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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2009] ScotCS CSOH_165 (10 December 2009)
URL: http://www.bailii.org/scot/cases/ScotCS/2009/2009CSOH165.html
Cite as: 2010 SLT 527, [2009] CSOH 165, 2010 GWD 4-71, [2009] ScotCS CSOH_165, [2010] PNLR 13, 2010 Rep LR 32

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OUTER HOUSE, COURT OF SESSION

[2009] CSOH 165

CA25/09

OPINION OF LORD DRUMMOND YOUNG

in the cause

FRANK HOULGATE INVESTMENT COMPANY LIMITED

Pursuers;

against

BIGGART BAILLIE LLP

Defenders:

ннннннннннннннннн________________

Pursuer: D Thomson; Wilson Terris & Co SSC

Defender: Hanretty, Q.C.; HBM Sayers

10 December 2009

[1] The pursuers are a company set up by a Mr Frank Houlgate as a vehicle for investment in stocks, shares and the like. They have raised an action for damages of г380,000 against the defenders, a firm of solicitors, on the ground of the defenders' alleged fault and negligence and, separately, on the ground of the defenders' alleged breach of an implied warranty of authority. The defenders have tabled a plea to the relevancy of the action, and I heard a debate on that plea. Two questions were discussed: first, the circumstances in which a solicitor acting for one party to a conveyancing transaction may owe a duty of care to the other party to that transaction; and secondly, whether the defenders were in breach of a warranty of authority to act on behalf of their client.

Pursuers' averments

[2] The pursuers' averments are in summary as follows. In about May 2004 Mr Houlgate, their principal shareholder, was introduced to a man named John Cameron by investment advisers, St James Place Partnership. The man in question was identified as John M. Cameron, residing at an address in Leeds. John M. Cameron, it is averred, was and is a fraudster. That averment is admitted. Nevertheless, Mr Houlgate understood John M. Cameron to be a businessman looking for investors in a company known as Securimax. Between June and August 2004 the pursuers advanced г100,000 by way of investment in Securimax. In the middle of 2005 Mr Houlgate and John M. Cameron had discussions about a further investment in that company, and Mr Houlgate indicated that the pursuers were willing to increase their investment to г500,000, but that security would be required for such an investment. John M. Cameron responded that he had an ancestral estate in Scotland known as Balbuthie, which was valued at г2.6 million. That property was in fact Balbuthie Farm, in Fife. Mr Houlgate made inquiries using the Internet, and discovered that Balbuthie Farm was owned by a man called John Cameron, whom he understood to be John M. Cameron. Thereafter agreement was reached that the pursuers would advance a further г500,000 by way of investment in Securimax, in return for which they would in due course be paid г800,000 by the company. Mr Houlgate and John M. Cameron also discussed the possibility of setting up a company to convert Balbuthie Farm into a golf course development. They agreed that if planning permission were obtained the pursuers would be given a 50% shareholding in the development company, and that if that did not happen Balbuthie Farm would be sold and the pursuers would be paid г800,000 by way of return on their investment.

[3] In the middle of 2006 Mr Houlgate was taken to see the property by John M. Cameron. He was told by John M. Cameron that the farmhouse was let to the Church of Scotland, and that neither the tenants nor the local community were at the time aware of the proposals for development. In due course John M. Cameron instructed the defenders' predecessor firm to act on his behalf. The defenders succeeded to the assets and liabilities of their predecessor, and references to "the defenders" are to both the defenders and their predecessors. The pursuer instructed the firm of AB & A Matthews to act as his solicitors. It is averred that Mr Houlgate, and thus the pursuers, did not have any reason to doubt that John M. Cameron was the proprietor of Balbuthie Farm during their earlier dealings. It is further averred that, throughout the whole course of the dealings between the pursuers' solicitors and the defenders the defenders did not at any time indicate that they were not acting for the registered title holder of Balbuthie Farm; on the contrary, the defenders' consistent conduct, it is said, was to the effect that they were acting for the registered title holder. Ultimately Mr Mair, who was then a partner in the defenders' predecessors, is said to have witnessed deeds which bore to be executed by the registered title holder, but which he knew were not so executed.

