FRANK HOULGATE INVESTMENT COMPANY LIMITED AGAINST BIGGART BAILLIE LLP
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2014] CSIH 79
CA25/09
Lord Menzies
Lord Malcolm
Lord McEwan
OPINION OF LORD MENZIES
in the cause
FRANK HOULGATE INVESTMENT COMPANY LIMITED
Pursuers and Respondents;
against
BIGGART BAILLIE LLP
Defenders and Reclaimers:
Pursuers and Respondents: Dewar QC, D Thomson; TC Young Wilson Terris LLP
Defenders and Reclaimers: Hanretty QC, Paterson; Simpson & Marwick
25 September 2014
Introduction
[1] John McGregor Cameron is a fraudster. He has several convictions for fraud. He persuaded the pursuers, Frank Houlgate Investment Company Limited, to invest money in a new business which he was establishing. In 2004 the pursuers invested £100,000 in this business. In 2005 Mr Cameron proposed that the pursuer should increase their investment
in the business to £500,000, and the pursuers agreed to do so, provided that Mr Cameron gave them security for the investment. Mr Cameron represented that he owned an estate in Fife called Balbuthie, and that he would grant a standard security over this estate in favour of the pursuers.
[2] John McGregor Cameron (“JMC”) did not own any interest in Balbuthie. In fact this estate belonged to a reputable businessman called John Bell Cameron, who had no connection with and had never heard of JMC. Nonetheless, JMC proceeded to grant a standard security over Balbuthie incorporating a personal bond for £300,000 in favour of the pursuers. The solicitor who prepared this security on behalf of JMC was Mr Gregor Mair, who was then a partner of the defenders. The standard security was executed by JMC, in the name of “John Bell Cameron, residing at Balbuthie Farm, Kilconquhar, Elie, Leven KY9 1EX” on 24 August 2006 and registered on 28 September 2006. The pursuers invested further sums in JMC’s new business; by 13 December 2006 they had invested a total of £280,000 in it.
[3] In the course of preparing the standard security for JMC, Mr Mair had noticed that the registered proprietor of Balbuthie was John Bell Cameron, and he expressed concerns about the ownership of the property. JMC gave different, and conflicting, explanations for this, but assured Mr Mair that he owned an interest in it. It might be thought that Mr Mair would have become suspicious as a result of these different and conflicting explanations, and would have been reluctant to approve a form 12A report for “John Bell Cameron”, and to prepare a standard security in the name of “John Bell Cameron residing at Balbuthie Farm, Kilconquhar, Elie, Leven” and to witness JMC’s signature to that document, when his client held himself out to be John McGregor Cameron residing at an address in Leeds. However, that is by way of background – the action as finally framed and presented at proof, and as argued before us, was concerned only with the events of January 2007. A much more comprehensive factual background, and a procedural history of the case, is helpfully provided by the Lord Ordinary, Lord Hodge, in his opinion dated 28 May 2013, [2013] CSOH 80.
[4] In December 2006 the pursuers agreed to provide a further £500,000 to JMC to invest in the new business. The solicitors acting for the pursuers prepared a Deed of Variation of the standard security to increase the sum secured from £300,000 to £800,000. Mr Mair prepared heads of terms for the distribution of the proceeds of sale of Balbuthie, approved the draft Deed of Variation, and witnessed JMC’s signing of both deeds on 20 December 2006. The pursuers then gave JMC £100,000 on 2 January 2007, and a further £100,000 on 30 January 2007. It is with this last payment that the present action in its final form (at proof and on appeal) is concerned.
[5] In December 2006 solicitors acting for a company unrelated to these events wrote to Mr John Bell Cameron intimating that their clients held a County Court Decree against him in relation to a hire agreement and guarantee. Mr John Bell Cameron had no involvement in such a transaction, so consulted his solicitor, Mr Weatherley of Stevenson and Marshall LLP. In due course, having learnt of the defenders’ position as agents for JMC, on 10 January 2007 Mr Weatherley sent by fax a letter to Mr Mair informing him that Mr John Bell Cameron of Balbuthie had never instructed the defenders, and stating that he had seen a credit finance agreement completed on behalf of JMC’s new company and signed by JMC. He asked Mr Mair to contact him as soon as possible to “resolve what appears to be a case of mistaken identity”.
[6] On 11 January 2007 Mr Mair emailed JMC asking him to contact him urgently. In the late afternoon of that day Mr Mair succeeded in contacting JMC, who said that he had been at a funeral and undertook to contact him on the following day. On that same day Mr Mair faxed to JMC a copy of Mr Weatherley’s letter and reported on a discussion which he had had with the solicitor for the third party. He stated in that fax:
“This is a development which concerns me greatly and I am sure you will understand the full ramifications relative to your arrangements with Frank Houlgate. It is essential that matters are clarified immediately and, in my view, it is also necessary to make Mr Houlgate and his solicitors fully aware of the position. I shall not contact them however until we have spoken again, on the understanding that you will contact me first thing tomorrow morning, Friday 12th January 2007.”
[7] What happened next is concisely set out in paragraphs [17] to [20] of the Lord Ordinary’s opinion:
“[17] JMC phoned on 12 January to say that the position with Balbuthie was "not as bad as it looks". He said that he could not discuss it on the phone but that he would sort matters out and then come to BB's offices on 16 January. Mr Mair repeated his concerns about FHI's security but agreed to discuss the matter on 16 January. Mr Mair followed up the phone call with a fax to JMC. He attached a copy of the letter of apology that he had sent to Mr Weatherley. He stated:
"I hope that this [the letter of apology] will suffice on the meantime but, as mentioned, if they do explore further, and in particular carry out a search at the Registers in relation to the Balbuthie Farm title, they will become aware immediately of the standard security granted in favour of Frank's company. This would be of extreme concern and I have to stress again the absolute importance of resolving and clarifying the issue at the earliest possible opportunity, otherwise the consequences are likely to be severe."
He stated that he would not contact Mr Weatherley before the proposed meeting with JMC on 16 January. Mr Mair gave evidence that he was not thinking about fraud at this time. But it seems to me that he knew then that JMC had deceived Mr Houlgate.
[18] JMC met Mr Mair on 16 January 2007 and confessed to the fraud. He said that he had taken advantage of the fact that he had the same name as Mr John B. Cameron, who was a significant landowner. He admitted that Mr Houlgate was not aware that the security over Balbuthie was worthless but explained that he had enjoyed a business relationship with Mr Houlgate and that he would sort out the problem. Mr Mair advised JMC to have the security discharged urgently so that reference to it was removed from the register. JMC requested Mr Mair not to tell FHI or its solicitors about the fraud. BB's file record stated:
"You are well aware that what you have done is fraudulent and you accept full responsibility for all the consequences. On the basis however that you are absolutely sure you will be able to sort matters out you requested that we do not contact A B & A Matthews at least until you have had a chance to speak to Frank."
[19] Mr Mair, although very concerned about JMC's disclosure, complied with his request in the belief that he owed his client a duty of confidentiality. Surprisingly, although he was not certain about the extent of his duty of confidentiality, he did not consult another partner in BB or seek the advice of the Law Society of Scotland (the "Law Society"). On 19 January Mr Weatherley wrote to Mr Mair to state that his client was dissatisfied with his letter of apology. He stated:
"We would, therefore, be pleased to hear from yourselves confirming that you have withdrawn from acting on behalf of John MacGregor Cameron and that this matter, clearly an attempted financial fraud and theft of identity, has been reported to SOCA."
Mr Mair received that letter on 22 January. Unfortunately, he took no such action. He faxed JMC a copy of the letter and explained that SOCA was the Serious Organised Crime Agency. He stated that it was "a matter of absolute priority" to have the standard security discharged.
[20] Thereafter, on 30 January 2007, FHI provided JMC with the £100,000 which is the subject matter of this claim.”
The issue
[8] The issue in this case is whether the defenders are liable to make reparation to the pursuers because Mr Mair knew that JMC had deceived the pursuers and granted a security in their favour over property in which he had no interest, yet continued to act on behalf of JMC, took no steps to inform the pursuers or their agents of JMC’s admitted fraud, and did nothing to prevent JMC obtaining further funds from the pursuers.
