BRISTOL & WEST BUILDING SOCIETY v. MESSRS AITKEN NAIRN, W.S.
SECOND DIVISION, INNER HOUSE, COURT OF SESSION
| Lord Justice Clerk Lord Penrose Lord Cowie | 0164/6/1994 OPINION OF THE COURT delivered by LORD PENROSE in RECLAIMING MOTION in the cause BRISTOL & WEST BUILDING SOCIETY Pursuers and Reclaimers; against MESSRS. AITKEN NAIRN, W.S. Defenders and Respondents: _______ |
Act: H.H. Campbell, Q.C., Ivey; Murray Beith & Murray, W.S. (Pursuers and Reclaimers)
Alt: Clark, Q.C., A. Young; Aitken Nairn, W.S. (Defenders and Respondents)
7 July 1999
The pursuers and reclaimers seek recall of an interlocutor of Temporary Judge Coutts dated 24 March, 1998, by which he dismissed the action. The pursuers contend that proof before answer of parties' averments should be allowed.
The Temporary Judge was, understandably, critical of the prolixity of the pursuers' averments which perhaps confuse rather than clarify some of the issues which arise. But it is possible to extract from the pleadings the central features of the case which the pursuers seek to make. They are a building society. They were approached by Mr Gerald Newell and requested to provide loan facilities to him. Mr Newall told them that he owned Freswick Castle in Caithness and that he held a barony title with the castle. He disclosed that he had an existing mortgage provided by National Westminster Bank. He disclosed that he was subject to an inhibition at their instance. He sought a loan of £488,975 to be secured over his interest in the castle. The reclaimers investigated the value of the subjects and were advised that, including the barony title, which was said in the survey report to be of particular rarity, the subjects were worth £650,000, subject to a retention of £150,000 for essential repairs and completion of refurbishment works.
The pursuers aver that they were advised that the defenders at the material time acted for Mr Newell. They aver that the defenders acted in a then current litigation involving Mr Newell's claim to the barony title (subsequently reported: Spencer-Thomas of Buquhollie v. Newell 1992 S.L.T. 973). They aver that the defenders knew the state of the title to Freswick Castle and surrounding land under which Mr Newell held the dominium directum of thirty-six square feet of ground at the centre of which lay the principal hearth stone of the castle, and he and his wife owned pro indiviso the remainder of the subjects. On 5 October, 1990, the pursuers offered Mr Newell a loan of £488,975, subject to retention of £150,000. Mr Newell accepted the offer. The pursuers proceeded to instruct the defenders to act for them in the loan transaction. The defenders accepted the instructions. The instructions sent by the pursuers to the defenders comprised a copy of the offer of advance made to Mr Newell, the pursuers' standard form "Solicitors Instructions (Scotland)", and a blank form entitled "Solicitors Report on Title and Request for Advance Cheque".
The offer of advance form was addressed to Mr Newell. It identified Mr Ainslie Nairn of the defenders as the pursuers' solicitor. The offer was conditional. In particular it was conditional on the information in the application form being correct, Mr Newell accepting the terms and conditions set out in the pursuers' form of mortgage, and on the title of the proposed security being acceptable to the pursuers' solicitors. It identified the "Property" to which it related as "Feudal Castle Freswick Castle Freswick Caithness KW1 4XX". In a box marked "Purchase Price" there was an entry "Already owned".
The pursuers aver that the defenders proceeded to draft a number of dispositions which altered the title to the castle. They state: "The effect of the dispositions was to create a mid superiority leaving Newell the sole proprietor of the dominium utile of the castle with the barony title being separated and held in the superiority in name of Mrs Newell, Newell's wife. The pursuers did not know and the defenders did not tell them of the alteration of the title or of its effect. The defenders proceeded to draw a standard security over Newell's remaining interest in the subjects, viz in the dominium utile of the castle. The subjects secured did not include the barony title. The pursuers were not advised of this. By altering the title to include the barony in the mid-superiority the defenders acted to the prejudice of the pursuers. It was or ought to have been obvious to the defenders that, by so doing, they were diminishing the extent and value of the subjects over which the pursuers were seeking security..." The pursuers further aver that, if they had been advised by the defenders of the change in title, that would have led to the transaction not proceeding.
Independently of the title question the pursuers complain that the defenders failed to disclose information about Mr Newell's financial position which was known to them. They aver that Mr Newell was in a precarious financial position and was being pressed for payment by creditors. In addition to the inhibition laid on at the instance of National Westminster Bank, there were two other inhibitions on the personal registers against Mr Newell. These were known to the defenders and not disclosed. Had they been made aware of Mr Newell's financial position that also would have led to the transaction not proceeding. In essence therefore the position of the pursuers is the same on each aspect of the case. Had they been informed of the material facts, the transaction would not have proceeded. It did, and they suffered loss, because following Mr Newell's default, the subjects did not realise a sum sufficient to repay the loan and accrued interest.