[4] The pursuers' solicitors and John M. Cameron proceeded to negotiate the terms of a standard security to be granted over Balbuthie Farm in the pursuers' favour. A security was ultimately executed on 24 August 2006 and was registered in the Land Register on 28 September 2006. It secured the sum of г300,000. The standard security bore to have been executed by one John Bell Cameron. John Bell Cameron was disclosed in the Land Register and the title deeds as the registered title holder of Balbuthie Farm. The standard security was witnessed by the defenders' Mr Mair. Prior to the grant of the standard security the pursuers had advanced a total of г80,000 to John M. Cameron, and after it was granted the pursuers advanced further monies to John M. Cameron in reliance upon the standard security. г50,000 was advanced in August 2006 and a further г50,000 in December 2006. Thereafter, following further correspondence between the parties' agents, a deed of variation of the standard security was executed by John M. Cameron on 20 December 2006. As with the standard security, this proceeded in the name of John Bell Cameron, and was witnessed by Mr Mair. The deed of variation varied the standard security by increasing the sum secured from г300,000 to г800,000. Thereafter, on 2 and 30 January 2007, the pursuers lent two further sums totalling г200,000 to John M. Cameron.

[5] In December 2006 John Bell Cameron, the true owner of Balbuthie Farm, received correspondence that indicated that a company called Galen Finance Ltd had obtained an English county court judgment against him. In reality John Bell Cameron had not entered into any transaction with Galen; John M. Cameron had fraudulently used John Bell Cameron's identity to enter into the transactions that underlay the County Court judgment. In the correspondence the defenders were named as John Bell Cameron's solicitors, although in fact they had never acted for him. John Bell Cameron then contacted his own solicitors, Stephenson & Marshall. On 10 January 2007 Stephenson & Marshall wrote to Galen's solicitors and to the defenders to explain that John Bell Cameron had not been involved in any dealings with Galen. Following that letter, it is averred, the defenders were plainly aware that John M. Cameron was not the owner of Balbuthie Farm and that in the circumstances he was a fraudster. On 16 January 2007 a meeting took place between Mr Mair and John M. Cameron at which the latter confessed that he had acted fraudulently in relation to the proposed transaction with the pursuers. Following that meeting, it is said, the defenders did not inform the pursuers that John M. Cameron was a fraudster, and on 30 January 2007 the pursuers advanced a further г100,000 to him.

[6] In July 2007 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 John M. Cameron. Thereafter Mr Houlgate made further inquiries. He telephoned the number given for Balbuthie Farm, and spoke to John Bell Cameron's wife. She stated that she and her husband had had previous problems with John M. Cameron's fraudulently impersonating John Bell Cameron. Mr Houlgate then instructed fresh solicitors, and a claim was made against the defenders on 27 July 2007. That claim led to the present action. In the meantime, without the knowledge of the pursuers or their solicitors, John M. Cameron instructed the defenders to draft a discharge of the standard security in the pursuers' favour. John M. Cameron then forged Mr Houlgate's signature and returned the discharge to the defenders. The defenders presented the discharge to the Keeper for registration in the Land Register. At no point during the latter episode did the defenders contact the pursuers or the pursuers' agents, even though, the pursuers aver, the defenders knew that John M. Cameron was not the owner of Balbuthie Farm and that he was a fraudster.

[7] The action is based on two grounds: first, the alleged negligence of the defenders and in particular their partner and subsequently director Mr Mair; and secondly, the breach by the defenders of an implied warranty. The averments of negligence are as follows. The defenders had a duty to take reasonable care to confirm the identity of John M. Cameron, and a duty to take reasonable care to confirm that John M. Cameron was the registered title holder of Balbuthie Farm. They had a duty not to accept instructions from John M. Cameron in respect of the constitution of a security over Balbuthie Farm without obtaining authority from the registered title holder of that property. It was reasonably foreseeable that the pursuers would rely up on the defenders as having established that John M. Cameron was the registered title holder of the property, since only the registered title holder had the necessary capacity to execute the requisite security deed. It was the defenders' duty not to act in a transaction involving the granting of a security over property registered in the Land Register without being so instructed by the registered title holder. At least, it was the defenders' duty to advise the pursuers that it was acting for someone other than the registered title holder. It was further the defenders' duty, once they became aware that John M. Cameron had no connection with the registered title holder and that his instructions in relation to the granting of a security over Balbuthie Farm had been fraudulent, to relay that information immediately to the pursuers and to warn them not to advance any further monies. It was the defenders' duty not to witness forged signatures on the standard security and deed of variation and then to pass those documents off as having been executed by the ex facie granter of those deeds.

[8] The pursuers further aver a case based on breach of warranty of authority. This is dealt with briefly in the pleadings, where it is averred that, by continuing to act for John M. Cameron, the defenders impliedly warranted that he was who he claimed to be, that is to say, John Cameron, the registered title holder, and thus owner, of Balbuthie Farm, and that the defenders had authority to act on his behalf. In the article of condescendence setting out the grounds of action, the proposition is slightly re-formulated: it is said that by acting on behalf of John M. Cameron qua registered title holder, and thus owner, of Balbuthie Farm the defenders impliedly warranted that they had authority as agent of the registered title holder to do so. The defenders are said to be in breach of the implied warranty.

