Frank Houlgate Investment Co Ltd V. Biggart Baillie Llp
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Neutral Citation | [2009] CSOH 165 |
| Date | 10 December 2009 |
| Docket Number | CA25/09 |
| Court | Court of Session |
| Published date | 10 December 2009 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 165 | |
| CA25/09 | OPINION OF LORD DRUMMOND YOUNG in the cause FRANK HOULGATE INVESTMENT COMPANY LIMITED Pursuers; against BIGGART BAILLIE LLP Defenders: ________________ |
Pursuer: D Thomson; Wilson Terris & Co SSC
Defender: Hanretty, Q.C.; HBM Sayers
10 December 2009
[1] The pursuers are a company set up by a Mr Frank Houlgate as a vehicle for investment in stocks, shares and the like. They have raised an action for damages of £380,000 against the defenders, a firm of solicitors, on the ground of the defenders' alleged fault and negligence and, separately, on the ground of the defenders' alleged breach of an implied warranty of authority. The defenders have tabled a plea to the relevancy of the action, and I heard a debate on that plea. Two questions were discussed: first, the circumstances in which a solicitor acting for one party to a conveyancing transaction may owe a duty of care to the other party to that transaction; and secondly, whether the defenders were in breach of a warranty of authority to act on behalf of their client.
Pursuers' averments
[2] The pursuers' averments are in summary as follows. In about May 2004 Mr Houlgate, their principal shareholder, was introduced to a man named John Cameron by investment advisers, St James Place Partnership. The man in question was identified as John M. Cameron, residing at an address in Leeds. John M. Cameron, it is averred, was and is a fraudster. That averment is admitted. Nevertheless, Mr Houlgate understood John M. Cameron to be a businessman looking for investors in a company known as Securimax. Between June and August 2004 the pursuers advanced £100,000 by way of investment in Securimax. In the middle of 2005 Mr Houlgate and John M. Cameron had discussions about a further investment in that company, and Mr Houlgate indicated that the pursuers were willing to increase their investment to £500,000, but that security would be required for such an investment. John M. Cameron responded that he had an ancestral estate in Scotland known as Balbuthie, which was valued at £2.6 million. That property was in fact Balbuthie Farm, in Fife. Mr Houlgate made inquiries using the Internet, and discovered that Balbuthie Farm was owned by a man called John Cameron, whom he understood to be John M. Cameron. Thereafter agreement was reached that the pursuers would advance a further £500,000 by way of investment in Securimax, in return for which they would in due course be paid £800,000 by the company. Mr Houlgate and John M. Cameron also discussed the possibility of setting up a company to convert Balbuthie Farm into a golf course development. They agreed that if planning permission were obtained the pursuers would be given a 50% shareholding in the development company, and that if that did not happen Balbuthie Farm would be sold and the pursuers would be paid £800,000 by way of return on their investment.
[3] In the middle of 2006 Mr Houlgate was taken to see the property by John M. Cameron. He was told by John M. Cameron that the farmhouse was let to the Church of Scotland, and that neither the tenants nor the local community were at the time aware of the proposals for development. In due course John M. Cameron instructed the defenders' predecessor firm to act on his behalf. The defenders succeeded to the assets and liabilities of their predecessor, and references to "the defenders" are to both the defenders and their predecessors. The pursuer instructed the firm of AB & A Matthews to act as his solicitors. It is averred that Mr Houlgate, and thus the pursuers, did not have any reason to doubt that John M. Cameron was the proprietor of Balbuthie Farm during their earlier dealings. It is further averred that, throughout the whole course of the dealings between the pursuers' solicitors and the defenders the defenders did not at any time indicate that they were not acting for the registered title holder of Balbuthie Farm; on the contrary, the defenders' consistent conduct, it is said, was to the effect that they were acting for the registered title holder. Ultimately Mr Mair, who was then a partner in the defenders' predecessors, is said to have witnessed deeds which bore to be executed by the registered title holder, but which he knew were not so executed.