The pursuers aver that the loss suffered was caused by the defenders' breach of contract. The averments are as follows: "Paragraph 2 of the said Solicitors' Instructions (Scotland) provided for matters which must be reported to the pursuers. The said paragraph provided that "any matters which might prejudice the society's security or which are at variance with the offer of advance should be notified to the Society in writing immediately they become known. Examples of such matters are ... a title which is defective in any way ... and unsatisfactory entries in any search ... In these circumstances completion of the transaction should not be arranged until the Society has indicated its willingness to proceed." At the time of requesting the advance cheque the defenders were obliged to provide the pursuers with a report on title. The report on title inter alia was to confirm that the details of the transaction accorded exactly with the particulars in the offer of advance and the requirements of the Solicitors Instructions. By report on title dated 22nd October 1990 the defenders gave such confirmation. Unknown to the pursuers, as above set forth, the defenders had altered the titles so that the title over which their security had been drawn did not include the barony. In addition, unknown to the pursuers, searches in the registers revealed that Newell had very numerous notices and letters of inhibition granted against him by the Midland Bank on 20th July 1989, Messrs Maclay Murray & Spens, Solicitors on 14th February 1990 and by the National Westminster Bank on 12th June 1990. The said inhibitions related to debts for substantial sums due by Newell. Approximately £11,500 was owed to the Midland Bank. The sum due to the National Westminster Bank was, so the pursuers believe and aver, approaching £400,000. The sum due to Maclay Murray & Spens was in the region of £12,700. It is believed that decree for payment in respect of some of these claims existed at the time. By letter dated 15th October 1990 the defenders wrote to Newell confirming that the National Westminster Bank held a "court order with expenses" and also advising him that they hoped that the said Bank would settle their claim for £200,000. None of said creditors were paid off prior to the loan being advanced to Newell. The defenders, both from their instructions and receipt of the Searches and from their general knowledge of Newell's affairs, were well aware of this. They all along knew that Newell was in an extremely precarious financial position. They did not advise the pursuers in terms of their instructions of the adverse entries disclosed by the Searches which were obviously, and which would have been accepted by any reasonably competent solicitor exercising professional care and skill to be, matters which might prejudice the pursuers' security. The defenders failed to comply with said instructions in respect (a) that they did not inform the pursuers of the series of transactions in terms of which the interest of Newell in the subjects was materially altered and (b) that they did not report to the pursuers on the nature and terms of the adverse entries disclosed by the Searches which were obviously, and which would have been accepted by any reasonably competent Solicitor exercising professional care and skill to be, matters which might prejudice the pursuers' security. In each respect they were in breach of the express terms of their instructions. Further and in any event they were under an implied duty, by their acceptance of instructions to act for the pursuers in said transaction, to take such care as would be taken by a competent solicitor exercising proper professional care and skill, to protect and promote their clients' interest in the transaction, and not to act in such a way as to prejudice such interests. In the event that they became aware of matters which might, if disclosed be material to an evaluation by their clients of the merits of the transaction, it was their duty to disclose it or else forthwith withdraw from acting. Had they declined to act for the pursuers the pursuers would have instructed other solicitors to act for them. Those other solicitors would have reported to the pursuers both the series of transactions and the effect thereof (if the defenders had already carried them out) or the need to include Mrs Newell in any security documents (if the defenders had not yet executed the series of transactions)..."
In support of the reclaiming motion junior counsel for the pursuers advanced five arguments:
1.In the circumstances averred, the instructions to the defenders were clear to the effect that the barony title was to be included in the security subjects, and that the security sought was not over the dominium utile only of the castle. There were relevant averments of breach of an express term of the contract. Proof before answer should be allowed.
2.Alternatively, in the circumstances the court could not conclude without enquiry that the security required was to be taken solely over the dominium utile of the castle. At best for the defenders the position was unclear. The allegation of breach of an express term of the contract could not be disregarded and dismissed without proof.
3.There were sufficiently specific and relevant averments of circumstances which might have indicated a conflict of interests. The defenders had information about the security subjects which ought to have been disclosed to the pursuers: Bank of East Asia v Shepherd & Wedderburn 1995 S.C. 255. The defenders had a duty either to disclose the information they had or to refrain from acting on the pursuers' instructions.