[9] The foregoing is a summary of the essential averments made by the pursuers. In addition, they make reference to the Money Laundering Regulations 2003. They aver that, in accepting instructions from John M. Cameron, the defenders were obliged by those Regulations to obtain satisfactory evidence of his identity. That would have included evidence that John M. Cameron was in fact the owner of Balbuthie Farm. Finally, the pursuers make averments to the effect that Mr Mair was aware that John M. Cameron was perpetrating a fraud. These are found at various points in the pleadings, and appear to form part of the general case based on negligence. At no point is averred that Mr Mair participated in the fraud, and indeed counsel for the pursuers made it clear in his submissions that his case was based on negligence, not fraud. This is of importance, because for reasons discussed below I am of opinion that a solicitor acting in a convincing transaction does not owe a duty of care to the other party in a transaction, but does owe that party a duty not to participate in any fraud. The averments in question are as follows. First, it is said that Mr Mair knew that the standard security executed on 24 August 2006 ran in the name of John Bell Cameron that was in fact executed by John M. Cameron. On that basis, Mr Mair knew that John M. Cameron was forging John Bell Cameron's signature. Despite that, the defenders did not tell the pursuers that John Bell Cameron's signature had been forged on the standard security in Mr Mair's presence. (At this point I note that a witness to a deed need not see it being signed, provided that the granter acknowledges his signature to the witness. Moreover, according to the defenders, John M. Cameron had given some sort of explanation for the use of a different name). Secondly, the pursuers further aver that by 10 January 2007, when Stevenson & Marshall wrote to them, the defenders knew that John M. Cameron was a fraudster, and that he confirmed that fact to Mr Mair on 16 January 2007. At this stage the defenders knew that they had acted on behalf of a fraudster in the negotiation and execution of the standard security and deed of variation, and knew that the purpose of those deeds was to secure lending by the pursuers to John M. Cameron. Despite that, the defenders did not tell the pursuers what had been discovered, nor did they tell the pursuers anything about the exchange of correspondence with Stevenson & Marshall. It is further averred that the defenders knew or ought to have known that, in the absence of such a warning, the pursuers were likely to advance further monies on the fate of the standard security, and that the pursuers in fact did so. Thereafter, as mentioned at paragraph [6] above, the defenders drafted a discharge of the standard security on behalf of John M. Cameron. Reference is further made to proceedings taken against Mr Mair by the Law Society of Scotland on the ground of professional misconduct.

Arguments

[10] Counsel for the defenders submitted that it is established law that a solicitor in non-contentious business owes no duty of care to the other party to the transaction. In support he cited Gran Gelato Ltd v Richcliff (Group) Ltd, [1992] Ch 560, at 570 per Sir Donald Nicholls V-C, White v Jones, [1995] 2 AC 207, per Lord Goff of Chieveley at 256, Primosso Holdings Ltd v Alpers, [2006] 2 NZLR 455, and Jackson and Powell, Professional Liability, 6th ed, at paragraph 7-055. In Scotland, in Midland Bank PLC v Cameron, Thom, Peterkin & Duncans, 1988 SLT 611, it was held that situations could arise in which a solicitor owes a duty not only to his client but to a third party who relies upon what the solicitor tells him; nevertheless, for that to happen, it was necessary that the solicitor should assume responsibility for the advice or information, that the third party should rely on the advice or information as a matter for which the solicitor had assumed personal responsibility, and that the solicitor should have been aware that the third party was likely so to rely. That, counsel submitted, did not appear from the pursuers' pleadings. In addition, counsel submitted that, to the extent that the pursuers' averments relied on the proposition that John M. Cameron was not the registered title holder, that was not a sound basis for the action because an individual can use any name that he wants, and a discrepancy in the name did not mean that John M. Cameron was not the true owner. Reference was made to Atlas Appointments Ltd v Tinsley, 1997 SC 200. This meant that there was no relevant case based on breach of warranty of authority. Counsel further submitted that the averments relating to the Money Laundering Regulations 2003 were irrelevant; those Regulations enact a regulatory regime and, in the event of a breach, impose criminal sanctions, but they do not affect civil liability and are irrelevant to the existence of a duty of care. Finally, counsel submitted that even if a duty of care were held to exist the pursuers required to show that they had relied on information provided by the defenders. On their averments, however, the pursuers had advanced money to Securimax before the defenders had done anything. In any event, it could not be said that the pursuers relied on information provided by the defenders in the specific circumstances averred. On that basis the claim should fail. In relation to the pursuers' case based on breach of warranty of authority, counsel for the defenders submitted that what the pursuers relied on was not a warranty of authority but a warranty as to the position of the client as infeft proprietor. That, however, was not a valid ground of liability.