Procedural matters
[9] The Lord Ordinary held that the defenders were liable in reparation to the pursuers as an accessory to fraud because Mr Mair failed to dissociate himself from JMC’s continuing fraud by withdrawing from acting and by warning the pursuers or their solicitors that they could not rely on the invalid security. He thereby acted in furtherance of JMC’s fraud, which caused the pursuers to lose £100,000. By interlocutor dated 3 July 2013 the Lord Ordinary sustained the second and third pleas-in-law for the pursuers, repelled the pleas-in-law for the defenders, and decerned against the defenders for payment to the pursuers of the sum of £100,000, together with interest. (The pursuers’ second plea-in-law was to the effect that the pursuers, having suffered loss and damage as a result of the defenders’ furtherance of JMC’s fraud, are entitled to reparation from them therefor.)
[10] It is against that interlocutor that the defenders now reclaim. In addition to opposing the reclaiming motion, the pursuers have lodged a cross-ground of appeal, on the basis that the Lord Ordinary erred in law in failing to sustain the pursuers’ first plea-in-law, holding that it was unnecessary for him to decide the pursuers’ case based on implied representation. That cross-ground of appeal was opposed by the defenders.
[11] Both parties helpfully lodged detailed Notes of Argument in support of their positions. (It should be noted that, at the outset of the submissions for the defenders and reclaimers, it was made clear that they were not insisting on the argument about legal professional privilege and solicitors’ obligations of confidentiality in paragraph 4(v) of their grounds of appeal and in paragraphs 17 and 18 of their Note of Argument, nor the second sentence of paragraph 5 of their Note of Argument.) Because of these Notes of Argument, I do not propose to set out the competing arguments in great detail, but will instead attempt to summarise them as best I can.
Submissions for the defenders and reclaimers in relation to their own grounds of appeal
[12] It is important to note at the outset that the Lord Ordinary held (at paragraph [39] of his opinion) that Mr Mair’s liability arises not from subjective dishonesty but from his failure to come up to the objective standard of honest behaviour which the law requires. The pursuers expressly disavowed any suggestion of criminal intent on the part of Mr Mair. One cannot be jointly liable for a delict, in particular a fraud, as an accessory to it, without having the requisite dishonest intent necessary for the fraud itself. To be jointly liable for the fraud, one has to be in the fraud – there is no “rung below that”. However naively, Mr Mair believed JMC’s assurance that the matter would be resolved – he was therefore not an accessory to fraud. By January 2007 Mr Mair was aware that he had been used as a vessel for fraud in the past, but he was not aware that he would be used for a future fraud. Reference was made to Glegg on Reparation at 260/261; The Stair Memorial Encyclopaedia Volume 11, Fraud, at paragraphs 719/20 and 723/4; and Clerk and Lindsell on Torts (20th Edition) Chapter 18 (particularly paragraphs 18-06, 18-09/10, 18-18/19 and 18-23).
[13] There is no authority which supports the proposition that a person can be accessory to fraud without having the necessary mental element. On the contrary, the authorities are to the effect that a person only becomes a joint wrongdoer where he has procured the wrongdoing, or participated in a common design. An omission without dishonest intention is not enough – there must be willingness to participate in a contrivance to deceive, and actual participation. As a matter of principle, a person should not be liable in delict as an accessory unless he has by procurement, or participation in a common design, encouraged the act of the principal. Mr Mair did not participate in any fraud. There was no common design between Mr Mair and JMC to defraud the pursuers. Mr Mair did not procure or encourage JMC’s fraud. Indeed, he did what he thought was necessary to prevent another fraud. Although it was accepted by senior counsel for the defenders and reclaimers that neither Stair nor any other Scots authority suggests that it is necessary to have the same intent as the fraudster, it was necessary to look at the agreement between Mr Mair and JMC. They agreed that Mr Mair would not tell the pursuers, but (crucially) that JMC would do so. There was no common fraudulent purpose. In support of these submissions we were referred to Stair’s Institutions, I.9.5; Erskine’s Institute III.1.15; Cairns v Harry Walker 1914 SC 51; Credit Lyonnais NV v Export Credits Guarantee Department [2000] 1 AC 486 (particularly at 498-500); Cairn Energy Plc v Greenpeace Ltd 2013 SLT 570; Fish & Fish Limited v Sea Shepherd UK [2013] 1 WLR 3700; and Professor Elspeth Reid’s article “Accession to delinquence”, published in the Edinburgh Law Review, 2013, volume 17, page 388, commenting on the Lord Ordinary’s opinion in the present case.
[14] With regard to a possible duty to intervene, the pursuers’ case on the existence of a duty of care by Mr Mair to the pursuers had been rejected by the court in this action more than once. Mr Mair had no duty to warn. Any analogy with the criminal law of accession was not sound. In any event (a) Mr Mair’s conduct would not render him an accessory to fraud in criminal law (as one cannot be guilty art and part by mere presence), and (b) if he was an accessory to fraud, he was guilty of fraud himself – but that is not the pursuers’ case, and they expressly disavowed this. Reference was made to Mitchell v Glasgow City Council 2009 SC (HL) 21; McDonald’s Criminal Law page 8; and Gordons Criminal Law (3rd Edition) paragraph 5.36.
[15] The Lord Ordinary fell into error in relying (at paragraph [44] of his opinion) on the concept of bad faith. The pursuers’ case is based on Mr Mair being an accessory to fraud – which is a different concept from bad faith. Fraud requires moral delinquency, but bad faith does not – Rodger (Builders) v Fawdry 1950 SC 483 at 499. Fraud is a “machination or contrivance to deceive” (Erskine, II.668.) The pursuers accept that Mr Mair’s intentions did not coincide with those of JMC.
[16] The Lord Ordinary erred in concluding, at paragraph [46] of his opinion, that accessory liability does not impose an indeterminate liability on advisers. Such liability, or duty to speak out, has no obvious terminus. The Lord Ordinary’s determination that liability will only arise where the loss is reasonably foreseeable to the adviser itself demonstrates the indeterminate nature of the liability. Mr Mair’s involvement in the conveyancing/security transaction was completed when the Deed of Variation was executed and delivered in December 2006. An “all sums due” security may remain “live” and in force for many years. Is a solicitor or other professional adviser obliged to disclose a fraud if he becomes aware of it years after his involvement with the transaction (and perhaps with the client) has come to an end? This emphasises the indeterminate nature of such accessory liability. Moreover, language such as “foreseeability” resonates with the imposition of a duty of care, which has already been rejected by both Lord Drummond Young and Lord Glennie at earlier stages of the present action.
[17] It was accepted that Mr Mair was foolish and naïve, but that does not make him a fraudster. That is the effect of the Lord Ordinary’s decision – he is jointly liable with the fraudster, in circumstances where it is obvious that he does not meet the criteria for liability as a joint wrongdoer. There was no common design between Mr Mair and JMC – it is not suggested that Mr Mair was dishonest. He did not procure or encourage the fraud; on the contrary, he sought and accepted JMC’s assurance that something would be done to resolve matters. JMC and Mr Mair were not partners in this venture.
[18] It was submitted that it followed that the reclaiming motion should be allowed and the defenders assoilzied.
Submissions for the pursuers and respondents
(a) Answer to the defenders and reclaimers’ grounds of appeal
[19] The Lord Ordinary’s reasoning and conclusions with regard to Mr Mair’s accessory liability for JMC’s fraud were sound, and the reclaiming motion should be refused for this reason. It would be an affront if Scots law did not impose liability on the defenders in the circumstances of this case. Fairness, common sense and the law are not always happy bedfellows, but in the present case they all demand the same answer. The pursuers’ pleadings (particularly at pages 41/42 of the reclaiming print) made clear what the pursuers’ case was, namely that by 11 January 2007 Mr Mair knew that he was acting for a fraudster, and when he became aware of this he ought to have stopped acting for him and told the pursuers. Instead, he accepted JMC’s instructions not to tell the pursuers, and said nothing to them. At paragraph [41] of his opinion the Lord Ordinary found that Mr Mair had no proper basis for accepting JMC’s assurance that he would sort things out with Mr Houlgate (and the defenders and reclaimers do not challenge this finding). At paragraph [43] the Lord Ordinary observed that the transaction was designed to obtain further advances to JMC – that was the whole point of it. At paragraph [46] he observed that Mr Mair learned of JMC’s fraud when it was highly likely that the pursuers would be providing further funds on the strength of the security. His treatment of causation at paragraph [49] is not challenged by the defenders and reclaimers.