4.In relation to the personal registers there were specific instructions to report unsatisfactory entries found in any search. Failure to report was prima facie a breach of an express provision of the contract.
5.The court could not without enquiry reach a decision whether or not any losses flowing from breach of that term were de minimis.
The first argument was developed on the premise that the appropriate interpretation of the entries in the offer of advance was that the security was to be taken over Freswick Castle a "feudal castle" "as already owned" by Mr. Newell. Mr Newell had held himself out to the pursuers as the owner of the whole subjects including the barony title. The description in the form could not be considered otherwise than in the context of the title as it stood. As it stood, the title did include the barony. It was inherent in the title to the thirty-six square feet including the principal hearth stone of the castle. It was not open to the defenders to assume that the barony title could be excluded, or that that title played no part in the pursuers' thinking. This was not an ordinary domestic conveyancing transaction: it was a castle that was in mind. The pursuers had been told by the borrower that he owned the castle and the barony. That was the information on the basis of which they made the offer. As it turned out, Mr Newell's title was not comprehensive. He had a pro indiviso title only to part of the subjects. The instructions could not be implemented without involving Mrs Newell's interest. But on any view of the description of the property the barony title had to be included. The security was to be taken over the heritable subjects, not the bricks and mortar of the building. If those instructions were to be departed from that was a matter which had to be reported to the pursuers.
In developing the second submission, it was argued that if the position were not clear on a reading of the description, one could not be in a position in which the barony title could be ignored and an assumption made that a security over the dominium utile would suffice. That involved an illegitimate quantum leap. On this branch of the argument proof before answer was again appropriate.
The third argument had to be considered in the context of the desperate rush to settlement required to deal with Mr Newell's financial position which could not accommodate any delay in settlement. As it stood, his title could not support the security required for the transaction. Mrs Newell was an interested party. The defenders could not carry out their instructions from the pursuers. They knew that one approach would have been to return to the pursuers and to seek fresh instructions to include Mrs Newell's interest in the subjects. They accepted Mr Newell's instructions that that should not be done. From then on there was a clear conflict of interest. The defenders had a choice, either to refuse to act for the pursuers, or to inform the pursuers immediately the problem came to be appreciated and to seek their instructions. The duty to inform the pursuers was a continuing duty from the inception of the transaction to the point of release of the advance. They did neither. Rather they carried out the series of transactions which altered the titles and told the pursuers nothing about it. Had the position been disclosed there would not have been a quick solution to the problem. There would not have been an easy solution at all. Reference was made to Begg on Law Agents second edition page 337, Rule 3 of the Solicitors (Scotland) Practice Rules 1986; Stewart v McMcClure Naismith Brodie & Macfarlane (1886), 13 R 1062, and the Bank of East Asia.
The fourth and fifth propositions were clear and followed from the instructions.
Junior counsel for the defenders argued that the reclaiming motion should be refused. In summary he contended:
1.The pursuers did not aver that a reasonably competent solicitor would have understood from the instructions given that the barony title was to be included in the security, nor, alternatively, that a reasonably competent solicitor would have called for clarification of the instructions. The defenders were not under a contractual duty to report the series of conveyances since they had no reason to believe that the security, as they reasonably understood the position, was being prejudiced or diminished in any way. In any event on a proper interpretation of the instructions, the defenders were not instructed to obtain a security over the barony title, or over the land held on the barony title.
2.In circumstances in which the defenders knew that the outstanding inhibitions were to be discharged at settlement, there was no express contractual duty to report to the pursuers that they existed. There were no averments that the defenders knew or ought to have known that the pursuers were ignorant of the inhibitions or that the defenders ought to have known that the existence of an inhibition would be material to the pursuers' lending decision.