[11] Counsel for the pursuers submitted that case law, including Gran Gelato, made clear that exceptions could exist to the general rule that a solicitor acting for one party in a conveyancing transaction did not owe any duty of care to the other party. The present case was exceptional, in that the negligence that was relied on was the failure of the defenders to ensure that they had instructions from the registered title holder. That was of a different nature from, for example, representations about the legal title of the seller. Throughout the transaction the defenders did not negate the proposition that they were acting for John Bell Cameron; the whole of their conduct, as disclosed in the pleadings, is that he was the person for whom they were acting. In addition to the cases cited by the defenders, reference was made to Hedley Byrne & Co Ltd v Heller & Partners Ltd, [1964] AC 465, and in particular to the speech of Lord Morris of Borth-y-Gest at 502; Allied Finance and Investments Ltd v Haddow & Co, [1983) NZLR 22; Bolton v Jameson & Mackay 1987 SLT 291; 1989 SLT 222; and McCullagh v Lane Fox & Partners Ltd, [1996] PLNR 205. Counsel for the pursuers further submitted that he had averred a relevant case based on breach of warranty of authority. The pursuers had averred that the defenders had impliedly warranted that they had authority to act on behalf of John Bell Cameron, the registered title holder. Were it not for that warranty, the pursuers would not have advanced funds to John M. Cameron. The relevant principles were found in Anderson v Croall & Sons Ltd, 1903, 6 F 153, per LJC Macdonald at 157, and Penn v Bristol & West Building Society, [1997] 1 WLR 1356, per Waller LJ at 1360.

[12] Two issues arise on the parties' arguments: first, whether the defenders, through their then partner, Mr Mair, owed a duty to the pursuers; and secondly, whether the defenders have pled a relevant case based on breach of warranty of authority. I will consider these issues in turn.

Duty of care to pursuers

[13] The principal authority founded on by the defenders was Gran Gelato Ltd v Richcliff (Group) Ltd, supra. In that case the plaintiff entered into negotiations for the acquisition of two underleases. In the course of the negotiations the plaintiff's solicitors asked the sellers' then solicitors whether any rights existed in the head leases which would inhibit the enjoyment of the underleases. The solicitors replied "Not to the lessor's knowledge". In fact the head leases of both properties contained break clauses which, if exercised, would terminate the underleases after five years. When the matter came to light, the plaintiffs raised an action against both the seller of the underleases and their solicitors. In relation to the latter claim, Sir Donald Nicholls

V-C held (at [1992] Ch 570) that "in normal conveyancing transactions solicitors who are acting for a seller do not in general owe to the would-be buyer a duty of care when answering inquiries before contract or the like". Three reasons were given for this conclusion. These were expressed as follows:

"The first lies in the context in which such representations are made. The context is a contract for the sale of an interest in land. The buyer is formally seeking information from the seller about the land and his title to it. The answers given by the solicitor are given on behalf of the seller. The buyer relies upon those answers as answers given on behalf of the seller, although the confidence of the buyer and his solicitors in the reliability of the answers may be increased when they see the answers have been given by a solicitor in the ordinary way. ... I venture to think that in these circumstances one would expect to find that the law provides the buyer with a remedy against the seller if the answers were given without due care. I am far from persuaded that the fair and reasonable reaction to these facts is that there ought also to be a remedy against the other party's solicitor personally.

Secondly, what one finds is that the law does indeed provide the buyer with a remedy against the seller in respect of any misrepresentation in the answers given on his behalf. As already noted, the seller himself owes a duty of care to the buyer. When, as is usual, the answers are given by the seller's solicitor, the seller will be as much liable for any carelessness of his solicitor as he would be for his own personal carelessness. They will be so liable, because in the ordinary way the solicitor has implied authority from the seller to answer on his behalf the traditional inquiries before contract made on behalf of the buyer....

Thirdly,... [it seems to me] that in the field of negligent misrepresentation caution should be exercised before the law takes the step of concluding, in any particular context, that an agent acting within the scope of his authority on behalf of a known principal, himself owes to third parties a duty of care independent of the duty of care he owes to his principal. There will be cases where it is fair, just and reasonable that there should be such a duty. But, in general, in a case where the principal himself owes a duty of care to the third party, the existence of a further duty of care, owed by the agent to the third party, is not necessary for the reasonable protection of the latter. Good reason, therefore, should exist before the law imposes a duty when the agent already owes to his principal a duty which covers the same ground and the principal is responsible to the third party for his agent's shortcomings. I do not think there is good reason for such a duty in normal conveyancing transactions".