[4] The pursuers' solicitors and John M. Cameron proceeded to negotiate the terms of a standard security to be granted over Balbuthie Farm in the pursuers' favour. A security was ultimately executed on 24 August 2006 and was registered in the Land Register on 28 September 2006. It secured the sum of £300,000. The standard security bore to have been executed by one John Bell Cameron. John Bell Cameron was disclosed in the Land Register and the title deeds as the registered title holder of Balbuthie Farm. The standard security was witnessed by the defenders' Mr Mair. Prior to the grant of the standard security the pursuers had advanced a total of £80,000 to John M. Cameron, and after it was granted the pursuers advanced further monies to John M. Cameron in reliance upon the standard security. £50,000 was advanced in August 2006 and a further £50,000 in December 2006. Thereafter, following further correspondence between the parties' agents, a deed of variation of the standard security was executed by John M. Cameron on 20 December 2006. As with the standard security, this proceeded in the name of John Bell Cameron, and was witnessed by Mr Mair. The deed of variation varied the standard security by increasing the sum secured from £300,000 to £800,000. Thereafter, on 2 and 30 January 2007, the pursuers lent two further sums totalling £200,000 to John M. Cameron.
[5] In December 2006 John Bell Cameron, the true owner of Balbuthie Farm, received correspondence that indicated that a company called Galen Finance Ltd had obtained an English county court judgment against him. In reality John Bell Cameron had not entered into any transaction with Galen; John M. Cameron had fraudulently used John Bell Cameron's identity to enter into the transactions that underlay the County Court judgment. In the correspondence the defenders were named as John Bell Cameron's solicitors, although in fact they had never acted for him. John Bell Cameron then contacted his own solicitors, Stephenson & Marshall. On 10 January 2007 Stephenson & Marshall wrote to Galen's solicitors and to the defenders to explain that John Bell Cameron had not been involved in any dealings with Galen. Following that letter, it is averred, the defenders were plainly aware that John M. Cameron was not the owner of Balbuthie Farm and that in the circumstances he was a fraudster. On 16 January 2007 a meeting took place between Mr Mair and John M. Cameron at which the latter confessed that he had acted fraudulently in relation to the proposed transaction with the pursuers. Following that meeting, it is said, the defenders did not inform the pursuers that John M. Cameron was a fraudster, and on 30 January 2007 the pursuers advanced a further £100,000 to him.
[6] In July 2007 Mr Houlgate noticed an article in an evening newspaper in Leeds relating to a man who had been convicted of fraud. Mr Houlgate recognised the guilty man as John M. Cameron. Thereafter Mr Houlgate made further inquiries. He telephoned the number given for Balbuthie Farm, and spoke to John Bell Cameron's wife. She stated that she and her husband had had previous problems with John M. Cameron's fraudulently impersonating John Bell Cameron. Mr Houlgate then instructed fresh solicitors, and a claim was made against the defenders on 27 July 2007. That claim led to the present action. In the meantime, without the knowledge of the pursuers or their solicitors, John M. Cameron instructed the defenders to draft a discharge of the standard security in the pursuers' favour. John M. Cameron then forged Mr Houlgate's signature and returned the discharge to the defenders. The defenders presented the discharge to the Keeper for registration in the Land Register. At no point during the latter episode did the defenders contact the pursuers or the pursuers' agents, even though, the pursuers aver, the defenders knew that John M. Cameron was not the owner of Balbuthie Farm and that he was a fraudster.
[7] The action is based on two grounds: first, the alleged negligence of the defenders and in particular their partner and subsequently director Mr Mair; and secondly, the breach by the defenders of an implied warranty. The averments of negligence are as follows. The defenders had a duty to take reasonable care to confirm the identity of John M. Cameron, and a duty to take reasonable care to confirm that John M. Cameron was the registered title holder of Balbuthie Farm. They had a duty not to accept instructions from John M. Cameron in respect of the constitution of a security over Balbuthie Farm without obtaining authority from the registered title holder of that property. It was reasonably foreseeable that the pursuers would rely up on the defenders as having established that John M. Cameron was the registered title holder of the property, since only the registered title holder had the necessary capacity to execute the requisite security deed. It was the defenders' duty not to act in a transaction involving the granting of a security over property registered in the Land Register without being so instructed by the registered title holder. At least, it was the defenders' duty to advise the pursuers that it was acting for someone other than the registered title holder. It was further the defenders' duty, once they became aware that John M. Cameron had no connection with the registered title holder and that his instructions in relation to the granting of a security over Balbuthie Farm had been fraudulent, to relay that information immediately to the pursuers and to warn them not to advance any further monies. It was the defenders' duty not to witness forged...
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