These were expanded. The pursuers' case was based on contract alone. There was no averment of failure to carry out an instruction to create a security over the subjects including the barony title. Nor was there an averment that any reasonably competent solicitor would have appreciated that the instructions were to create such a security. Nor were there any averments of ambiguity. The sole basis for the case was a failure to report after the event what they had done. But there was a prior question which was material, and that was the scope of the instructions given to the solicitors. It was essential to examine the instructions: Midland Bank v Hett, Stubbs & Kemp [1979] 1 Ch 384; Midland Bank plc v Cameron Thom Peterkin & Duncans 1988 S.L.T. 611 Bristol & West Building Society v May May & Merrimans [1996] 2 All E.R. 801 and Bown v Gould & Swayne [1996] P.N.L.R. 130. On the pleadings the defenders were not blamed for the manner in which they carried out their instructions. In those circumstances one had to approach the case that was averred on the basis that the pursuers accept that what was done fell within the instructions they gave to the defenders as the defenders understood them. The crucial question was whether the standard security which was obtained was at variance with what was mentioned in the instructions. The defenders' actions were clearly within their instructions. The reference to a "feudal" castle simply indicated that the castle was held feudally. Since there was a range of possible feudal interests that might have been said to have been ambiguous. The pursuers might have made such a case but had not done so. There was little to be gained from the description of the property as "already owned". There was no reference to the barony title at all. The report on title merely referred to the title as feudal. There was nothing to alert the solicitor to the risk that the barony title might be regarded as a special feature, nor any reference to the financial circumstances of the borrower. There were no averments that the defenders were given a copy of the valuation report, nor that they were advised by the pursuers or anyone else that the barony title was to be included. It was averred that the solicitor knew that there was a barony title, but it was a major leap to say that therefore he knew that the pursuers would have taken it into account. Factual averments would be required to support that proposition. What the instructions meant was a matter of law: evidence would not assist. There were no averments of practice which might call for evidence. The pursuers had a strictly limited case. It was irrelevant.
In relation to the second general submission, it was necessary to have regard to the facts. The pursuers knew of the National Westminster inhibition. They had carried out a limited financial investigation. Properly construed there was no express instruction to notify the pursuers of an inhibition in the circumstances. The general duty was set out in Bank of East Asia. The solicitor had to be in possession of information of which he knew the client to be ignorant. And the information must point to the security being of no value or of significantly less value than thought. There were no averments that the defenders knew that the pursuers were ignorant of the existence of the two minor inhibitions, nor that the defenders should have appreciated that knowledge of these would have affected the value of the subjects. English decisions were to the same effect: Mortgate Express Ltd v Bowerman & Partners [1996] 2 All E.R. 836; and National Home Loan Corp plc v Giffen Couch & Archer [1997] 3 All E.R. 808; and Birmingham Midshires Services Ltd v David Parry & Company [1998] P.N. & L. 249. There was no general duty on a solicitor to verify the value of a security or to deal with the financial status of the borrower. Any such duty had to derive from the instructions given and from the particular circumstances of the case. It was necessary to have regard to the practicalities of the matter. So far as concerned the sufficiency of the security, the lender normally relied on an independent professional valuation. Also the solicitor would normally know about or be shown the valuation report. The personal covenant of the borrower was normally investigated by the lender himself. And the solicitor would not normally know how the lender has informed himself of the borrower's financial position or what information he had. The position of the solicitor will be more difficult. In the present case the solicitor was obliged to carry out searches. But he was not obliged to report on the borrower's financial position. If the solicitor knew that any inhibition was to be discharged, he had no obligation to report it: in those circumstances it would not prejudice the lender's position. There was no basis for the case founded on an implied term to report. There were no averments that the solicitor knew Mr Newell's financial position nor that they would have understood that the pursuers would not know of the inhibitions.