It should be noted that the case was one where the plaintiff's solicitors had asked a specific question of the sellers' solicitors. It thus involved an allegation of negligent misrepresentation. Moreover, the Vice-Chancellor's remarks are confined to what are described as "normal conveyancing transactions", with a buyer and seller negotiating, as is usual, through solicitors. The Vice-Chancellor's formulation clearly leaves open the possibility that exceptional cases may exist where a duty of care is imposed on the solicitor acting in the transaction. I return to this question at paragraphs[20] and [22] below.

[14] Gran Gelato was cited with approval by Lord Goff of Chieveley in White v Jones, supra, at [1995] 2 AC 256. A similar result was reached in New Zealand in Primosso Holdings Ltd v Alpers, supra. In that case the plaintiffs advanced substantial sums of money to a group of trusts and companies, supposedly with a view to purchasing properties for conversion into dairy units. The group was managed by an undischarged bankrupt, and its borrowings were supported by fraudulent valuations of the properties. The plaintiffs raised an action against the solicitors who had acted for the group in the transaction. They alleged that the solicitors knew or ought to have known that the lending was made in the belief that the group was solvent; that the group did not have the means to service its borrowings; and that the interests of the plaintiffs would inevitably be defeated. The solicitors argued that they did not owe any duty of care to the plaintiffs. The Court of Appeal, reversing the judge at first instance, struck out the cause of action in negligence. Their reasoning was stated as follows (at paragraph [7]):

"If what the [plaintiffs] wished to allege was that honest but careless assistance to a deceiver is capable of founding an action in negligence, then this would be a radical extension of the law of negligence. We remark that, in a solicitor/client context, the proposition would have to be as follows: a solicitor acting for a client in a transaction has a duty of care to another party, for whom the solicitor does not act, to take reasonable steps to be satisfied that the client is not using the solicitor to facilitate the deceit of such other party. Such a rule would require every solicitor, when receiving instructions to act in any transaction, to assume that the client might be acting deceitfully and to take reasonable steps to ascertain whether or not that was the case. And, of course, the duty would not just apply to the solicitors, but to any person acting as an agent for any other person in any transaction - accountants, bankers, insurers, stockbrokers or any other manifestation of an agent. Such an extension has, in our preliminary view, considerable conceptual and practical difficulties. But we did not hear any argument in respect of such a radical extension of the law of negligence and we make no further comment upon it".

The Court of Appeal went on (at paragraphs [8]-[10]) to state that the argument for the defendants was that either the plaintiffs had to allege actual knowledge of the fraud and bring the claim in deceit or they must abandon the claim. Counsel for the plaintiffs then advised that, in the light of the preliminary exchange between the court and counsel for the defendants, she would consent to the striking out of the statement of claim provided that she could replead in deceit (fraud in Scottish terminology). The court allowed her to follow that course. The case thus supports the proposition that, in an ordinary conveyancing or security transaction, the solicitor acting for one party does not normally owe a duty of care to the other party. Nonetheless such a solicitor does owe a duty of honesty to the other party.

[15] The reasoning of the Vice-Chancellor in Gran Gelato was to some extent criticized by Hobhouse LJ in McCullagh v Lane Fox & Partners Ltd, [1996] PLNR 205. In that case Hobhouse LJ referred to the earlier decision in Punjab National Bank v de Boinville, [1992] 1 Lloyds LR 7, where it was held that the employees of underwriting firms who had been responsible for acts of nondisclosure and misrepresentation were themselves liable for those acts. The reasoning of the court in that case was that those individuals "were evidently entrusted with the whole or nearly the whole of the task which their employers undertook". Hobhouse LJ stated (at 229):

"The reasoning of the Vice Chancellor, unless it is confined to stating a special rule applicable to solicitors in conveyancing transactions, is in my judgment inconsistent with the ratio decidendi of Punjab National Bank and with the general principle of tortious liability where the person doing the relevant act is the agent of another....

With respect to the Vice Chancellor, when he says that 'where the principal himself owes a duty of care to the third party, the existence of a further duty of care, owed by the agent to the third party is not necessary', he appears to overlook that, in the relevant context, the duty in tort arises from the act of the solicitor in choosing to answer the inquiry. There is only one duty; it is the duty of the solicitor to take reasonable care in answering. The duty in tort is both created and broken by the solicitor. The tortious liability of the principal is, in this context, not for what he has himself done but is a vicarious liability for the tort of the solicitor.

There are other situations where the basis of the principal's liability is different. Thus the tortious act of the agent may have been specifically authorized by the principal; or the agent may have been innocent and the actual fault may be that of the principal, as for example where the misrepresentation by the agent was the result of his having passed on information given to the agent by the principal which the agent did not know was incorrect. In such cases there is a direct, not an imputed, liability of the principal".

