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CATHERINE NIMMO COOPER v. THE BANK OF SCOTLAND+ANDREW COOPER


OUTER HOUSE, COURT OF SESSION

[2014] CSOH 16

CA141/12

OPINION OF LORD TYRE

in the cause

CATHERINE NIMMO COOPER

Pursuer;

against

(FIRST) THE BANK OF SCOTLAND PLC; and (SECOND) ANDREW COOPER

Defenders:

________________

Pursuer: McIlvride; Harper Macleod LLP

Defender: AF Stewart QC; Anderson Strathern LLP

30 January 2014

Introduction

[1] The pursuer seeks reduction of a standard security in so far as granted by her in favour of the first defenders over her one half pro indiviso share of a dwellinghouse in Mauchline, Ayrshire ("the house"), where she has at all material times lived with her husband, Andrew Cooper. In response to a plea of "all parties not called" by the first defenders, the pursuer convened her husband as a second defender. He has not, however, entered the process and for the sake of easier reading I shall refer to him hereafter as "Mr Cooper" and to the first defenders simply as "the defenders". The debt secured by the standard security was a business debt of a company of which Mr Cooper was director and 50% shareholder. The action came before me for proof before answer. Witness statements by the pursuer and Mr Cooper were lodged; both also gave oral evidence. Further witness statements by Mr Jeffrey Halliday, a solicitor who acted for Mr and Mrs Cooper throughout the period with which this action is concerned, and by Mr John Clyde, a solicitor employed at the material time by Messrs Golds, Solicitors, Glasgow, who acted for the defenders, were lodged and agreed to be the evidence of these two witnesses respectively.

Facts not in dispute

[2] In 1994 Mr Cooper and the pursuer purchased a plot of land in Mauchline and constructed the house on it with the assistance of a building society mortgage. Their son David Cooper and his wife constructed a house on an adjacent plot. At this time Mr Cooper was a self-employed joiner and kitchen fitter and the pursuer was in full time employment as a nurse. In the course of construction of the two houses, Mr Cooper and his son discovered an artesian well within the latter's property. The water appeared to be of good quality and Mr Cooper and his son formed the view that there might be a profitable business in bottling and selling it. In 1996 they incorporated a company, Burnswell Spring (Mauchline) Limited ("Burnswell"), with Mr Cooper and his son as directors and 50% shareholders and his son as secretary. The pursuer, however, was not enthusiastic; at a time when she and her husband were approaching retirement, she did not regard it as appropriate to be taking on a new business venture.

[3] In January 2002, Mr Cooper and the pursuer accepted an offer of a loan by the defenders and repaid the existing building society loan. The amount of the loan by the defenders was £65,000, repayable over a period of 12 years at a rate (including interest) of £626.80 per month. On 16 January 2002, Mr Cooper and the pursuer granted a standard security over the house in favour of the defenders, securing "the Debtor's [i.e. their joint and several] Present and Future Debts" to the defenders. The standard security included an undertaking "...to pay and perform to the Bank the Debtor's Present and Future Obligations (including but not limited to the Debtor's Present and Future Debts) to the Bank". Incorporated into the standard security were the standard conditions specified in Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Acts 1970 and 1971, as varied by a Deed of Standard Security Conditions made by the defenders and registered in the Books of Council and Session on 31 July 1989. The latter conditions included a definition of the expression "the Debtor's Present and Future Debts" which so far as material was in the following terms:

"all Debts for which any one or more of the Named Persons is or becomes obliged to the Bank, whether solely or jointly with any other person or persons (including another one or more Named Persons), whether as principal debtor, cautioner, guarantor or surety or otherwise howsoever..."

The standard security was recorded in the Register of Sasines on 12 September 2002.