[20] There is no authority to support the proposition that in order to be an accessory to fraud one must have dishonest intent; all the authorities on joint tortfeasors relied on by the pursuers suggest that it is not necessary that they should have the same intention. In any event, it is not necessary to rely on English authorities on joint tortfeasors. Stair’s treatment of accessory liability makes it clear that anterior accession to delinquence may arise by “connivance in foreknowing and not hindering those whom they might and ought to have stopped”, “concomitant accession is when the accessory is not equally concurrent in the act, but countenances, or otherwise assists, abets, cherishes, praises or connives at the delinquence”; and posterior accession is by “…support of the delinquents in order to the delinquence”. There is no suggestion that the accessory must possess the same dishonest intent as the delinquent. Glegg states that if a solicitor has been “privy to and assisted in carrying out the fraud, he will be liable.” The modern law on joint and several liability for delict is accurately set out in Walker on Delict (2nd Edition, revised) at pages 111/112. While it is accepted that Mr Mair did not intend to defraud the pursuers, both he and JMC intended the same thing – ie that the pursuers and their solicitors would not immediately be told of the fraud, at a time when it was highly likely that more money would be paid by the pursuers to JMC. There was a common design, namely that Mr Mair should not tell the pursuers’ solicitors of the fraud.
[21] In any event, Mr Mair knew that everything he had been told by JMC was a lie. His subjective view that he could trust JMC to tell the pursuer is no defence – an objective test is required. As the Lord Ordinary observed at paragraph [44] of his opinion:
“It seems to me that the informed dispassionate observer would consider that a solicitor fell below the objective standard of honesty if he unwittingly facilitated a fraudulent transaction and failed to warn its intended victim when he discovered his client’s fraud. In other words the objective observer would consider the solicitor to be in bad faith.”
The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual; Royal Brunei Airlines v Tan [1995] 2 AC 378. The Lord Ordinary was correct in his approach to bad faith, and to hold that an objective test of dishonesty must apply.
[22] Standing the fact that there are Scottish authorities on the issue, it is neither helpful nor necessary to look at English cases on joint tortfeasors, such as Credit Lyonnais or Fish & Fish. These cases proceeded on the basis of the historical development of the criminal law of England, which was influenced by the distinction between felonies and misdemeanours. Scots criminal law has developed quite separately, and differently. Moreover, Scots civil law has never recognised the distinction between equity and considerations which apply to the law of tort.
[23] The only recent Scottish authority which has considered the question of procurement of a delict, as distinct to participation in it, was Lord Glennie’s opinion in Cairn Energy plc v Greenpeace Ltd. It was, counsel submitted, worthy of note that all the cases to which the court in that case was referred on this point were English, and the court was not referred to Stair, Glegg or Walker. Moreover, that case was authority for the proposition that “in the common design there need not be a common intent to infringe (in the case of copyright or patent infringements) or otherwise act unlawfully (tortiously or delictually). Intention to act unlawfully is irrelevant; it is sufficient that the particular course of action upon which the parties agree in the event proves to be unlawful” (page 575K/L). In the present case, it was the common design between Mr Mair and JMC that Mr Mair should not tell the pursuers that they could not rely on their standard security. That was not necessarily unlawful or delictual – but it was enough that the particular course of action upon which they agreed in the event proved to be unlawful.
[24] It was accepted for the pursuers that in the ordinary case a pure omission to intervene will not give rise to liability. However, in this case the parties were not strangers. Mr Mair was a solicitor (with all the duties and responsibilities attached to that position), and acted in this transaction on behalf of JMC. He was a party to it. His position was not akin to that of a stranger passing in the street and observing a delict but not intervening. Moreover, this was not a case of pure omission; Mr Mair acted on JMC’s instructions not to tell the pursuers or their solicitors. Reference was made to Mitchell v Glasgow City Council at paragraphs 39/40 and 76.
[25] With regard to the defenders’ argument about the indeterminate nature of the accessory liability, there was no need to consider hypothetical situations – this case should be decided on its own facts, as established after proof. Mr Mair accepted in evidence that he had left open the possibility that JMC would continue with his fraudulent scheme, that not all of the £800,000 mentioned in the variation of the standard security had been paid by the pursuers, and that the pursuers might advance further monies to him (although this was not in his mind). At a time when it was highly likely that further funds would be advanced by the pursuers to JMC, and only a few weeks after the deed of variation was executed to enable this to happen, it cannot be categorised as an indeterminate or open-ended liability. Mr Mair knew that the pursuers were the victims of JMC’s fraud, and that further sums might be advanced to him, but he left it to the fraudster to carry on. The Lord Ordinary’s reasoning and conclusion on this point at paragraph [46] of his opinion are sound.
(b) Arguments in favour of the pursuers’ cross appeal
[26] The Lord Ordinary found it unnecessary to decide the pursuers’ argument on implied representation, because he considered that a more direct analysis was that Mr Mair had to dissociate himself from the fraud and alert the pursuers to the risk of further loss if he wished to avoid liability as accessory to the fraud (paragraph [37]). He chose neither to sustain nor repel the pursuers’ first plea-in-law. However, the pursuers’ implied representation argument is sound, and provides an alternative basis for deciding the case in favour of the pursuers.
[27] The pursuers accept that Mr Mair did not assume responsibility for the accuracy of any information or statements given by JMC, and in particular that Mr Mair’s acts did not amount to a warranty of his client’s identity or title. However, Mr Mair did in fact represent to the pursuers’ solicitors that he acted on behalf of John Bell Cameron, the proprietor of the security subjects. In transactions involving the transfer of money secured by the grant of a standard security over heritable property, the lenders’ solicitor will generally proceed on the basis that his opposite number acts for the person for whom he claims to act. If the solicitor acting for the grantor of the security discovers that he has not been acting for the person whom he believed he was acting for, it is his duty to tell the lender’s solicitor.
[28] Mr Mair was giving a continuing implied representation that he was not aware of any fundamental dishonesty or fraud which might make the security transaction worthless. When he discovered that his client’s instructions were a lie, that his client had no securable title or interest in the security subjects, and that his client had defrauded the pursuers (and was in a position to continue to defraud them), he was bound to disclose that fact. By not doing so, he became part of an implied representation which he knew was not true. Lord Glennie’s analysis at an earlier stage of the present case (2012 SLT 256, particularly at paragraphs [32] and [33]) is sound. It is consistent with authority – Brownlie v Miller (1880) 7R (HL) 66, per Lord Blackburn at 70; Shankland v Robinson 1920 SC (HL) 103 per Lord Dunedin at 111; Gloag on Contract page 461.
[29] With regard to Cheshire Mortgage Corporation v Grandison 2013 SC 160, it is important to note that the solicitors in that case were unaware of any fraud – it was not suggested that they had acted in anything other than good faith, or that they had not understood that the borrowers had title to the subjects over which they granted the pretended securities (see paragraph [3]). However, the position changes when the solicitors discover the truth – then, they have a duty to correct their representation. The concept of a continuing representation is a broad one; Cramaso v Reidhaven’s Trustees [2014] UKSC 9, particularly at paragraphs 16-31. It applies in the circumstances of the present case, and this was argued before the Lord Ordinary. This argument is also consistent with the obiter observations of the Court of Appeal in Ansbacher (Henry) & Co Ltd v Binks Stern [1998] PNLR 221, in the concluding paragraph at page 236.
[30] For these reasons, the cross ground of appeal for the pursuers should be sustained, and the reclaiming motion refused on this basis.
Response for the defenders and reclaimers
[31] On the question of accessory liability, senior counsel accepted that Stair does not suggest that an accessory must have the same intent as the fraudster, and that there is no authority in Scots law which suggests this. However, in the present case JMC and Mr Mair did not share a common purpose – they agreed that Mr Mair would not tell the pursuers about JMC’s fraud, but they also agreed that JMC would do so. The pursuers’ reliance on Royal Brunei Airlines v Tan was misplaced, as that case was concerned with breach of trust, and not with the tort of deceit (in which discussions of subjective or objective dishonesty are irrelevant). With regard to the indeterminate nature of accessory liability, the conveyancing was completed when the Deed of Variation was executed: what difference does it make if the solicitor or other agent discovers the fraud weeks later, or years later? The liability is truly indeterminate.
[32] On the question of implied representation as raised in the cross appeal, there was no evidence that the pursuers’ solicitor did infer that JMC was the registered owner of Balbuthie. Moreover, the duty to correct only arises where the representation was made in order to induce a contract, and where the representation was a continuing one – Shankland v Robinson at page 111; With v O’Flanagan [1936] Ch 575, per Lord Wright MR at page 584. Neither arises here – by the time Mr Mair learned of the fraud, the standard security and variation transaction in which he was involved was complete. Further, there was no evidence that the pursuers in fact relied on the continuing representation (Stair Memorial Encyclopaedia Vol. 11 Fraud, paragraph 719), nor any evidence that Mr Mair intended to deceive the pursuers, which is essential to this ground – Clerk & Lindsell on Torts, paragraph 18-30. The cross appeal is therefore misconceived and should be refused.
