the defender, but that is not in any way inconsistent with the representations that are averred; the statement that the pursuer's equity in the house would be made available for creditors is entirely consistent the transfer of the whole estate. It is also averred that after three years the defender called upon the pursuer to realize the whole of his share of the equity in the house in Methil; once again, that is entirely consistent with the representation to the effect that pursuer would be discharged "on payment of his share of the equity".

[9] The pursuer's case based on negligent misrepresentation fails for similar reasons. In this case, the pursuer must aver and prove the terms of the misrepresentation, when and where it was made and the context in which it was made: Hamilton v Allied Domecq PLC, 2006 SC 221, in particular per LJ C Gill at 222. In the present case, no duty of care is averred; nor is it stated whether such a duty arose under a contract between the parties or in delict. No averment is made to the effect that the defender assumed responsibility for statements made by Mr Davies, and nothing is said regarding the foreseeability of loss. Furthermore, the pursuer does not aver what the true position was, and without that it is impossible to draw an inference that the representations were false. Finally, for the reasons discussed in the last paragraph, in the context of a trust deed for creditors it seems inherently likely that the representations were in fact accurate.

[10] Counsel for the defender drew attention to further matters. First, the pursuer did not deny the answers which, as mentioned above, contained detailed averments of the terms of the trust deed and events subsequent to its execution. The failure to deny these averments no doubt indicates the inadequate state of the pursuer's pleadings, but I do not think that it is of assistance in considering their relevancy. Secondly, the pursuer did not make any averments as to why he signed the trust deed and other documents, not whether he read the documents, nor any inconsistency between his understanding of the documents when he signed them and his claim to have been misled about their meaning. In my opinion there is considerable force in this criticism of the pursuer's pleadings. Nevertheless, in order to hold that those pleadings are irrelevant, it is not necessary to rely on these failures; the pursuer's pleadings simply do not contain the basic requirements of either fraud or negligent misrepresentation.

[11] For the foregoing reasons I will sustain the defender's first plea in law, which challenges the relevancy and specification of the pursuer's averments, and dismiss the action. In conclusion I should mention that counsel for the defender provided a detailed supplementary note of argument in advance of the procedure roll discussion. In a case involving a party litigant this informs him of the arguments against him in clear, simple and comprehensive terms in advance of the hearing. I found this to be of great assistance in conducting the hearing.