[4] At about that time Mr Cooper and his son decided, despite the pursuer's resistance, to take their water bottling business plans forward. They obtained an overdraft for Burnswell from the defenders (and a small start-up grant from the local authority) to fund the set-up costs of the company's business. They purchased equipment and began to pump and bottle water from the well. They took stalls at trade shows and attracted interest in their product. However, in order to progress the business they required an external investor. None was forthcoming and, as time went on, the amount of Burnswell's overdraft steadily increased. The defenders required Mr Cooper and his son to provide personal guarantees of Burnswell's indebtedness. Despite a number of such requests by the defenders, it appears that no personal guarantee was ever signed by David Cooper and that none was provided by Mr Cooper until January 2006. In the meantime, however, on 4 November 2003, one of the defenders' business managers sent a memorandum to their mortgage department stating , in relation to Mr Cooper and the pursuer:

"I refer to the above and would be obliged if you could note on your files that the security is not the [sic] be discharged without contacting the Relationship Manager, Mr Blair Millar... This property is looked to for Business borrowing."

[5] By the end of 2005 the company's overdraft had risen to £72,000. David Cooper resigned as a director during 2005 and Mr Cooper was becoming increasingly worried about the extent of the debt and the absence of outside investment. On 12 January 2006 Mr Cooper executed a guarantee of all debts owed from time to time by Burnswell to the defenders, subject to a maximum of £75,000 plus interest from the date of demand. Mr Cooper's signature was stated to have been witnessed by his son-in-law, Ewan Shankland, who lived nearby. It may be noted that, having regard to the conditions of the standard security granted by Mr Cooper and the pursuer, including those incorporated by the Deed of Standard Security Conditions which I have quoted, the effect of execution by Mr Cooper of this guarantee was to secure Burnswell's debt to the defenders on the house. At about this time the company ceased to carry on any trading activities. Mr Cooper executed a second guarantee in favour of the defenders, this time for a maximum sum of £80,000 plus interest, on 15 February 2007; again this was stated to have been witnessed by Ewan Shankland.

[6] During the period between 2002 and 2007, Mr Cooper continued to carry on business as a kitchen fitter, most of his work being instructed by one manufacturer. According to Mr Cooper's accounts, the pursuer was paid a salary of £3,000 during each of these years, which sum was deducted in computing his profits for tax and other purposes. The services provided by her included cleaning, laundry and answering the telephone.

[7] Towards the end of 2006, the defenders instructed Golds to act on their behalf in completing a re-mortgage of the house to Halifax plc. The reason why this re-mortgaging took place is not clear. According to the pursuer and Mr Cooper it was instigated by the defenders, by now a member of the HBOS group, because they desired for internal reasons that the lender of home loans be Halifax rather than the Bank of Scotland. For reasons explained below, I do not think that this is likely to be the true explanation. In any event, Golds wrote to Mr Cooper and the pursuer on 8 November 2006 intimating that they had been instructed to act for Halifax plc in completing the re-mortgage. Golds noted that they were not acting for the borrowers and that if the latter were unsure in any way about the transaction they should obtain separate representation. The letter stated that Golds' re-mortgage service consisted inter alia of writing to the existing mortgage lender to ascertain the outstanding balance due, and repaying it on behalf of the borrower. On 17 November 2006, Halifax plc sent a letter addressed to Mr Cooper and the pursuer at their home address setting out details of the mortgage offered. This document indicated that the amount of the new loan was £71,000 plus an arrangement fee of £199. The loan was for a period of two years and was on an interest-only basis. The monthly payments, leaving aside the arrangement fee, were stated to be £350.76, ie significantly less than was being paid under the existing mortgage because no capital was now being repaid. There was no clear evidence as to what happened at the expiry of the two-year period.

[8] On 30 November 2006, the defenders' mortgages department wrote to Golds to advise that the redemption figure for the loan obtained in 2002 was £46,214.50, increasing at £8.77 per day. The defenders also noted, however (in bold type):

"In addition - Bank of Scotland Business/Corporate Banking, [address], has a debt secured on this property. Our charge will not be released until all indebtedness to the Bank is fully repaid."

It appears from what follows that Golds overlooked this instruction.