Decision
[33] I consider first the argument presented for the pursuers and respondents regarding continuing representation, as contained in their cross appeal.
[34] Society expects high standards from a Scottish solicitor. Perhaps first and foremost, a solicitor is expected to have the highest standards of honesty. He (or she) is an officer of the court, and owes obligations to the client, to the court, to fellow members of the profession, and to the general public. “A solicitor requires to have the trust of his fellow solicitors, and it is a grave fault to do anything which betrays that trust. Thus a solicitor must always keep his word, even at extreme cost to himself, and must never knowingly mislead colleagues” – see generally Stair Memorial Encyclopaedia Vol. 11, Legal Profession, paragraph 1187 et seq, and particularly 1201. Historically, solicitors in Scotland have also enjoyed certain rights and privileges, such as the right to practice before the courts, and the right to draw and prepare writs relating to heritable or moveable estate, albeit under numerous exceptions – ibid paragraphs 1178-1185; Solicitors (Scotland) Act 1980 section 32 (as amended). These rights and privileges may be seen as justified by, and as correlative to, the obligations owed by the solicitor.
[35] The expectation that a solicitor will show the highest standards of honesty is neither an anachronism nor some pious expression of principle from the bench or from the leafy glades of academe: it is still the practical cornerstone of many commercial and conveyancing transactions concluded daily. Documents, deeds and monies are held as undelivered, and personal responsibility assumed. Without continuing trust in the honesty of a solicitor, many transactions would be much more protracted and expensive than they already are.
[36] Against that background of the expectations of solicitors, and the obligations incumbent on solicitors, in Scotland, I find myself easily persuaded that a solicitor acting for the recipient in a transaction which involves the transfer of money from one party to another secured by a security over heritable subjects gives a continuing implied representation to the solicitor for the transferor that he is not aware of any fundamental dishonesty or fraud which might make the security transaction worthless. To put that in the context of the present case, Mr Mair gave an implied continuing representation to the pursuers’ solicitor that he knew of no such fraud. The whole point of the Deed of Variation signed by JMC and witnessed by Mr Mair on 20 December 2006 was to provide adequate security for the further sums which the pursuers were going to transfer to JMC. Mr Mair did not have to make an express representation to the pursuers’ solicitors that he knew of no fraud or dishonesty which would render the security worthless; such a representation is implied by law, as a result of Mr Mair’s position as solicitor acting for JMC. This continuing representation subsisted for the whole of the period during which it was foreseeable that the pursuers might transfer further funds to JMC in reliance on the Deed of Variation. In the circumstances of this case, I am in no doubt that the implied representation still subsisted as at January 2007. As soon as Mr Mair learned of JMC’s fraud, because of his position as a solicitor involved in the Deed of Variation transaction, he was under an obligation immediately to tell the pursuers’ solicitor that JMC had admitted to fraud and that the standard security was worthless. This obligation is of a quite different nature to a Caparo type duty of care; it arises not as a result of any delictual duty, nor from considerations of foreseeability, proximity or others familiar in the law of delict. It arises from Mr Mair’s position as a solicitor acting for one of the parties to this transaction, and the obligation of honesty incumbent on him as a result.
[37] I am not persuaded by the submissions for the defenders in answer to the pursuers’ cross appeal. It does not seem to me that it was necessary for the pursuers to lead evidence that the pursuers’ solicitor inferred that JMC was the registered owner of Balbuthie. That is something which can be inferred from the whole evidence in the case – the pursuers were only prepared to transfer more money to JMC if he gave them security, and the whole purpose of the granting of the standard security and the Deed of Variation was to provide that security. There was no point in obtaining either from someone who had no interest whatsoever in Balbuthie. It is a statement of the obvious that the pursuers’ solicitors inferred that JMC was the registered owner of Balbuthie. The pursuers would not have provided further money to JMC if they had known that the standard security and Deed of Variation were worthless. The Lord Ordinary found (at paragraph [49]) that had Mr Mair informed the pursuers that they could not rely on the standard security, they would not have provided the £100,000 which they gave JMC on 30 January 2007. This finding is not challenged by the defenders and reclaimers.
[38] The proposition made at paragraph 18-30 of Clerk & Lindsell on Torts that a claimant in an action of deceit can only succeed if he shows not only that the statement complained of is untrue to the defendant’s knowledge, but it must in addition be made with intent to deceive is directed to a claim based on an express representation, not one implied by law such as this. In the present case, Mr Mair discovered that JMC had no title to Balbuthie, and he knew that the pursuers were intending to transfer further sums to JMC in reliance on a worthless standard security and Deed of Variation. He was under an obligation to tell the pursuers’ solicitors immediately he was aware of JMC’s fraud.
[39] These observations contain more than an echo of the comments of each of the three Lords Ordinary who have given opinions at various stages of this protracted action. When the matter came before him at debate in 2009, Lord Drummond Young observed (2010 SLT 527 at paragraph [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…. 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…”.
[40] Lord Glennie revisited this issue when the present action came before him for debate in 2011 (2012 SLT 256, at paragraphs [31] to [33]). He agreed with Lord Drummond Young’s observations, which he observed “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”. Lord Glennie went on to make the following observations:
“[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”.
[41] Lord Glennie went on to elaborate his reasoning on implied representation in the following paragraph:
“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, ie 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”.
[42] I am in complete agreement with these observations, and do not seek to improve on them here. They apply to the events which were subsequently found at proof to have occurred in the present case in January 2007. Senior counsel for the defenders and reclaimers sought to argue that when Mr Mair learned of JMC’s fraud, the transaction was no longer live, in respect that Mr Mair’s involvement in it came to an end when the Deed of Variation was signed in December 2006. I do not agree. In January 2007 I consider that the transaction was still live, because the pursuers were still unaware of JMC’s fraud, and it was likely that they would pay further sums to JMC in reliance on Mr Mair’s continuing implied representation that he knew of nothing fraudulent or dishonest which might render the security worthless.
[43] I have had the advantage of reading in draft the Opinion of Lord Malcolm. I am in complete agreement with his reasoning in relation to the pursuers’ cross ground of appeal. I am perhaps more ready than Lord Malcolm is to adopt the language and logic of a continuing implied representation, but we reach the same result by essentially the same means. We agree that Mr Mair should have alerted the pursuers’ solicitors to the fact that their client could no longer rely on the standard security in respect of any further advances, and his failure to do so is a sufficient basis for the order pronounced by the Lord Ordinary.
[44] That is sufficient to dispose of this reclaiming motion. However, in deference to the careful submissions made before us with regard to accessory liability, I should make some observations about the arguments advanced in the defenders and reclaimers’ grounds of appeal. If I am wrong in the views expressed above, I would still refuse the reclaiming motion on the basis of Mr Mair’s accession to JMC’s fraud. I do not consider that the Lord Ordinary has fallen into error in his consideration of this case. It is perhaps unnecessary for me to do more than to accept his reasoning; however, I make the following brief observations:
(1) Our law is tolerably clearly set out in the passages in Stair and Glegg referred to. There is no Scottish authority which contradicts these statements of the law. In particular, as senior counsel for the defenders and reclaimers accepted, there is no Scottish authority for the proposition that it is necessary for an accessory to have the same intent as the fraudulent principal. The Lord Ordinary’s statement (at paragraph [40]) that “in our law a person can make himself an accessory to a delict without having the mental element necessary for the commission of the delict itself” is correct.
(2) Mr Mair and JMC did share a common intention, in that they were both party to a plan that Mr Mair should not tell the pursuers about JMC’s fraud. His state of mind may not have been the same as that of JMC – he may not have had any subjective dishonest intent. (Indeed, it was accepted by the Lord Ordinary and by the pursuers that he did not have such subjective dishonest intent, and for my part I do not suggest he had). However, that is irrelevant.
(3) Mr Mair’s lack of subjective dishonest intent is irrelevant for two reasons –
(a) because honesty must be measured objectively. The Lord Ordinary held this, and he was correct to do so. The observations of the Privy Council in Royal Brunei Airlines (at page 389) may have been made in a case concerned with breach of a constructive trust, but they are of wider application. They apply in the present case.
(b) as Lord Glennie observed in Cairn Energy plc v Greenpeace Ltd (at page 575L), in the common design there need not be a common intent to act unlawfully (tortiously or delictually). Intention to act unlawfully is irrelevant; it is sufficient that the particular course of action upon which the parties agree in the event proved to be unlawful.