Senior counsel for the pursuers accepted that the starting point in any discussion of the pursuers' case was the instructions issued by them to the defenders. He accepted that solicitors acting for lenders did not have a general duty to verify value. The ambit of their duty had to be found in their instructions. But there was a general duty to disclose where potential prejudice was likely to arise. He accepted generally what was said in Bank of East Asia; Mortgage Express and National Home Loans. However, there were doubts about the view that it was a pre-requisite of liability that the solicitor ought reasonably to have expected that the client would wish to be informed of the material fact, and that the client was ignorant of it. That would involve the court in the very difficult exercise of trying to second guess the defenders' knowledge. Where, as here, there was an express instruction to report, it was not open to the defenders to require averments simply as a matter of form. Both parties accepted that subject to the single issue mentioned, a duty might arise if in the course of a solicitor's investigations matters turned up which might have a bearing on the value of the security. The pursuers' averments about the title and the transactions affecting it provided the factual background against which the duties averred had to be tested. If there had been due reporting there would have been no advance: the transaction would have collapsed. If there were a problem there should have been a report. There was no report. That was a breach of duty. What they did was at their risk. It was both prejudicial to the pursuers' security and at variance with their instructions. The defenders' response, that the pursuers obtained what they wanted, namely a security over the dominium utile, was simply wrong. The offer of advance referred to a "feudal castle". On any view the first question was what was the property referred to. Mr Nairn knew, because of his involvement in the on-going litigation, both that Mr Newell did not own the whole of the subjects, and that it was claimed that what he did own included the barony title. The defenders' position was bizarre. They contended that the obvious construction of the offer was that the security was to be over the dominium utile which at the time did not exist as a separate interest in the subjects, and they set about creating it. Unless that were clearly correct there had to be a proof. The pursuers' case on breach of implied terms was based on the stringent duties owed by solicitors who acted for both parties to a transaction. It was a secondary case, but it was relevant for proof as an alternative to the primary case based on breach of the express terms of the instructions. Solicitors required to be scrupulous in reporting to the lending client. The pursuers were entitled to pray in aid the fact that the defenders appeared to have been well aware that the terms of the instructions were not being expressly adhered to. The terms of the letter to counsel quoted in the pleadings were clear. No independent solicitor would have acted in that way. The first reaction to discovering the state of the titles would have been to report to the pursuers. What they were saying was that because Mr Newell refused to permit a fresh approach they simply went along with his instructions. Had the matter been referred back, Mr Newell's pack of cards would have collapsed. The alternative was to alter the titles. But they were not entitled to do that without regard to the interests of the pursuers which they were bound scrupulously to protect. So far as the inhibitions were concerned, there was a case for enquiry on breach of the express terms of the instructions. The question of breach of implied terms arose only if that failed. If there were numerous entries in the personal register that could be a factor of importance to a lender. The entries did not disclose the sum involved. That information was available only at a later stage. The obligation to report arose as soon as it came to light that there was an entry. Whenever a solicitor came upon information which might not be available to his client, and of which he might have no knowledge, it was the duty of the solicitor to bring it to the client's notice. There was a relevant case for proof.