[9] On 5 December 2006, Golds carried out the settlement of the re-mortgage on behalf of Halifax plc. Of the £71,000 new loan received, about £46,283 (less a bank charge) was paid to the defenders in accordance with their redemption statement. The balance, amounting to £24,717, was paid into a bank account in the name of Mr Cooper. Mr Cooper explained that he used this to pay off personal debts including a credit card account.

[10] On 13 December 2006, a standard security in favour of Halifax plc over the house was recorded in the Register of Sasines. This deed grants security for all money advanced by Halifax plc to "the debtor", defined as Mr Cooper and the pursuer, all obligations being undertaken jointly and severally. It bears to have been signed by Mr Cooper and by the pursuer at Mauchline on 16 November 2006 in the presence of a witness, namely their daughter Fiona Shankland. On 16 January 2007, a discharge of the standard security over the house granted to the defenders by Mr Cooper and the pursuer in 2002 was recorded in the Register of Sasines. It was executed on behalf of the defenders by a partner of Golds as an authorised attorney.

[11] On 30 November 2006, a Form 288a was lodged electronically at Companies House intimating the appointment of the pursuer as secretary of Burnswell, David Cooper having resigned. Also on 30 November 2006, a letter bearing to be signed by the pursuer was sent from her home address to the defenders, stating "Please find the enclosed share certificates and bond assigned to the bank for security". (The securities and bond are then listed.) A subsequent document entitled "Securities Pledge", pledging and assigning shares to the defenders as a continuing security for "the Secured Liabilities" bears to have been signed by the pursuer on 27 December 2006 in the presence of Fiona Shankland as witness.

[12] On 8 December 2006, the defenders' corporate department wrote to the pursuer at her home address stating that they had been advised by Burnswell that she was prepared to act as a guarantor in respect of facilities made available, or proposed to be made available, by the defenders to Burnswell. The letter referred to "an important House of Lords' decision" recommending procedures which should be adopted in transactions such as this. The defenders required written confirmation from the pursuer's solicitor that he/she had fully explained to the pursuer the nature of the documents that she was proposing to sign and the practical implications that they would have. The defenders invited the pursuer to return to them a page annexed to the letter setting out the pursuers' name, address and occupation, and the name and address of her solicitor. The page annexed to the letter was completed by hand in block capitals and sent to the defenders; there was no requirement for a signature. The pursuer's solicitor at the material time was Mr Jeffrey Halliday. He did not receive any communication from the defenders regarding the granting of a guarantee by the pursuer and accordingly did not provide her with any explanation or advice. The pursuer did not at any time execute a guarantee in the defenders' favour of Burnswell's debts.

[13] On 27 March 2007, Golds wrote to Mr Cooper and the pursuer at their home address in the following terms:

"I refer to previous correspondence regarding your recent re-mortgage from Bank of Scotland to Halifax.

The Bank of Scotland confirm that although your residential mortgage account has been transferred to Halifax plc, the Bank have a continuing requirement to hold a security over your property for business borrowings.

Accordingly, they have asked that we send you the enclosed fresh standard security for your signatures. This replaces the similar document signed by you in 2002..."

Neither the defenders' "Customer Comment Details" file nor Golds' file contains any document casting light on how the error regarding the discharge of the 2002 security came to be identified.

[14] A standard security over the house in favour of the defenders was recorded in the Register of Sasines on 26 April 2007. This deed is in terms identical to those of the 2002 standard security. It bears to have been signed by Mr Cooper and by the pursuer at Mauchline on 2 April 2007 in the presence of Fiona Shankland as witness. This is the document of which the pursuer seeks partial reduction in the present action. Burnswell's indebtedness at that time stood at just under £80,000.