Two significant points are made in the foregoing passage. First, a person who acts in a transaction as agent for a principal may in some circumstances owe a duty of care to the other party in the transaction; the mere existence of agency is not of itself a reason for excluding liability. Secondly, although such a duty is possible, it will normally only arise where the agent chooses to provide information or advice to the other party, and does so in such a way that it can reasonably be inferred that he is undertaking a duty of care in respect of such information or advice.

[16] In Scotland, two cases are relevant to this area of the law. In Midland Bank PLC v Cameron, Thom, Peterkin & Duncans, supra, the pursuers lent money to an individual, and the defenders were the firm of solicitors who acted for that individual. The pursuers averred that, in deciding to lend to the individual, they had relied upon a letter written by the defenders setting out a statement of their client's financial affairs. That statement was claimed to be inaccurate in two material respects. The pursuers further averred that they had instructed the defenders to prepare a standard security in respect of the loan and that the defenders were accordingly under a duty of care to verify the value of the security subjects. Lord Jauncey held that the defenders were under no duty of care to the pursuers. After reviewing a number of cases, he stated (at 1988 SLT 616D-F):

"From all these cases I have no hesitation in concluding, as indeed it was conceded by counsel for the defenders, that situations can arise in which a solicitor owes a duty not only to his client but to a third party who relies upon what the solicitor tells him. In my opinion four factors are relevant to the determination of the question whether in a particular case a solicitor, while acting for a client, also owes a duty of care to a third party: (1) the solicitor must assume responsibility for the advice or information furnished to the third party; (2) the solicitor must let it be known to the third party expressly or impliedly that he claims, by reason of his calling, to have the requisite skill or knowledge to give the advice or furnish the information; (3) the third party must have relied upon that advice or information as [a] matter for which the solicitor has assumed personal responsibility; and (4) the solicitor must have been aware that the third party was likely so to rely".

That formulation is based on the principle that, if a solicitor is to owe a duty of care to a person who is not his client, he must have undertaken responsibility towards that person in circumstances where it is conceivable that reliance will be placed on the information given by the solicitor. This approach goes back to Hedley Byrne & Co Ltd v Heller & Partners Ltd, supra, and in particular to the speeches of Lord Morris of Borth-y-Gest (at [1964] AC 502-503) and Lord Devlin (at [1964] AC 528-529). It was taken up in Henderson v Merrett Syndicates Ltd, [1995] 2 AC 145, where Lord Goff pointed out (at 180-181) that the concept of assumption of responsibility was frequently helpful in cases where a party has provided information or advice to or performed a service for a person without being contractually obliged to do so. In all such cases, of course, it is essential that the recipient of the information or advice or service should rely on it, and that the person providing the information, advice or service should know that the other party was likely so to rely. I should note that an approach broadly similar to Midland Bank was taken by the Court of Appeal of New Zealand in Allied Finance and Investments Ltd v Haddow & Co, supra.

[17] The second Scottish case is Bolton v Jameson & Mackay, supra. In that case a husband and wife had entered into a minute of agreement regulating the sale and disposal of the proceeds of sale of the matrimonial home. In particular, it was agreed that the house could only be sold with the prior agreement of both spouses. The parties later separated and the husband, without the wife's consent, sold the house. His solicitors, the defenders, transmitted the whole of the net free proceeds of sale to him, and he appears to have left the country, taking the funds with him. The wife then raised an action against the solicitors. It was held by the First Division that the pursuer had not made relevant averments to demonstrate that, at the time of the sale, the defenders owed her any duty of care. LP Emslie stated (at 1989 SLT 224H):

"There was no dispute about the law which fell to be applied. It was accepted rightly that the duty of care could only be required of the defenders if in all the circumstances of this case as averred by the pursuer, there could be seen to be a close and direct relationship of proximity between them and the pursuer".

[18] In that case (where the pursuer's averments were clearly hopelessly inadequate) the test of sufficient proximity was regarded as the criterion for liability. This notion was developed in a well-known passage in the speech of Lord Bridge of Harwich in Caparo Industries PLC v Dickman, [1990] 2 AC 605 (at 617H-618D):

"What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing to the duty and the party to whom it is owed a relationship characterized by the law as one of 'proximity'or 'neighbourhood' and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other. But... the concept of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognizes pragmatically as giving rise to a duty of care of a given scope. Whilst recognizing, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorization of distinct and recognizable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes".

That passage has influenced subsequent cases involving professional negligence. It clearly underlies the reasoning of the Vice Chancellor in Gran Gelato, where the view is expressed that in a normal conveyancing transaction it would not be fair and reasonable to impose on a solicitor a duty of care in favour of the party who is not his client. Moreover, the emphasis on recognizable categories of negligence is entirely in accordance with the approach taken by the New Zealand Court of Appeal in Primosso Holdings.