(4) Mr Mair’s position in the present case is not to be equated with that of the Pharisee passing on the other side of the street. He was not a stranger, nor is this a case of ‘mere’ omission (Mitchell v Glasgow City Council at paragraphs [39] and [40]). He was involved in the standard security transaction and the subsequent Deed of Variation. He prepared the relevant documents and witnessed the signature of JMC on them. He acted on the instructions of JMC; when he spoke to JMC by telephone on 12 January 2007 he agreed not to contact Mr Weatherley until he met with JMC on 16 January, and when JMC admitted his fraud to Mr Mair on 16 January he instructed Mr Mair not to contact the pursuers’ solicitors and alert them to the fraud. Mr Mair accepted these instructions and acted on them. He never told the pursuers’ solicitors about the fraud. His involvement in the transaction, and his acceptance and acting on instructions to remain silent, take this out of the normal category of a ‘mere’ omission case. They constitute a feature (or features) additional to reasonable foreseeability.
(5) I do not accept the argument advanced for the defenders and reclaimers based on the indeterminate nature of accessory liability in the present case. I agree with Lord Hodge (and Lord Glennie) that foreseeability that the pursuers will transfer further sums to JMC is a relevant factor, which limits liability. To use Lord Glennie’s terminology, the transaction was still live in January 2007. The purpose of the Deed of Variation in late December 2006 was to give security for further sums which the pursuers intended to transfer to JMC. It was reasonably foreseeable that the pursuers would pay over further sums to JMC if they were not told that the standard security and Deed of Variation were worthless.
(6) The Lord Ordinary drew an analogy with an accessory to a crime – see paragraph [43]. I think he was correct to do so. Lord Skerrington did so in Cairns v Harry Walker Ltd, and he was not criticised by the Inner House in this regard. The courts in England have adopted a different position on this issue – Credit Lyonnais at pages 498/500; Fish & Fish Ltd v Sea Shepherd UK at paragraphs 41/42. However, this may be because of a history of different development of the criminal law in England, which has distinctions which do not apply in Scotland. Lord Glennie in Cairn Energy plc v Greenpeace Ltd appears to have followed the English line, but he was not referred to any Scots authority on this point. For my part, I agree with the approach taken by Lord Hodge on this matter; I see no reason to exclude analogy with our criminal law.
(7) I consider that in accepting and acting on JMC’s instructions not to tell the pursuers of the fraud when he himself knew of it, Mr Mair became accessory to the fraud. Stair, at I.9.5 categorises accession to delinquence as “either anterior, concomitant or posterior to the delinquence itself”. The category into which the present case falls may not be too important, because it appears to me that Mr Mair’s acting on JMC’s instruction not to tell the pursuers may fall into any category – “by connivance in foreknowing, and not hindering those, whom they might and ought to have stopped…or generally in knowing and not restraining the common and known inclination of the actors towards delinquencies of that kind”, or “when the accessory connives at the delinquence” or “support of the delinquents in order to the deliquence”. To use Glegg’s language (at page 261), Mr Mair was privy to and assisted in carrying out the fraud.
[45] For these reasons, I consider that the Lord Ordinary’s conclusion that Mr Mair was liable to the pursuers as an accessory to JMC’s fraud was correct. I recognise what Professor Reid describes as the need for “a cautious steer on this point”, and I recognise the concerns expressed by Lord Malcolm. However, in the particular circumstances of this case, in which Mr Mair as a solicitor held a position of public responsibility, where he was actively involved in the transaction, when the transaction was still “live” in the sense that it was likely that the pursuers would transfer further funds if they were unaware that their security was worthless, and where Mr Mair acted on JMC’s instruction not to tell the pursuers of the fraud, I consider that accessory liability attaches to him. He was not in my view in an equivalent position to a stranger who overheard JMC plotting his scheme, nor is he in an equivalent position to a stranger with no connection to the bank and no position of responsibility to others in the queue who notices a suspicious device and fails to warn the others in the queue. While expressing no concluded view on such examples, it does not seem to me to follow from my reasoning above that accessory liability would attach in such circumstances. The facts in the present case are unusual, as evidenced by the fact that no authority was cited to us in which a court has considered similar facts. In the particular facts of this case, I consider that the Lord Ordinary was correct to hold that Mr Mair became an accessory to JMC’s fraud.
Disposal
[46] In these circumstances I consider that the reclaiming motion should be refused, and I so move your Lordships. I would adhere to the interlocutor of the Lord Ordinary dated 3 July 2013, and in addition I would sustain the first plea-in-law for the pursuers.
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2014] CSIH 79
CA25/09
Lord Menzies
Lord Malcolm
Lord McEwan
OPINION OF LORD MALCOLM
in the cause
FRANK HOULGATE INVESTMENT COMPANY LIMITED
Pursuers and Respondents;
against
BIGGART BAILLIE LLP
Defenders and Reclaimers:
Pursuers and Respondents: Dewar QC, D Thomson; TC Young Wilson Terris LLP
Defenders and Reclaimers: Hanretty QC, Paterson; Simpson & Marwick
25 September 2014
[47] In January 2007 Mr Gregor Mair, a solicitor with Biggart Baillie LLP (the defenders), discovered that his client in a security transaction was using him to commit a fraud upon Frank Houlgate Investment Company Limited (the pursuers). The issue in the present case is this: having thereafter failed to take effective steps to prevent the pursuers from sustaining further foreseeable losses as a result of the fraud, is Mr Mair (and his firm) legally responsible for this harm?
[48] The case has a long and complicated history. Various legal arguments in support of the claim have been presented, and many of them rejected. After a proof, the Lord Ordinary, Lord Hodge, found for the pursuers on the basis that Mr Mair became an accessory to the fraud. The defenders were ordered to compensate the pursuers for the loss of £100,000 forwarded after Mr Mair became aware of the fraud. They have appealed against that decision. At the outset I will summarise the relevant facts.
The facts
[49] Mr Mair’s client, John McGregor Cameron (JMC), purported to be able to grant a standard security over Balbuthie Farm in Fife. Unknown to Mr Mair, JMC did not own the farm. He was stealing the identity of the true owner (JBC). Mr Mair was instructed to liaise with the pursuers’ solicitors with a view to them obtaining security for an investment which they intended to make in a business venture of JMC’s. Mr Mair prepared a standard security over the property incorporating a personal bond for £300,000 in the name of JMC residing at Balbuthie farm. In August 2006 he witnessed his client’s signature. By December of that year the pursuers had invested £280,000 and had agreed to provide a further £500,000. Mr Mair drafted a deed of variation increasing the bond to £800,000, and on 20 December he witnessed his client’s signature.
[50] On 10 January 2007 Mr Mair received a letter from solicitors acting for the true owner of Balbuthie Farm. The letter arose out of a wholly separate matter, but it alerted him to what was said to be “a case of mistaken identity”. The next day he emailed JMC asking for clarification, stating that it would be necessary to make the pursuers and their solicitors “fully aware of the position”. Mr Mair met with his client on 16 January. JMC confessed to the fraud upon the pursuers. He had taken advantage of the similarity of his name with a significant landowner in Fife. JMC said that he enjoyed a business relationship with Mr Frank Houlgate, who is the principal of the pursuers, and that “he would sort out the problem”. Mr Mair’s file record stated:
“You are well aware that what you have done is fraudulent and you accept full responsibility for all the consequences. On the basis however that you are absolutely sure you will be able to sort matters out you requested that we do not contact AB & A Matthews at least until you have had a chance to speak to Frank.”
[51] Mr Mair complied with that request. He did not withdraw from acting. He did not consult with any of his partners, nor with the Law Society. He did not report the matter to the Serious Organised Crime Agency. He advised his client that it was “a matter of absolute priority” to have the standard security discharged. On 30 January, still in ignorance of the fraud, the pursuers invested a further £100,000.
[52] Mr Mair met JMC on 5 February and was told that his client hoped to raise money to pay off the pursuers. He was asked to “keep the lid on it” meantime. In June JMC told Mr Mair that he had reached a deal with Mr Houlgate. This was not true. Mr Mair prepared a discharge of the standard security. He sent it to JMC who forged the signatures of Mr Houlgate and Mr Houlgate’s daughter in law. Mr Mair registered the discharge.
[53] The next month Mr Houlgate read a newspaper report that JMC had been convicted in Leeds of an unrelated fraud. He learned that JMC did not own Balbuthie Farm, and that he had been stealing JBC’s identity. He has recovered nothing from JMC. In May 2009 Mr Mair was censured and fined £10,000 by the Law Society for continuing to act for JMC when aware of the fraud; for sending the discharge to JMC rather than the pursuers; and for failing to advise his firm’s money laundering officer of the fraud.