[15] Time passed thereafter without any significant repayment of Burnswell's debt to the defenders. In December 2010, Mr Halliday, acting on behalf of Mr Cooper, emailed the defenders to ascertain the amount of the company's secured and guaranteed debt currently outstanding. In their response the defenders made reference to a letter of pledge from the pursuer in respect of shares and stated that although it had been agreed that the pursuer would execute guarantee documentation this had never been completed. Reference was also made to the standard security executed in April 2007. When Mr Halliday raised these matters with Mr Cooper in early 2011, he was told by Mr Cooper that the pursuer was unaware of the outstanding debt to the bank and of the pledge of shares. Mr Halliday met the pursuer and Mr Cooper on 18 February 2011 and was told that the pursuer was unaware of any guarantee or pledge, and that both were unaware of the circumstances regarding the security to the defenders. In the course of the ensuing email correspondence between Mr Halliday and the defenders, it was acknowledged by the latter that as the pursuer had signed no guarantee, the letter of pledge afforded no security in respect of Burnswell's indebtedness. The share certificates were returned to her.

[16] On 23 August 2012 the defenders served calling-up notices on Mr Cooper and the pursuer requiring payment of a principal sum of £94,360.75 plus interest from 25 June 2012. The present action was subsequently raised.

The pursuer's evidence

[17] The pursuer's evidence may be summed up as being that she had no contemporaneous knowledge of most of the events that I have set out above. She knew that Mr Cooper and her son were attempting to get the water bottling business going, but she did not know that they had formed a company or that her husband was incurring indebtedness to the defenders. She was aware that pumping and bottling activities were taking place but believed that these were being financed by grants from the local authority. She had a separate bank account, with a different bank, out of which she paid household expenses and utility bills. Mortgage payments were made out of Mr Cooper's account and he made all the decisions regarding their mortgage. She did not recall signing the standard security in favour of the defenders in 2002 but accepted that it looked like her signature. She continued to work full time until her retirement in 2006. She did not recall signing the standard security in favour of Halifax in 2006 but would not have attached much importance to it since she regarded Halifax and the defenders as one and the same. She did not know how much Halifax were lending. She knew nothing about having been appointed as the secretary of Burnswell and would have refused to act as secretary if she had been asked. She recalled signing the letter to the defenders dated 30 November 2006 with which the share certificates were enclosed but she had understood that they were being sent to the defenders for safe keeping and not as security for a debt. She had never seen the letter from the defenders dated 8 December 2006 prior to it being produced for the purposes of this action; the handwritten details on the page annexed had not been filled in by her. She had never, and would never have, agreed to grant a personal guarantee of Burnswell's indebtedness.

[18] According to the pursuer, Mr Cooper presented her with a document in early 2007 and asked her to sign it. He told her that the document related to "the mortgage" and that the payments would increase. According to the pursuer's understanding, Mr Cooper's reference to "the mortgage" was to their home loan, and the reason for the increase in the monthly payments was to pay off this loan more quickly, which she regarded as a good idea. Mr Cooper showed her only the page that she had to sign. She did not read the document before signing it. She did not sign it - or indeed any other document - in the presence of any family member as a witness. She trusted Mr Cooper and had no reason to believe that he would mislead her as to the nature of a document that he was asking her to sign. If she had known that by signing the document she was granting a security over her share of the house for the debts of Burnswell, she would not have signed it. In her evidence in chief she accepted that the signature on the 2007 standard security in favour of the defenders looked like her signature, but in cross-examination and re-examination she did not think that it was. She accepted that she had been given something to sign by her husband but thought that this was a different document. She had never seen the letter from Golds dated 27 March 2007 until it was produced for the purposes of this action. She considered that her husband had betrayed her trust by procuring her signature through misrepresentation.

Mr Cooper's evidence

[19] Mr Cooper's evidence was that he had persistently misled the pursuer with regard to the financing of Burnswell because of her disapproval of the venture. He did not tell her that the company had a large overdraft or that he had agreed to grant a personal guarantee. When his son resigned as a director and subsequently as company secretary, he submitted forms intimating the pursuer's appointment as secretary without her knowledge. When the letter from the defenders dated 8 December 2006 arrived he did not show it to the pursuer but completed the details himself and returned it to the defenders. He was trying to buy time in order to secure investment in the Burnswell business. He typed the letter to the defenders with which the pursuer's share certificates were enclosed and was aware that the defenders were seeking a pledge of the securities: this would have been a follow up to their proposal that the pursuer become a guarantor of Burnswell's indebtedness. The transfer of the mortgage from the defenders to the Halifax had been imposed upon them without a choice. Having initially asserted that the transfer had been straightforward, he accepted, when it was pointed out that the sum secured had increased from around £46,000 to around £71,000, that it had not been so straightforward but insisted that it had been at the lender's instigation. The pursuer would have been unaware that he had asked to increase their borrowing.