Senior counsel for the defenders began with renewed reference to the instructions. There were no averments of prior communings. There were only two documents of importance, the offer of advance and the standard form instructions. Otherwise the defenders were sent only pro forma documents for completion. The only other communing between the parties was the sending by the defenders of the report on title, and that again was based on a pro forma prepared by the pursuers. It was therefore no part of the pursuers' case that they told the defenders what Mr Newell may have told them about his rights in the castle or his personal financial position or any other matter. Nor was it part of the pursuers' case that the defenders were told that the value placed on the subjects was influenced to any extent by the esoteric issue of the barony title, nor that the decision to lend had been influenced in any way by that factor. The pursuers were a large commercial lender. The court might be aware that in general they dealt with domestic residential properties. Without notice of any special circumstances in advance of issuing instructions or at the time of issue, any reasonably competent solicitor receiving the instructions in question would not have expected that what the lender wanted to obtain was a particular security over the barony title on the basis that the lending institution had agreed to lend on that basis. The instructions were issued without discussion. The documents were the pursuers' documents. They were the authors of them. They were professional lenders. They were responsible for the consequences of their terms. It was their responsibility to make clear what they wanted the security to relate to. That came home in the terms of the report on title. It could not be said that the simple expression "feudal castle" in the context in which it was found gave clear and express instructions to the defenders that what was wanted was the creation of a security over the barony title. In the ordinary course of business lenders wanted a security over the dominium utile of the property in question. The words "feudal castle" told one nothing about the nature of the borrower's title. "Property" in the offer of advance meant the physical entity. That term was used throughout the document. The identification of the subjects was simply an address, descriptive of what the lenders thought the property was, a castle in Scotland held on feudal tenure. The proper interpretation of the form was that it related to physical subjects, embracing whatever Mr Newell held or purported to hold on a feudal title at that time. Reference was made to a number of uses of the word "property". The use of the word "feudal" was purely descriptive. Nothing more was meant, and nothing more was intended. Far from taking the transaction out of the normal range, in a re-mortgage context, the language used indicated that the lenders treated the transaction as a straightforward loan over domestic property. The pursuers' averments were coloured by reference to Mr Nairn's experience and by the fact that there was a problem with the titles as they stood. Not least there was on-going litigation over the right to the barony title. The pursuers created difficulties by using inappropriate standard form documents for what they present as an unusual transaction. But it was a question of contract. One had to consider what the solicitor was asked to do, and to test what he achieved against that. There was no complaint that the solicitor failed to carry out what he was instructed to do. The pursuers appeared to say that there should have been a security over what Mr Newell owned, the 36 square feet and a pro indiviso share of the balance. In the context of a re-mortgage, the expression "already owned" did not indicate who owned the property. It was not unusual for a borrower to indicate to the lender that he could procure a security over a property, even of it were not currently held by him. In such a case it was incumbent on the solicitors to bring about a situation in which the security could be granted. Normally the lender was not interested in how it was brought about, so long as in the end the security was obtained, inhibitions were removed, and a clear title in name of the borrower was secured. What happened in the present case was that the solicitor had a client with a complicated title. He got pro forma instructions. They disclosed that the pursuers had offered a large loan and that they wanted a security over the subjects which they could sell in case of default. The solicitor went about the necessary conveyancing. When at the end of the day Mr Newell defaulted the pursuers were able to sell the subjects. The complaint was that they did not get as much as they had hoped. That was the result. It was incumbent on the pursuers to persuade that court that that involved a breach of contract, on the basis of their pleadings as they stood. The report on title was a pro forma prepared by the pursuers. There was no attempt to modify it to meet the particular requirements of the situation. One might have expected some modification or some covering letter indicating that this was a special situation, if, for example, the barony title was worth a lot of money. What Mr Nairn did was to procure a blench disposition in feu of the thirty-six square feet in favour of Mr. Newell's wife. The spouses then by a second blench disposition in favour of Mr Newell disponed the dominium utile of the remaining subjects. He was then in a position to create a security over the whole dominium utile. It was understood that this removed the barony title from the scope of the security. This procured the normal result in such a transaction. There was a clear security over the whole dominium utile. That was what the lender stipulated for in the absence of any reference to the barony title. It was on the report on title that the pursuers released the loan cheque. They made no complaint about the report. The report made no reference to a barony title. Fundamentally it was a question of construction. There were no averments of knowledge on the part of Mr Nairn, communicated by the pursuers, that it was essential that the security subjects should include the barony title. It was a misconception to infer from his actual knowledge of the title that he should have understood that to be a requirement. His actual knowledge could not be converted into knowledge of the requirements of the lender. In reality the pursuers got no more and no less than they were entitled to. There was no duty on the defenders to report back. The pursuers' case was bedevilled by question-begging assertions. There was nothing in the instructions to indicate that they sought more than a security over the dominium utile. Turning to the second chapter, senior counsel submitted that it was important to remember that the transaction was within the permitted scope of the exception in the Rules, because the loan terms were agreed before the solicitor was engaged by the pursuers. There was no instruction to report on the credit-worthiness of the borrower. National Home Loans and Birmingham Midshires supported the defenders' position. The defenders were entitled to assume that the pursuers had made their own careful enquiries into the borrower's financial position having regard to the sum involved. One would expect them to have done so. If they failed to do what was prudent that was their responsibility. One could not convert their failure into a failure of duty by the defenders. It was not for the defenders to do their work for them. The real question was what was involved in the instruction to report on searches. Paragraphs 2 and 4 had to be read together. That brought out the distinction between ensuring that there was a valid security and checking the personal covenant of the borrower. The complaint related to two relatively insignificant debts, when there was knowledge of a third, more substantial, debt. Reading the instruction to search along with paragraph 2, it was clear that the only matters to be reported were those which bore on the validity of the security, and there was no duty to report matters bearing only on the credit-worthiness of the borrower. There was no implied duty unless the information coming into the hands of the solicitor tended to show that the borrower was not credit-worthy or was significantly less credit-worthy than the potential lender thought he was. The inhibitions were to be cleared at settlement. There was nothing in them to suggest that Mr Newell was significantly less worthy of credit than the pursuers' own investigations might have disclosed.
Senior counsel for the pursuer was allowed to respond on the interpretation of the word "property". A standard security could be granted only over an interest in land: Conveyancing and Feudal Reform (Scotland) Act, 1970, section 9. The transaction was said by the defenders to be a re-mortgage of the subjects. It would be strange if the prior security was valid for the security on a re-mortgage to be over different subjects. What was sought was a standard security over the interest in land which formed the subject of the offer of advance. If the defenders were correct, and the subjects comprised salmon fishings or other ancillary heritable interests, it would have been acceptable for them to be stripped out of the subjects held prior to the grant of the security and held separately by the borrower, all without reference to the lender. That would be strange.