[54] The question is: did Mr Mair come under an obligation to take effective steps to prevent the pursuers from investing the further funds forwarded on 30 January 2007, for example by alerting the pursuers or their agents to the fraud? That would have prevented any further reliance by the pursuers upon the worthless standard security.
Mr Mair’s evidence and his state of mind
[55] At the proof Mr Mair was extensively cross‑examined by counsel for the pursuers. A clear picture of his thinking emerged. He took no such steps because his client instructed him not to. He thought that he remained under an obligation of confidentiality. He accepted what he was told by JMC, and believed that he would fulfil his promise to sort matters out with Mr Houlgate. The pursuers had already invested almost £300,000, and Mr Mair saw this as the only realistic method of protecting their interests.
[56] From this stage onwards Mr Mair’s acts and omissions were naive, foolish and plain wrong in almost every conceivable way. Given the fraud, there was no obligation of confidentiality. It should have been obvious that no credence could be given to his client’s promises. For a solicitor, the correct course of action ought to have been plain and obvious. It involved no onerous or difficult steps. It would have prevented the pursuers incurring further irrecoverable losses. In the witness box Mr Mair made no attempt to argue otherwise. The Lord Ordinary accepted that he was not deceitful. He neither knew nor foresaw that his inaction would result in further gains for the fraudster. The Lord Ordinary said that there was “no subjective dishonesty”. Mr Mair did not intend to harm the pursuers. He did not deliberately act in a manner which would result in further losses. On the contrary he genuinely thought that he was doing what was best for the pursuers.
[57] All of this has had a devastating effect on Mr Mair’s life and career. The Lord Ordinary commented that there is a degree of truth in his counsel’s observation that Mr Mair is another victim of JMC’s fraud.
Lord Drummond Young’s opinion
[58] At a relatively early stage, Lord Drummond Young heard a debate in the case. At that time the pursuers were seeking recovery of all of their losses, including the £280,000 forwarded in 2006. This was based upon (a) breach of a duty of care owed from the outset by Mr Mair to the pursuers, all in the Hedley Byrne/Caparo sense, and (b) breach of an implied warranty of authority to negotiate a valid standard security on behalf of the true owner of the farm. Neither case focused on the position after JMC's confession.
[59] Lord Drummond Young (2010 SLT 527) rejected those pleas and dismissed the action. However, he made certain comments which influenced the subsequent shape of the proceedings. He said that if a solicitor becomes aware of a fraud, and does anything in furtherance of it, he will be liable “as a participant in the fraud” (paragraph 21). He “must be entirely honest about the fraud in all his dealings with other parties”. As a matter of “fundamental professional integrity” he should refuse to act further in the transaction, otherwise “he becomes a party to the fraud, and is liable accordingly.”
[60] There is nothing novel or startling about these observations. If a solicitor drafts a deed which he knows is fraudulent, that is wholly inconsistent with his professional duties. As a general rule, he will be responsible for any consequential losses. He will have participated in the fraud by doing something in furtherance of it.
Lord Glennie’s opinion
[61] Lord Drummond Young’s decision was appealed. While in the Inner House, the pursuers’ pleadings were amended, and, without any discussion as to its merits, the case was remitted to the Outer House. In due course another application by the defenders for dismissal of the action was considered by Lord Glennie (2012 SLT 256). Once again the cases based upon breaches of a general duty of care and of an implied warranty of authority were rejected. As to the former, his Lordship noted the normal rule that a solicitor acting for one party does not owe a duty of care to the other party. There was nothing to suggest that Mr Mair had voluntarily undertaken or assumed personal responsibility for the accuracy of the information presented to the pursuers and their solicitors. However, this time the pursuers had an alternative case based upon recovery of only the £100,000 forwarded after Mr Mair learned of the fraud. In this regard, Lord Glennie spoke of him having to disclose the fraud to the other party, all as part of the solicitor’s “duty of honesty”. He was under an obligation to tell the pursuers that they could no longer rely on the information previously tendered in good faith, namely that JMC owned the farm.
“That is consistent with the 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” (paragraph 33).
The pursuers’ amended pleadings also set out a case characterised as knowing participation in and furtherance of JMC’s fraud. Echoing the remarks of Lord Drummond Young, Lord Glennie said that if Mr Mair had taken part in a transaction while knowing it to be fraudulent, he would be liable in damages to the victim (paragraph 39). The action was sent to proof, but only in respect of the claim for recovery of the £100,000 forwarded in January 2007. In due course the proof was heard by Lord Hodge.
Lord Hodge’s opinion
[62] Counsel for the pursuers presented two submissions to the court. The first was based on breach of an implied and continuing representation to the pursuers that Mr Mair believed he was acting for the true owner of the farm; the second on him being an accessory to the fraud. Lord Hodge was of the view that the first case might be “unnecessarily complicated”. However he upheld the second argument, [2013] CSOH 80. He noted that Mr Mair was a solicitor engaged in the offending transaction. By mid-January 2007 his knowledge of the truth “required him to dissociate himself from the fraud in which he had unwittingly become involved and which he had facilitated.” In particular he should have intimated to the pursuers that they could no longer rely upon the standard security over the farm if further sums were to be invested in JMC’s business venture (paragraph 43).
Was Mr Mair an accessory to the fraud?
[63] I will now consider the Lord Ordinary’s conclusion that Mr Mair was liable on the basis of being an accessory to the fraudulent gain of the £100,000 forwarded towards the end of January 2007. I respectfully differ from the Lord Ordinary on this. It is true that Mr Mair’s failure to alert the other side allowed JMC to break his promise to “sort things out” with Mr Houlgate. In my view, in itself, this is not sufficient to make him an accessory to the fraud. That approach would extend claims for recovery far wider than has so far been recognised. There is a body of case law south of the border to the effect that, in themselves, acts or omissions which facilitate a wrong do not create a liability in damages to the victim as a joint wrongdoer. Something in the nature of conduct in furtherance of a common design is required – in other words, concerted action to a common end. This imports a mental element of the kind which Lord Hodge considered to be unnecessary. It must be possible to describe the defender as a party to the unlawful act or scheme. Thus incitement, inducement or persuasion can be sufficient to bring home civil liability. This approach is fully discussed in the Court of Appeal’s decision in Credit Lyonnais NV v Export Credits Guarantee Department [1998] 1 Lloyd’s Rep 19. Reference can also be made to Fish & Fish Ltd v Sea Shepherd UK [2013] 1 WLR 3700. All of this was accepted and relied upon by Lord Glennie in the recent case of Cairn Energy Plc v Greenpeace Ltd 2013 SLT 570.
[64] The main proposition of counsel for the pursuers was that accessory liability can survive the Lord Ordinary’s finding that there was no subjective dishonesty on Mr Mair’s part. I disagree. That would open up liability in a wide variety of situations where a person does something which is lawful in itself, but knowing that it will facilitate a wrongful act of another. Unless there is some additional factor which suggests otherwise, sole responsibility for the wrong remains with the wrongdoer. Accessory delinquency is even more problematic in the field of liability for omissions, such as a failure to warn about another’s conduct. Suppose someone overheard JMC plotting his scheme? Would that person’s inaction create a liability in damages to the victim? To think more generally, imagine that a user of a bank cash machine notices a suspicious device designed to steal the users’ details. Does he become liable as an accessory if he fails to warn the others in the queue? In my opinion, more is needed before legal responsibility is imposed. For example, it might be important if the person involved is a bank employee who has been asked to inspect the machine, or if those in the queue are school students for whom the first person, as their teacher, is in a position of responsibility.
[65] Mr Mair (and his firm, which is vicariously liable for his wrongful acts and omissions) should not avoid legal responsibility for the £100,000, but I do not base this on secondary liability for JMC’s fraud. Mr Mair genuinely thought that he had secured a trustworthy promise from JMC to “sort things out” and restore the pursuers’ losses. He was not an accessory to what followed. He did not intend it, and he did not induce it, nor connive at it. There was no direct or sufficient link between his conduct and JMC’s breach of his undertaking.