[20] According to Mr Cooper, when he received the letter from Golds dated 27 March 2007, he panicked. He decided that he had to get the pursuer to sign the standard security although he did not believe that she would do so if she was aware of its true effect. He presented her with the second page of the document only and told her that it related to the mortgage. Mr Cooper's recollection, after being referred to his witness statement, was that he had stated to the pursuer that the purpose of the higher monthly repayments was to pay off the mortgage more quickly. He thought that the pursuer had indeed signed this document, although he volunteered that he had forged her signature on other occasions. Having obtained her signature he took the document to his daughter, Fiona Shankland, to witness. This was in accordance with his normal practice which was to obtain the pursuer's signature on documents and then take them to a family member to sign as a witness outwith her presence.

Relevant case law

[21] In Smith v Bank of Scotland 1997 SC(HL) 111, the House of Lords extended to Scotland the development of the law which had been effected in England by Barclays Bank plc v O'Brien [1994] 1 AC 180. Lord Clyde (at 121-2) made the following observations:

"...The law already recognises, as I have sought to explain, that there may arise a duty of disclosure to a potential cautioner in certain circumstances. As a part of that same good faith which lies behind that duty it seems to me to be reasonable to accept that there should also be a duty in particular circumstances to give the potential cautioner certain advice. Thus in circumstances where the creditor should reasonably suspect that there may be factors bearing on the participation of the cautioner which might undermine the validity of the contract through his or her intimate relationship with the debtor the duty would arise and would have to be fulfilled if the creditor is not to be prevented from later enforcing the contract... This is simply a duty arising out of the good faith of the contract to give advice. It is necessary on the approach which I have suggested to deem the creditor a potential participant in any misrepresentation by the debtor...

In the first place the duty which arises on the creditor at the stage of the negotiation of the contract should only arise on the creditor if the circumstances of the case are such as to lead a reasonable man to believe that owing to the personal relationship between the debtor and the proposed cautioner the latter's consent may not be fully informed or freely given...

Secondly, if the duty arises, then it requires that the creditor should take certain steps to secure that he remains in good faith so far as the proposed transaction is concerned. Whether there has in fact been or may yet be any conduct by the debtor directed at the cautioner which might vitiate the contract is not a matter necessarily to be explored by the creditor. All that is required of him is that he should take reasonable steps to secure that in relation to the proposed contract he acts throughout in good faith. So far as the substance of those steps is concerned it seems to me that it would be sufficient for the creditor to warn the potential cautioner of the consequences of entering into the proposed cautionary obligation and to advise him or her to take independent advice..."

[22] In Braithwaite v Bank of Scotland 1999 SLT 25, it was held by the Lord Ordinary (Hamilton) that the effect of Smith v Bank of Scotland was that where the parties were cohabiting husband and wife, proof of an actionable wrong perpetrated by the husband was a prerequisite to the wife having a remedy against the bank. This was approved by the Second Division in Royal Bank of Scotland v Wilson 2004 SC 153, in which it was held that a person seeking to set aside his or her cautionary obligation (which expression for present purposes may be taken to include the obligation of a debtor under an "all sums" standard security), in addition to proving that an actionable wrong was perpetrated by the principal debtor and that the creditor was in bad faith, must show that the obligation sought to be set aside was undertaken gratuitously. In Wilson the security in question was granted in consideration of a loan to both husband and wife and the cautionary obligation arising by reason of the security being an "all sums" security could not be said to have been incurred gratuitously.