[19] Against the background of the foregoing cases, I am of opinion that the law relating to solicitors acting in conveyancing and security transactions may be stated with reasonable clarity. In the first place, the solicitor acting for one party in such a transaction will not normally owe any duty of care to the other party. The primary reason for this is that the solicitor is not instructed to act for that other party; he acts for his own client, and his dealings with the other party are conducted on behalf of that client. The other party will normally instruct his own solicitor to look after his own interests, and it is that solicitor who will give him such advice or make such inquiries as may be required. In these circumstances it is not generally fair or reasonable that a solicitor should be under any duty of care to the other party. That basic rule is supported by the decisions in Gran Gelato, Primosso Holdings, Midland Bank and Bolton. It is, moreover, supported by considerations of general expediency. If, for example, a solicitor acting for the seller of land knows that the prospective purchaser has submitted an offer well above any fair estimate of the market value, he is clearly under no duty to inform the purchaser; a person buying or selling land is always free to make a bad bargain, and the only people who have a duty to warn him against it are his own advisers. It would clearly place a seller's solicitor in a highly invidious position if he were to be under a similar duty of care.

[20] In the second place, an exception to the foregoing rule may occur where a solicitor acting for one party chooses to answer an inquiry made of him by the other party. In such a case, however, it is essential that, objectively speaking, the solicitor who answers the inquiry can be said to have undertaken responsibility towards the other party. Whether that requirement is satisfied will depend upon the circumstances of the particular case. If the solicitor grants some form of certificate, or appears to undertake the task on his own initiative, it may be easier to draw the inference that responsibility has been undertaken. If, by contrast, the solicitor does no more than pass on information provided by his client, and presents the information as so provided, the inference will be much more difficult. The underlying basis for the exception is explained by Hobhouse LJ in McCullagh: in choosing to answer the inquiry the solicitor creates the duty of care. Its detailed requirements are in my opinion that those set out by Lord Jauncey in Midland Bank, quoted at paragraph [16] above: the solicitor must assume responsibility for the advice or information; he must indicate expressly or impliedly that he is exercising professional skill in providing the advice or information; the other party to the transaction must rely on the advice or information as a matter for which the solicitor has assumed personal responsibility; and the solicitor must be aware that such reliance was likely (although this is perhaps implicit in the notion of assuming responsibility).

[21] In the third place, the general rule relates only to a solicitor's duty of care. 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. The foregoing approach is in my view supported by the decision of the Court of Appeal in Primosso Holdings to permit proceedings to be brought in deceit.

[22] In the fourth place, the rule that a solicitor acting for one party in a conveyancing transaction does not normally owe any duty of care to the other party is subject to exceptions; one of these is the rule discussed at paragraph [20], that if a solicitor chooses to answer an inquiry from the other party he may, if certain conditions are fulfilled, be under a duty of care. For that to occur, however, there must be something akin to an undertaking of responsibility towards the other party; that appears from the approaches taken by Hobhouse LJ in McCullagh, by Lord Jauncey in Midland Bank, and at a more general level by Lord Goff in Henderson v Merrett Syndicates Ltd. It remains possible that other exceptions exist to the normal rule. For present purposes there is no need to provide any general explanation of what such exceptions might be; instead it is sufficient to concentrate on the particular exception that is argued by the pursuers. As I understand it, the position taken by the pursuers' counsel in argument, and foreshadowed in the pleadings, is that the defenders impliedly represented, by their conduct throughout the transaction, that they had authority to act for John Bell Cameron, the registered title holder and hence owner of Balbuthie Farm. That feature is said to justify an exception from the normal rule. That leads on, however, to two further questions: what is the theoretical basis for such an exception? and why does that basis justify an exception?

[23] In my opinion that are two possible bases for such an exception. First, it might be said that the defenders'consistent conduct amounted to an implied representation that they had authority, and that this amounted to an undertaking of responsibility bringing the case within the rule discussed at paragraph [20]. That formulation immediately faces the difficulty that it is an implied representation that is relied on, albeit one that is said to be founded on a substantial course of conduct. This is not a case where the defenders said anything to the pursuers or their solicitors about their authority to act for the registered title holder. It is significant that none of the reported cases dealing with the undertaking of responsibility has involved an implied representation rather than an express representation: see, for example, Midland Bank, Henderson v Merrett Syndicates Ltd and McCullagh. A similar point clearly underlies the passage in Primosso Holdings quoted at paragraph [14] above. That is hardly surprising, because if the solicitor merely proceeds with a conveyancing or security transaction on behalf of his client it is highly unlikely that he could be taken to assume a specific responsibility towards the other party. On that ground alone, I am of opinion that this case does not involve any undertaking of responsibility. In addition, until it became apparent in January 2007 that John M. Cameron was acting dishonestly, the transaction proceeded as a normal security transaction. There was one apparent specialty: the loans were to be made to a company controlled by John M. Cameron, but the standard security was apparently granted by John Bell Cameron. This meant one of two things: either a single individual was involved but using two distinct names (which is not uncommon, and is exemplified by Atlas Appointments Ltd v Tinsley, supra), or two individuals were involved and one was giving security for the borrowings of the other (again, a frequent occurrence). What is of importance, however, is that the two names were known to the pursuers and their solicitors. Consequently it was open to the pursuers' solicitors to ask for an explanation of this feature of the transaction, but there is no indication in the pleadings that they did so. In view of the fact that the existence of two names was known to the pursuers and their solicitors, and no request for an explanation was forthcoming, it does not appear to me that it is fair and reasonable to impose a duty on the defenders to check that they were acting for the registered title holder; there is no basis for any exception.