[66] If the pursuers’ analysis is correct, it would be remarkable that counsel could cite only a passage in Stair’s Institutions and a remark of the Lord Ordinary in Cairns v Harry Walker Ltd 1914 SC 51 in support of it. Cairns is a classic example of direct participation in another party’s unlawful operation, see Lord Salvesen at pages 57/9. His Lordship said that it would not be enough merely to sell goods to someone who had said that he intended to smuggle them. However the facts of the case supported the conclusion that the merchant had become “a party to the illegal venture”. The same cannot be said of Mr Mair. Lord Hodge mentions a comment of the Lord Ordinary in Cairns to the effect that it would be enough if the merchant knew or believed that the purchaser would behave dishonestly. In my view that remark is to be seen in the context of the whole circumstances of the case. It should not be taken as widening the scope of liability in the manner suggested by counsel for the pursuers.
[67] The weight of the defenders’ argument was borne by a passage in Stair’s Institutions at 1.9.5. This was written at a time when the distinction between criminal and civil liability was less clear than it is now. Nonetheless, the bulk of the language used is consistent with the recent case law in England and Wales, for example the reference to liability based on command, instigation or connivance. The overall context is the reparation of delinquence “when many have a hand in it”, and reference is made to “the influence (the accessory) had in the delinquence” (emphasis added). A large part of the discussion is concerned with liability for injury caused by dangerous animals, which is truly an example of primary, not secondary, responsibility.
[68] To my mind it is telling that no support could be found in other institutional writers or respected authors in the field. Bankton describes accessories to a delinquency as those who have “real influence in the fact by command, advice or concurrence” (1.10.46). Erskine speaks of cases where “both concurred in the wrong” (iii.1.15). Glegg, Reparation, at pages 260/1 refers to “participation in fraud”, in the sense that “the guilty knowledge essential to fraud has also been shared”. He notes English authority that a solicitor can be liable for his client’s fraud if he assisted him in its commission. In my view it would be wrong to describe Mr Mair as having assisted JMC in his unlawful scheme. At most his silence created circumstances in which JMC could extract further monies – sometimes called “but for” causation. Perhaps a degree of caution is required when referring to texts on the criminal law, but I consider that the above approach is consistent with the treatment of accession in Macdonald’s “Criminal Law”, fifth edition, at pages 3 – 8, where the emphasis is on instigation, assistance and participation.
[69] In short, and contrary to the Lord Ordinary (paragraph 40), I am of the view that a person cannot make himself liable as an accessory to a crime without having, to some degree, the mental element necessary for commission of the wrong itself. However, I agree that the defender should compensate the pursuers for the loss of the £100,000. I now turn to my reasons for this.
What is the proper basis for recovery of the £100,000?
[70] The alternative basis for recovery proposed by the pursuers was most clearly foreshadowed in Lord Glennie’s opinion when he said that if a solicitor passed on information in good faith which he subsequently learned to be false, and in particular that his client was defrauding the other party, he should correct the information.
[71] This relatively straightforward position has been complicated by analysing the liability in terms of breach of an implied and continuing representation that the solicitor is unaware of any fraud. No doubt the matter can be approached in this manner, and if need be, I would be prepared to go down that path. However I agree with the Lord Ordinary that it is “unnecessarily complicated” (paragraph 37). And there is an artificiality in describing the correspondence and other communications leading up to mid- January 2007 as a personal representation made by Mr Mair to the pursuers on his own responsibility to the effect that JMC owns the farm. If one is going down this route, it would be better to think in terms of an implied representation that Mr Mair was unaware of any problem; but again, in my view, an element of after the fact justification is involved. It is also straining matters to speak of the pursuers relying upon a continuing implied representation.
[72] It is natural to want to fit (or squeeze) novel situations into previously recognised categories of delictual conduct. However, it may be beneficial to remember some of the comments of Professor T B Smith QC in his landmark work “A Short Commentary on the Law of Scotland” (1962). At page 655 he said:
“It has always been asserted by the leading writers in the law of Scotland that there is a general right to reparation though the fact situation cannot be allocated to any of the familiar categories, nor be vouched for by established precedent. This gives the law a desirable flexibility to meet new social conditions and unforeseen situations.”
In a later passage the author stressed that:
“It remains fundamental that there is a universal right to reparation for wrongous injury, though an instance cannot be allocated to any of the familiar categories” (page 659).
[73] In the present case there is no difficulty with either causation or the foreseeability of the damage. The issue concerns culpa (sometimes called fault). There is the additional dimension that the court is cautious about imposing liability for pure economic loss, lest the floodgates are opened to indeterminate claims by an ever-widening class of people. Culpa is an inherently vague and non-prescriptive term. Plainly the law should not be so fluid and uncertain that no one knows where they stand. (I have in mind Professor Joseph Thomson’s strictures against “a jurisprudence not of rules but of reasons” (2003) 56 Current Legal Problems at 125.) However that does not mean that there is no room for previously undiscussed categories or instances of negligence. In Donoghue v Stevenson, Lord Macmillan noted that, given the infinite variety of our relations with each other in our social and business lives, such are never closed (1932 SC(HL) 31 at 70).
[74] Culpa involves a blameable or wrongous act or omission of a kind which makes it reasonable to hold the responsible party liable in damages for all, or at least some, of the consequences. There are obvious cases, for example injuring someone by a deliberate assault, or by driving at 70mph in a built-up area. What about a solicitor in the position of Mr Mair in mid-January 2007? Does the absence of any previous assumption of responsibility on his part towards the pursuers mean that he is under no duty towards them after he discovered the fraud? Is it necessary to cast about for some previously recognised alternative categorisation, such as accessory liability, or breach of an implied representation? Might it be preferable simply to rely upon the broad concept of culpa, in the sense of a failure by a professional person to use the care and skill required in the circumstances, in a manner similar to the discussion in Hunter v Hanley (1955 SC 200) in the context of medical doctors?
[75] On any view, the confession was a significant event, and was recognised as such by Mr Mair. It would not be odd or surprising if it placed an additional burden on his shoulders, which carried the potential for legal liability towards his client’s victim. In Donoghue Lord Macmillan held the manufacturer of the ginger beer liable because he had been careless in the conduct of a business enterprise carried on for his own gain, and in a manner which foreseeably caused his product, which was intended for human consumption, to be harmful to life and health. As a result he was legally responsible for the direct consequences to a consumer. His Lordship stressed that this was on the assumption that Mr Stevenson’s conduct fell below the appropriate standard of care, and that the injury was not too remote. In the present case the actionable negligence arises because Mr Mair came to learn of the fraud and knew, or should have foreseen, that further harm to the pursuers could ensue if he did not take care to protect them. Furthermore his failure to do so, and in particular his decision to trust the fraudster to resolve matters, fell far below the standard of care reasonably to be expected of a solicitor in the circumstances in which Mr Mair found himself. The case concerns pure economic loss. Nonetheless I am of the opinion that the solicitor should be held responsible for the consequences of his failure to take proper professional care for the pursuers’ interests. I will now set out the reasons for this conclusion.
[76] At the outset of his discussion, the Lord Ordinary said:
“The issue is whether the defenders incurred a liability to make reparation to the pursuer when Mr Mair, knowing of JMC’s fraud, did nothing to prevent JMC from obtaining further funds from the pursuers.”
The three judges who considered the case in the Outer House were of the opinion that the answer to this question should be yes. In my view, an important influencing factor was that Mr Mair was executing professional duties as a solicitor. Solicitors owe a duty towards the administration of justice in the broad sense of doing right to the people within the sphere of their professional activities. They are expected to demonstrate high standards of probity and fair dealing. All professional persons owe duties beyond themselves and their clients to the wider common good. They enjoy certain privileges and benefits, but these are accompanied by wider responsibilities and expectations. It is likely that the same thinking was the source of Lord Drummond Young’s mention of “fundamental professional integrity”, and of Lord Hodge’s reference to Mr Mair’s “failure to come up to the objective standard of honest behaviour which the law requires.” His Lordship said that “we are considering inactivity by a solicitor after discovering his client’s fraud” (my emphasis). (I do not share the suggestion that Mr Mair acted in bad faith – but I do not consider that to be essential to his culpability.)
[77] The point can be tested by asking whether one has the same reaction if a layman, say the fraudster’s next door neighbour, learned of what was happening. What is expected of him or her? Intuitively we have higher expectations of a solicitor because of the position he holds. We would have similar thoughts in respect of a number of other officials, for example a policeman, a judge, or an auditor, especially if they discovered the truth in the execution of their professional duties.