Arguments for the parties

Argument for the pursuer

[23] On behalf of the pursuer it was submitted that the facts of the case fell squarely within the principle enunciated by Lord Clyde in Smith v Bank of Scotland and that the requirements in Royal Bank of Scotland v Wilson were fulfilled. It was known to the defenders that the pursuer and Mr Cooper were cohabiting spouses. At the time when the pursuer executed the 2007 standard security in favour of the defenders she had no personal indebtedness to them; nor was it contemplated that she would do so in future. Neither the defenders nor their agents advised the pursuer of the consequences of executing the deed; nor did they advise her to take independent legal advice. They were not accordingly in good faith in terms of Smith. The evidence of the pursuer and Mr Cooper regarding the circumstances in which the security was executed should be accepted. In particular, it should be accepted that the pursuer was induced to execute the security by her husband's misrepresentation as to its purpose and his failure to explain the true consequences to her. If the effect of the security had been explained to her, it was likely, having regard to her attitude to the Burnswell business venture, that she would have refused to sign it.

[24] In response to the defenders' argument that reduction should not be granted because of the impossibility of restitutio in integrum, it was submitted that this proceeded upon a misconception. The question was whether reduction would restore the pursuer to the position in which she stood immediately prior to execution of the standard security. That question could be answered in the affirmative: the 2002 security had been discharged and there was no suggestion in the evidence that that discharge had been conditional upon execution of a fresh security. As regards the defenders' argument that it would be inequitable to grant decree because it would put the petitioner in a better position than she ought to be due to having been relieved of her obligations under the 2002 security, it was submitted that reduction should only be refused in exceptional circumstances (Grahame v Magistrates of Kirkcaldy (1882) 9R(HL) 91). In the present case there were no cogent reasons for refusing reduction. The question would arise only if the court were satisfied that there had been a breach of the defenders' duty to act in good faith and that an actionable wrong had been perpetrated by Mr Cooper. In such circumstances there were no equitable grounds for withholding the remedy of reduction.

Argument for the defenders

[25] On behalf of the defenders it was submitted that the pursuer had failed to prove all of the three elements required to succeed. It was accepted that the first element, ie that the obligation in the standard security was granted gratuitously, had been established. However, the pursuer had failed to prove that she had signed the security or, if so, that she had done so as a consequence of any misrepresentation or, if so, that she would not have signed but for the misrepresentation. Neither the pursuer nor her husband, it was submitted, should be found to have been a credible or reliable witness. In any event, the pursuer herself was not certain either that she had signed the 2007 standard security or that Mr Cooper had misrepresented to her that the effect was to enable the loan to be paid off more quickly. If her evidence that she did not read the document was accepted, it could not be said that she would not have signed it even if the defenders had done everything they could have done. In any event the pursuer had failed to prove that the defenders acted in bad faith. What was being attempted here was the rectification of an error by their agents, Golds. The mere fact that the case concerned cohabiting spouses did not of itself establish bad faith. This was not a straightforward guarantee of a husband's debt: it involved a family company of which the pursuer was secretary. The pursuer had been liable for the company's debts prior to discharge of the 2006 security. In these circumstances the defenders had no reason to be concerned that the pursuer's consent to granting security was not freely given. Not everyone would jump at the chance to get out of a commitment as a result of somebody's error.

[26] It was further submitted that reduction should be refused because restitutio in integrum was not possible. Reference was made to Gloag, Contract (2nd ed, 1929), page 539. In looking only at the position immediately before execution of the standard security, the pursuer's analysis was too narrow. In any event it would not be equitable to allow the pursuer to escape from obligations incumbent upon her by the mere chance of an error such as this. The circumstances were sufficiently exceptional to fall within the class of cases where the House of Lords in Grahame v Magistrates of Kirkcaldy had envisaged that the equitable remedy of reduction would be withheld.