[24] Secondly, it might be said for the pursuers that the basis for an exception in the present case is 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 rather than the knowledge of the pursuers. The fact that the matter is peculiarly within the knowledge of one party cannot, however, justify the imposition of a duty of care on that party's solicitor in favour of the other party. A solicitor may know many things about his client that the other party does not know, and there cannot be a duty to disclose all of these; many of them will be confidential. That is so even in relation to matters that are relevant to the particular transaction. For example, the solicitor may know that his client is being forced to sell the property by adverse financial circumstances, and that consequently a low price will be accepted, but it would clearly be highly improper to disclose that fact. In the present case that conclusion is strengthened by the fact, mentioned in the last paragraph, that the pursuers and their solicitors were well aware of the discrepancy in the names and took no steps to investigate matters further or to obtain any assurance from the defenders. 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.

[25] In the light of the foregoing principles, I am of opinion that the pursuers have failed to state a relevant case of negligence against the defenders. The defenders acted for John M. Cameron, the other party to the security transaction. Consequently, in the absence of special circumstances, they would not owe any duty of care to the pursuers. For the reasons set out in the last two paragraphs, I am of opinion that no such special circumstances existed. An alternative basis for the defenders' liability would be fraud, but the pursuers expressly disclaim any case based on fraud. I will accordingly dismiss the action so far as it is based on the defenders' negligence. I should add that, had it been necessary to do so, I would have held the averments based on the Money Laundering Regulations 2003 to be irrelevant. Those Regulations impose stringent regulatory requirements on solicitors and others who deal with the transfer of funds, but there is no suggestion in the Regulations that they impose any civil liability. Their function is regulatory; if there is a breach of the Regulations criminal sanctions are imposed, but such breach does not give rise to any liability in damages.

Breach of warranty of authority

[26] The principle of breach of warranty of authority has been stated as follows (Bowstead & Reynolds on Agency, 16th ed. (1996), Para 9-057, cited with approval by Waller LJ in Penn v Bristol & West Building Society, supra, at [1997] 1 WLR 1360):

"Where a person, by word or conduct, represents that he has authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first-mentioned person is deemed to warrant that the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he acted in good faith, under a mistaken belief that he had such authority".

The principle is exemplified by the facts of that case, where a solicitor was instructed to arrange the sale of a house belonging to husband and wife. The instructions came only from her husband, who intended to commit a mortgage fraud following the sale, but the solicitor mistakenly believe that he also had the authority of the wife. It was held that the solicitor was liable to the building society that provided the mortgage on the ground that he had warranted that he had authority to act for the wife in the sale of the house. The principle is illustrated in Scotland by Anderson v Croall & Sons Ltd, supra, where following a race meeting the representative of an auctioneer mistakenly sold a horse without obtaining the owner's authority; it was held that the auctioneer warranted his authority to sell and was liable to the supposed purchaser.

[27] What is significant in the formulation of the principle, however, is that the supposed agent, A, represents that he has authority to act for B in a particular transaction, with the result that the third party, C, is induced to act on that representation. Thus the representation relates to the person for whom the supposed agent purports to act. It does not relate to the capacity in which that person, the supposed principal, will enter into the transaction, or as to the property that that person holds, or as to that person's title to any property.

[28] In the present case the pursuers' averments of breach of warranty of authority are as follows:

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

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.

Disposal

[29] For the foregoing reasons I will sustain the defenders' first plea in law, which relates to the relevancy of the pursuers' averments, and dismiss the action. It may be thought that this is a hard result. I should emphasize, however, that the pursuers' case is based on the totality of the defenders' actings, and does not distinguish the situation that occurred after January 2007, when John M. Cameron confessed to acting fraudulently. If the pursuers' averments are well founded in fact, it is Mr Mair's actings after that point that are particularly open to criticism.


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