The pursuers undertake to prove that the defenders accepted instructions to act for them in a loan transaction which they had agreed with Mr Newell. That agreement was recorded in the offer of advance which was accepted by Mr Newell. That document was sent to the defenders. From its terms it is clear that Mr Newell had agreed to grant a security over certain subjects. The pursuers may be able to establish what Mr Newell led them to believe about the nature and extent of those subjects, and that they understood that he already owned the subjects. The pursuers' attempt to put a gloss on the words "already owned" in the form by the introduction of the word "as", however, is plainly illegitimate. The pro forma used appears to have been prepared for the mortgage of a property which was being or was about to be acquired. The "purchase price" box points to that view plainly enough in itself. But condition 1 (e) is expressly related to the borrower's position as purchaser. Condition 1 (f) makes sense only in the context of completion of an acquisition of property. The purpose of the box appears to be to record the purchase price. One would not be surprised if that were a factor of importance to the lender in relation to the amount to be advanced. In a form designed for use in a re-mortgage situation one might have expected a reference to the value of the property as the equivalent factor of importance. The pursuers did not complete the form in that way, however. The words "already owned" may be understood as distinguishing the position from a fresh acquisition, and adding nothing more. On the other hand they may reflect a representation by Mr Newell that he was the sole owner of the property. One might incline to the latter view. But it would not be possible to reach a concluded view on pleadings and the terms of the document alone. In any event, the expression cannot be read as limiting the extent of the subjects to be mortgaged to those in respect of which Mr Newell could at that stage properly be said to have been owner, in the absence of facts pointing to the pursuers having accepted the risk of lending on his title whatever it might be. That would have made no commercial sense. Essentially it would have restricted the security rights of the pursuers to what turned out to be the extent of Mr Newell's interest in the subjects at the time of the agreement, a pure speculation so far as the proposed lenders were concerned. The context for construction of the words is the loan agreement itself. The pursuers seek an opportunity to prove that they were entering into an agreement to lend money to Mr Newell on a security to be created over subjects described as Freswick Castle and that the basis of the transaction was their understanding that the subjects were already owned by Mr Newell. Paragraph 2 of the Instructions required the defenders to report to the pursuers any matters which might prejudice the pursuers' security or which were at variance with the offer of advance. One might not have been surprised to find averments that the defenders failed in a duty based on that provision, since on any view at the time the instructions were given Mr Newell did not own the entire subjects. But that is not averred, and there may be good reason why such a case has been avoided.
One might equally have thought that there could have been a case based on the defenders' duties when confronted with ambiguity in the instructions, especially when acting for both parties to such a transaction. The expression "feudal castle" followed by an address does not have any obvious single meaning. If "feudal" referred to the form of tenure, it might be satisfied by an interest at any level in the feudal hierarchy. Whatever view one might hold of such a description of a dwelling house situated in a modern housing development, where typically the borrower could be expected to be at the lowest level of the feudal chain, a property comprising a castle of some antiquity which was associated with a barony title or a claim to use of such a title might be in a different position. One might have understood that in a situation where the person receiving the instructions considered that there were a number of possible solutions to the problem of creating a security it could have been said that there was a duty to clarify the instructions and to act only in the light of a proper understanding of what was required. No such case was averred. If, as the pursuers aver, the construction of the instructions is plain, and the security was to be created over a heritable subject which included the barony title, it might have been possible to state a case that to do anything else was a breach of the instructions. Again the pursuers avoid making such a case. And, again, there may be good and proper reasons why they have avoided doing so.
The pursuers' attack on the defenders' actings begins with the situation created by the series of conveyances narrated in the pleadings. The first issue of significance is whether by structuring their pleadings as they have done the pursuers are to be taken to have conceded that what the defenders did in preparing the conveyances, and in procuring their execution, was in accordance with their instructions. That cannot be inferred at this stage in these proceedings. The pursuers' case is based on the view that they could have withdrawn from the agreement at any time prior to making payment if matters adverse to their interests had been drawn to their attention. They focus on the final stage in the transaction, and claim that the defenders' continuing failure to inform involved a breach of duty up to and including that point. It is impossible to infer from that approach that the pursuers acknowledge that there was no prior breach. It indicates only that they have not thought it appropriate to found on any earlier breach.
The issue at this stage is whether the pursuers have a relevant case as the pleadings stand. It was a matter of agreement that, in considering the case which the pursuers do make, the proper starting point was the instructions received by defenders: Bank of East Asia; Midland Bank v Hett, Stubbs & Kemp; Midland Bank v Cameron Thom Peterkin & Duncans; Bown v Gould & Swayne and Bristol & West Building Society v May May & Merrimans. The defenders are not said to have known, and may have been wholly unaware, of any of the information provided to the pursuers by Mr Newell. But it is agreed that they were instructed to prepare a standard security to be granted by Mr Newell over the subjects known as Freswick Castle. It is also clear from the pleadings of both parties that the defenders knew that a standard security could not have been granted by Mr Newell over the subjects which were in contemplation, however those were properly to have been understood. What is alleged is that the defenders proceeded to prepare and have executed documents which innovated on the titles as they existed at the date of