Assessment of evidence

[27] If Mr Cooper's evidence is to be believed, he has freely admitted to a catalogue of dishonest acts including lying to his wife on many occasions, forging her signature on deeds, procuring signatures of witnesses who had neither seen nor heard the pursuer acknowledge her execution, and falsely submitting a return intimating her appointment as secretary of Burnswell. Nor does he appear to have been entirely truthful with Mr Halliday when matters came to light in 2011. The pursuer herself asserted that she did not read documents presented to her by her husband before signing them. Clearly the credibility and reliability of both spouses must be assessed with some care.

[28] Dealing firstly with the evidence of the pursuer, I am satisfied having observed her demeanour in the witness box that she was doing her best to tell the truth. I do not accept, as was submitted on behalf of the defenders, that she was being untruthful when she denied knowing about the financial position of Burnswell and the legal significance of the various documents which bear her signature. Counsel for the defenders made the point that the pursuer must have had to deal with documents with some precision when working as a nurse, but it was apparent to me that she was not comfortable with business documents. This was most graphically demonstrated when she agreed with certain propositions put to her under reference to a production which, it subsequently transpired, had been the wrong document. I do not find it incredible that she would have signed the various documents without reading them or that she would misunderstand, for example, that her share certificates were being sent to the bank as security for a debt rather than for safe keeping. I have no reason to reject her evidence that because she disapproved of the water bottling venture she took no interest in anything concerned with it. I accept that she was unaware that she had been appointed as company secretary. Her assertion that she never signed documents in the presence of family members was corroborated by Mr Cooper's evidence that it was his practice to obtain her signature and then take the document to a family member to be "witnessed". On certain matters, however, it is more difficult to have confidence in her reliability. Her evidence in cross-examination that she did not sign the 2007 standard security conflicted with the witness statement that she adopted in chief and appeared to be based upon being unable to recognise the document shown to her, although she did state that she had been given a piece of paper to sign which related to the mortgage. In order to assess the reliability of the pursuer's evidence on this it is necessary to assess the credibility and reliability of Mr Cooper.

[29] Bearing in mind Mr Cooper's admitted history of dishonesty in relation to execution of documents, I have considered his evidence very carefully. I am not satisfied that his evidence to the court was entirely truthful. In particular I do not accept that he believed, or continues to believe, that the re-mortgage from the defenders to Halifax took place at the instigation of the lender. The amount of the loan secured increased substantially to permit repayment of his personal debts. An arrangement fee was charged. The loan was converted to interest-only and the term reduced to two years. These latter changes would not, in my view, have been made if the re-mortgage was carried out to suit the convenience of the lender, and I do not believe that Mr Cooper thinks that it was. I do, however, accept his evidence that he kept the pursuer in the dark regarding the financial situation of Burnswell because he knew that she disapproved of the venture, and that as the debt progressively increased he became more and more desperate to conceal the problem from her. This aspect of his account receives support from the evidence of Mr Halliday regarding his conversations with the pursuer and Mr Cooper when the true position emerged in 2011. I further accept, having regard to the pressure that he had put himself under by concealing these matters from the pursuer, that Mr Cooper misled her as to the reasons for and effect of signing documents such as the pledge of securities to the defenders. I accept that he intercepted important communications, such as the letter from the defenders seeking a personal guarantee from the pursuer and the letter from Golds enclosing the 2007 standard security for signature, before they could come to the pursuer's attention. On the two factual issues critical to the pursuer's case:

· I accept Mr Cooper's evidence that he gave the pursuer a misleading explanation for seeking her signature to the 2007 standard security, namely that it would result in increased payments in order to effect an earlier repayment. It seems to me inherently more likely that he would have provided her with an explanation when seeking her signature, especially one of which she was likely to approve, than that he sought her signature with no explanation at all and that the purpose and effect occurred to her spontaneously.

· I also accept Mr Cooper's evidence that the signature on the standard security is that of the pursuer. I have already observed that she appeared to be easily confused regarding business documents and I am unable to place any weight on her evidence in cross-examination that this was not the piece of paper that Mr Cooper had asked her to sign. The legal consequences, were it the case that her signature had been forged by Mr Cooper, are not pled as this possibility emerged only at proof, and were not explored in submissions. I would, however, observe that I would have been reluctant to hold that the pursuer's case failed because she had failed to plead circumstances in which the standard security, quoad her interest, was void and not merely voidable.