[78] This leads to another aspect of the factual background which points to liability, namely that Mr Mair did not simply learn about the fraud, he discovered that he had facilitated it when acting as JMC’s solicitor. That is qualitatively different from simply knowing that someone is behaving dishonestly. Mr Mair knew that the standard security he had drafted was worthless, and that the pursuers intended to rely on it in the future in respect of further investments. Shortly beforehand he had drafted a deed of variation for this purpose. Recognising the factual differences, the case for liability is at least as strong as in Hedley Byrne. And the obligations flowing from Mr Mair’s position as a solicitor can be seen as the equivalent of a voluntary assumption of responsibility. For those who insist on concomitant reliance by the claimant, surely we all assume that a solicitor will take appropriate steps to prevent a fraud being perpetrated by his client.
[79] When Lord Glennie speaks of Mr Mair being under “a duty of honesty”, I do not understand him to be linking this to notions of accessory or secondary liability. Rather it is an autonomous and independent obligation incumbent upon the solicitor springing from the particular circumstances of the case, which include the background of the communications and information passing between the two solicitors. At any rate, that is how I would explain the concept.
[80] Some general support can be found in the fraud exception to the policy underlying a solicitor’s duty of confidentiality. Dickson observed that it must give way when otherwise it would stop detection, and one might add prevention, of a crime (Law of Evidence, third edition, paragraph 1678). It is a relatively short step to the imposition of a duty on Mr Mair to disclose the fraud once he learns of it.
Summary
[81] I reject accession to the fraud as a ground of recovery. However, once he became aware of the truth, as the solicitor involved in the transaction, Mr Mair required to take reasonable care to prevent further foreseeable losses flowing from the fraudulent transaction which he had unwittingly facilitated. That was not fulfilled by delegating the task to his fraudulent client, however plausible his promises seemed, and however genuine the acceptance of them. For a solicitor, that was careless conduct which caused foreseeable harm to the pursuers. Given the obvious risk that JMC would not mend his ways, it fell far below the standard of care expected of a professional person in the position of Mr Mair in mid-January 2007. It satisfies the test for culpa outlined earlier. To adopt more recent phraseology, given the background circumstances, including the communications between the two solicitors, the relationship between Mr Mair and the pursuers was sufficiently proximate. Furthermore, imposition of liability limited to the £100,000, is fair, just and reasonable. There is no question of Chief Justice Cardozo’s liability in an indeterminate amount for an indeterminate time to an indeterminate class.
[82] I acknowledge the assistance gained from the judgments in Mitchell v Glasgow City Council, 2009 SC(HL) 21, albeit that was a case involving personal, not economic harm. Just as a decorator entrusted with the keys of an empty house must take reasonable care to prevent the theft of its contents (see Mitchell at paragraph 57), a solicitor is expected to do the right thing when he learns that his client is a fraudster. At a minimum, Mr Mair should have alerted the pursuers’ solicitors to the fact that their client could no longer rely on the standard security in respect of any further advances. His failure to do so is, in itself, a sufficient basis for the order pronounced by the Lord Ordinary.
Outcome
[83] For these reasons I am of the opinion that the reclaiming motion should be refused. Accordingly the interlocutor of the Lord Ordinary dated 3 July 2013 ordering the defenders to make payment to the pursuers of £100,000, with interest, should be affirmed.
Postscript
[84] A debate on the relevancy of pleadings can, when appropriate, play a useful part in our system. It can save unnecessary expense. However, and with the benefit of hindsight, in the present case it might have been better to postpone all issues of law until after the proof. It will often happen that by that stage the issues differ from those assumed at the debate, yet the earlier decision can constrain both the scope of counsel’s submissions and the judicial consideration of all appropriate questions of fact and law.
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2014] CSIH 79
CA25/09
Lord Menzies
Lord Malcolm
Lord McEwan
OPINION OF LORD McEWAN
in the cause
by
FRANK HOULGATE INVESTMENT COMPANY LTD
Pursuers and Respondents;
against
BIGGART BAILLIE LLP
Defenders and Reclaimers:
Pursuers and Respondents: Dewar QC, D Thomson; TC Young Wilson Terris LLP
Defenders and Reclaimers: Hanretty QC, Paterson; Simpson & Marwick
25 September 2014
[85] I agree with your Lordships in the result and disposal. The reclaiming motion is refused and the cross reclaiming motion succeeds.
[86] Since the court is not unanimous about the legal basis for the second plea-in-law I wish to add a few words of my own on some specific issues. The judge in the Commercial Court has fully set out the facts and we were not asked in any detailed way to revisit them. It is a story as old as time; a tale of three men one an honest businessman, the second a crook and the third a respectable solicitor. The crook is a self-confessed fraudster who has duped both the others. He is now in prison. The businessman has lost a lot of money. The solicitor has lost everything including his profession and his good name. One fatal error of judgement has resulted in a lifetime of regret.
[87] The critical facts all arose within a narrow window in January 2007 when Mr Mair met with his client Cameron as well as speaking to him on the telephone. From the transcript which I have read and the admitted findings in fact, it is quite clear that the solicitor then knew that his client was a fraudster and that the fraud lay in taking money from Houlgate on the false pretence of giving him an ever-increasing-in-value heritable security over a farm. He had no power or title to grant one having stolen the identity of the true owner of the farm. Until that time the solicitor’s actions had produced the worthless security; and thereafter by keeping silent he was actively involved in the circumstances which led to the final foreseeable loan of money. Mr Mair may not have known when or if further sums would be advanced but that is nothing to the point.
[88] What he did was to believe in his client in the face of an admission of fraud. He continued to act for him and in an irregular way secured the discharge of the worthless security. He did not properly or forcefully tell his partners, seek their advice or that of the Law Society. He did not tell the money laundering reporting officer in his firm. What in my view he should have done at the least was, first to stop acting for his client and tell his partners why, second to advise the other solicitors A.B. & A. Matthews of that, the reason for it and that the security too was a fraud and worthless. Whether he had a duty at that point to do more and to tell Houlgate directly is a moot point and I do not think that needs to be decided. In my view the fraud of the client relieves the solicitor of any duty of confidentiality. By behaving as he did in my opinion Mr Mair made himself an accessory to the continuing fraud. That sounds in delictual liability.
[89] Junior counsel for the reclaimer took us in detail to a number of English cases about equity, fraud and deceit. His analysis could not be faulted and was most helpful. Equally helpful and persuasive was Mr Thomson’s argument the other way. I do not need or wish to analyse these authorities and for the purposes of the Scots law of delict I consider there are great dangers in trying to add into our rules English principles of equity. In the course of the debate it was said that there was no authority in Scots law for finding accessory liability. If this is so then in my opinion it is time that we made one, and I think that the answer lies in our greatest institutional writer Viscount Stair, himself a lover of equity (see 1.1.6). In my view what happened here is clearly covered by the passage from Stair’s Institutions 1.9.5 about accessory liability. He refers to “anterior” accession. One act of delinquency is enough. There has to be ‘connivance in foreknowing and not hindering’. For “concomitant” liability ‘countenancing and conniving’ is enough. For “posterior” liability ‘support’ is enough. In my view all of these descriptions fit what happened in January and onwards into the summer when the security was discharged. In my opinion, properly read, the pleadings give fair notice of such a case. I accordingly agree with Lord Hodge and your Lordship in the chair on this point. With the greatest of respect to him I regret I find I disagree with Lord Malcolm. It is important to note here that what was done was done by a solicitor who is a special person, afforded many privileges and correspondingly bound by many duties. I do not think that deciding the case this way opens any “floodgates”. We are only concerned with the case before us, not other hypothetical cases.
[90] In the course of the debate Lord Malcolm referred to a textbook “A Short Commentary on the Law of Scotland” (published 1962) by T.B Smith page 651. In my view he was right to do so. The book is now old but in my opinion remains a very useful exposition on principle written by an author who was a most distinguished professor and teacher. I refer in particular in the chapter on Reparation to what he quotes from Guthrie Smith on Reparation (1864 edn) page 59. That statement of principle shows how on the facts it is right and proper to find that liability exists here.
[91] I agree that the cross appeal succeeds and that the first plea-in-law must be upheld for either the reasons given by Lord Malcolm or your Lordship in the chair. I would observe that we were not asked to consider Hunter v Hanley and liability on that basis is more usual after full evidence. I am left wondering whether such a full hearing might have assisted Mr Mair.
[92] The final matter concerns the actions of the Law Society. Action was taken against Mr Mair but not quite on the point we have to consider. Thus interest was mainly confined to the later dealings with the worthless security and continuing to act. I am truly sorry for Mr Mair. The judgment of the Tribunal on an agreed plea showed little mercy and was no doubt intended as a message to the profession. I have little doubt that but for an eloquent plea in mitigation by Mr Macreath an even more severe penalty would have been imposed. It is also worth noting that the Tribunal were very critical of the firm.