the instructions without reference to the pursuers. Whether or not the offer of advance was ambiguous in the use of the words "feudal castle", in the context of the facts known to the defenders and the facts understood by the pursuers, the defenders cannot have understood that the pursuers had information about the later state of the titles which only came to exist as a result of the deeds they drafted after receiving instructions. The pursuers were not involved in any way in devising the solution ultimately adopted. They aver that they were not informed of the steps taken. Whether there was a breach of a duty to report what was done to the pursuers before they were asked to issue the loan cheque in these circumstances cannot be resolved without a full and proper understanding of what was done and how that changed the position of the borrower. The parties' pleadings show a surprising lack of consensus as to the consequences of the conveyancing which was carried out. The deeds have not been incorporated, and have not been before the court. Until they are examined and understood it would be premature to express any view on the factual context for a consideration of the pursuers' case. As matters stand, the transactions may prove to have been prejudicial to the security which the pursuers anticipated obtaining. If they were entitled to a security over the subjects together with the barony title then claimed by Mr Newell, they may have failed to obtain that either because, on the pursuers' version of the titles, the barony had been vested in Mrs Newell, or, on the defenders' version because, though the barony title remained vested in Mr Newell, they had succeeded in divorcing it from the dominium utile over which alone the security was granted, and so procured a security over part only of the subjects which he owned at the outset and continued to own. The test whether an action may properly be dismissed is set out in Jamieson v Jamieson 1952 S.C. (H.L.) 44 by Lord Normand at page 50. It must be clear that the pursuers are bound to fail. The test of relevancy in the context of valuation is set out in Lord McCluskey's opinion in Bank of East Asia at page 262:
".. if a solicitor is instructed by a potential lender simply to prepare a security document for signature by the borrower those instructions do not impose upon him any duty to inquire into and advise about the underlying or future value of the security. On the other hand, if the solicitor is already acting for the potential borrower and by reason of so acting is in possession of information of which the potential lender is ignorant, being information which shows or tends to show that the security which he has been instructed to prepare is valueless or of significantly less value than the potential lender appears to think, then, if he accepts the potential lender's instructions, he may well, before acting upon the instructions, require to advise the potential lender of the risk of which he is aware."
While expressed in the context of the value of the security subjects, the observation can be applied in different circumstances. The pursuer's case is that there was an offer to lend on the security of subjects which the defenders knew that the borrower did not own to the extent required, but which did include to their knowledge a particular element of value, the borrower's claim to the barony title. The pursuers say that they were ignorant of the material facts. They look to the actions of the defenders in making alterations to the titles of which they were not informed as instructing the defenders' knowledge of those facts derived from their previous experience of the borrower's affairs. There is a case sufficient for proof on this branch of the case whether under the express or implied head. The pursuers are entitled to show that no-one could think that they were other than ignorant of a factor which did not exist at the time which has to be considered. The defenders alone knew what they had done. The pursuers are entitled to proof to establish, if they can, that no solicitor could have believed that the sequence of events was of no significance to a lender.
There is similar a case for enquiry under the second head of the pursuers' averments. Begg on Law Agents second edition page 337 expresses the general view that solicitors should not act for parties with conflicting interests, while recognising the exception now reflected in the Solicitors (Scotland) Practice Rules. It was agreed that, in terms of those rules, the general prohibition against acting for two or more parties whose interests conflicted was qualified by Rule 5(f) where:
"In the case of a loan to be secured over heritable property, the terms of the loan have been agreed between the parties before the solicitor has been instructed to act for the lender, and the granting of the security is only to give effect to such agreement".
It might be thought to be implicit in this exception that the agreement on which the solicitor proceeded to act for both parties should be clear and unambiguous. Otherwise a necessary component in the implement of the instructions would be the provision of legal services to one or other or both parties in the resolution of any ambiguity or deficiency in the agreement. That, of necessity would be later in date than the instructions. The conditions of the limited exception would not be satisfied. While the defenders argued that the transaction fell within the exception, that does not appear to be a matter one could properly decide at this stage without evidence. In Stewart v. McClure Naismith Brodie & Macfarlane at pages 1092-3 Lord Shand observed that the agent acting for lender and borrower must be prepared to show that the duties which he undertook to the lender were as fully and fairly discharged as if he were acting for the lender alone. The pursuers undertake to prove that the actings of the defenders departed from what would have been expected of a solicitor acting on their instructions alone. There may be, as the defenders argued, a relevant distinction between matters which bear upon the validity or sufficiency of the security procured and matters which bear on the personal covenant of the borrower: Mortgage Express Ltd v. Bowerman & Partners; National Home Loan Corp. v. Giffen Couch & Archer; and Birmingham Midshires Services Ltd. v. David Parry & Company show that such a distinction may be material in the context of the particular instructions considered in those cases. But it would be premature to discuss at length the significance of the distinction at this stage in the present case. The instruction to carry out searches in the personal registers may distinguish the earlier decisions significantly. The case cannot be disposed of without proof. Much will turn on the evidence and findings at proof and it is not appropriate to say more at this stage.
The interlocutor of the temporary judge should be recalled and proof before answer allowed.