Analysis: application of Smith v Bank of Scotland principle

[30] I turn now to consider whether the requirements for the application of the principle in Smith v Bank of Scotland are satisfied by the facts of the present case. I have noted that it was conceded by the defenders, correctly in my view, that the grant of the standard security by the pursuer was gratuitous. Having accepted Mr Cooper's evidence that he misrepresented to the pursuer the purpose and effect of signing the security, I find that he committed an actionable wrong and that this requirement is accordingly satisfied. I am also satisfied that the defenders were not in good faith in the Smith sense. There is no evidence that either they or their solicitors took any steps whatsoever to bring to the pursuer's attention the consequences for her of signing the standard security. The letter from Golds dated 27 March 2007 is in bland terms and conveys an impression that the execution of the security is something of a formality. It does not attempt to explain the significance for the pursuer of granting the security; nor is there any mention of her obtaining legal advice. The defenders themselves took no steps, far less reasonable steps, to warn the pursuer as a potential cautioner of the consequences of executing the standard security or to advise her to take independent advice. I do not accept the defenders' submission that there is no causal link between their failures and the execution of the security; the pursuer's evidence, which I accept, was that had it been explained to her that by executing the security she would burden her share of the house with a liability for the debts of Burnswell, she would not have signed. I therefore find that the defenders failed to act in good faith and that the requirements of Smith are met.

Analysis: restitutio in integrum and equitable nature of remedy

[31] I accept the pursuer's argument that the time to have in mind when determining whether restitutio in integrum is possible is the time immediately before execution of the standard security. The position might be otherwise if it could be shown that at that time the defenders could have rectified their error by setting aside the transactions from which they now contend that the pursuer derived a windfall benefit. The discharge of the 2002 security was not gratuitous: it was granted in consideration of repayment of the loan then outstanding. I was not referred to any authority for the proposition that an onerous discharge may be reduced on the ground of a unilateral uninduced error on the part of the creditor or his representative. Nor was it suggested that the whole 2006 transaction could have been unwound, for example on the ground of unjustified enrichment: apart from anything else, the standard security granted in favour of Halifax secured an increased loan which was used to pay off debts owed by Mr Cooper to third parties. It was not therefore contended that the pursuer could have been required by law to execute the 2007 standard security. I therefore reject the defenders' submission that reduction should not be granted because of the impossibility of restitutio in intergrum.

[32] It remains to consider whether the circumstances are such that the equitable remedy of reduction should be withheld. The defenders acknowledged that a "very cogent reason" (per Lord Watson in Grahame v Magistrates of Kirkcaldy) was required to deprive a litigant of the ordinary means of enforcing his or her legal right. In the present case the justification for refusing reduction was said to be to prevent the windfall benefit that would accrue to the pursuer if she were allowed to escape from obligations previously incumbent upon her by the mere chance of an error having been made by the defenders or their agents. In my opinion this argument adds little to the submissions regarding restitutio in integrum. I accept that there was a period (albeit unknown to the pursuer) following the execution in 2006 by Mr Cooper of a personal guarantee of Burnswell's debt when the house, including her share, was burdened with that debt. This situation came to an end when the security was discharged. I have already observed that it was not contended that there was a strongly arguable case for reduction of the discharge. That being so, it is equally arguable that refusal of reduction would operate as a windfall benefit to the defenders by relieving them of the result that would otherwise flow from their own error had they fulfilled their duty of good faith towards the pursuer by informing her of the consequences of signing the standard security and recommending to her that she obtain independent legal advice. It cannot, in my opinion, be said that there is a very cogent reason for refusing to grant the remedy of reduction to which I have found the pursuer to be entitled.

Disposal

[33] I shall sustain the pursuer's first plea-in-law, repel the defenders' pleas-in-law and grant decree of reduction in terms of the first conclusion. Questions of expenses are reserved.