Frank Houlgate Investment Company Limited Against Biggart Baillie Llp
| Jurisdiction | Scotland |
| Judge | Lord Menzies,Lord Malcolm,Lord McEwan |
| Judgment Date | 25 September 2014 |
| Neutral Citation | [2014] CSIH 79 |
| Court | Court of Session |
| Date | 25 September 2014 |
| Published date | 25 September 2014 |
| Docket Number | CA25/09 |
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2014] CSIH 79
CA25/09
Lord Menzies
Lord Malcolm
Lord McEwan
OPINION OF LORD MENZIES
in the cause
FRANK HOULGATE INVESTMENT COMPANY LIMITED
Pursuers and Respondents;
against
BIGGART BAILLIE LLP
Defenders and Reclaimers:
Pursuers and Respondents: Dewar QC, D Thomson; TC Young Wilson Terris LLP
Defenders and Reclaimers: Hanretty QC, Paterson; Simpson & Marwick
25 September 2014
Introduction
[1] John McGregor Cameron is a fraudster. He has several convictions for fraud. He persuaded the pursuers, Frank Houlgate Investment Company Limited, to invest money in a new business which he was establishing. In 2004 the pursuers invested £100,000 in this business. In 2005 Mr Cameron proposed that the pursuer should increase their investment
in the business to £500,000, and the pursuers agreed to do so, provided that Mr Cameron gave them security for the investment. Mr Cameron represented that he owned an estate in Fife called Balbuthie, and that he would grant a standard security over this estate in favour of the pursuers.
[2] John McGregor Cameron (“JMC”) did not own any interest in Balbuthie. In fact this estate belonged to a reputable businessman called John Bell Cameron, who had no connection with and had never heard of JMC. Nonetheless, JMC proceeded to grant a standard security over Balbuthie incorporating a personal bond for £300,000 in favour of the pursuers. The solicitor who prepared this security on behalf of JMC was Mr Gregor Mair, who was then a partner of the defenders. The standard security was executed by JMC, in the name of “John Bell Cameron, residing at Balbuthie Farm, Kilconquhar, Elie, Leven KY9 1EX” on 24 August 2006 and registered on 28 September 2006. The pursuers invested further sums in JMC’s new business; by 13 December 2006 they had invested a total of £280,000 in it.
[3] In the course of preparing the standard security for JMC, Mr Mair had noticed that the registered proprietor of Balbuthie was John Bell Cameron, and he expressed concerns about the ownership of the property. JMC gave different, and conflicting, explanations for this, but assured Mr Mair that he owned an interest in it. It might be thought that Mr Mair would have become suspicious as a result of these different and conflicting explanations, and would have been reluctant to approve a form 12A report for “John Bell Cameron”, and to prepare a standard security in the name of “John Bell Cameron residing at Balbuthie Farm, Kilconquhar, Elie, Leven” and to witness JMC’s signature to that document, when his client held himself out to be John McGregor Cameron residing at an address in Leeds. However, that is by way of background – the action as finally framed and presented at proof, and as argued before us, was concerned only with the events of January 2007. A much more comprehensive factual background, and a procedural history of the case, is helpfully provided by the Lord Ordinary, Lord Hodge, in his opinion dated 28 May 2013, [2013] CSOH 80.
[4] In December 2006 the pursuers agreed to provide a further £500,000 to JMC to invest in the new business. The solicitors acting for the pursuers prepared a Deed of Variation of the standard security to increase the sum secured from £300,000 to £800,000. Mr Mair prepared heads of terms for the distribution of the proceeds of sale of Balbuthie, approved the draft Deed of Variation, and witnessed JMC’s signing of both deeds on 20 December 2006. The pursuers then gave JMC £100,000 on 2 January 2007, and a further £100,000 on 30 January 2007. It is with this last payment that the present action in its final form (at proof and on appeal) is concerned.
[5] In December 2006 solicitors acting for a company unrelated to these events wrote to Mr John Bell Cameron intimating that their clients held a County Court Decree against him in relation to a hire agreement and guarantee. Mr John Bell Cameron had no involvement in such a transaction, so consulted his solicitor, Mr Weatherley of Stevenson and Marshall LLP. In due course, having learnt of the defenders’ position as agents for JMC, on 10 January 2007 Mr Weatherley sent by fax a letter to Mr Mair informing him that Mr John Bell Cameron of Balbuthie had never instructed the defenders, and stating that he had seen a credit finance agreement completed on behalf of JMC’s new company and signed by JMC. He asked Mr Mair to contact him as soon as possible to “resolve what appears to be a case of mistaken identity”.
[6] On 11 January 2007 Mr Mair emailed JMC asking him to contact him urgently. In the late afternoon of that day Mr Mair succeeded in contacting JMC, who said that he had been at a funeral and undertook to contact him on the following day. On that same day Mr Mair faxed to JMC a copy of Mr Weatherley’s letter and reported on a discussion which he had had with the solicitor for the third party. He stated in that fax:
“This is a development which concerns me greatly and I am sure you will understand the full ramifications relative to your arrangements with Frank Houlgate. It is essential that matters are clarified immediately and, in my view, it is also necessary to make Mr Houlgate and his solicitors fully aware of the position. I shall not contact them however until we have spoken again, on the understanding that you will contact me first thing tomorrow morning, Friday 12th January 2007.”
[7] What happened next is concisely set out in paragraphs [17] to [20] of the Lord Ordinary’s opinion:
“[17] JMC phoned on 12 January to say that the position with Balbuthie was "not as bad as it looks". He said that he could not discuss it on the phone but that he would sort matters out and then come to BB's offices on 16 January. Mr Mair repeated his concerns about FHI's security but agreed to discuss the matter on 16 January. Mr Mair followed up the phone call with a fax to JMC. He attached a copy of the letter of apology that he had sent to Mr Weatherley. He stated:
"I hope that this [the letter of apology] will suffice on the meantime but, as mentioned, if they do explore further, and in particular carry out a search at the Registers in relation to the Balbuthie Farm title, they will become aware immediately of the standard security granted in favour of Frank's company. This would be of extreme concern and I have to stress again the absolute importance of resolving and clarifying the issue at the earliest possible opportunity, otherwise the consequences are likely to be severe."
He stated that he would not contact Mr Weatherley before the proposed meeting with JMC on 16 January. Mr Mair gave evidence that he was not thinking about fraud at this time. But it seems to me that he knew then that JMC had deceived Mr Houlgate.
[18] JMC met Mr Mair on 16 January 2007 and confessed to the fraud. He said that he had taken advantage of the fact that he had the same name as Mr John B. Cameron, who was a significant landowner. He admitted that Mr Houlgate was not aware that the security over Balbuthie was worthless but explained that he had enjoyed a business relationship with Mr Houlgate and that he would sort out the problem. Mr Mair advised JMC to have the security discharged urgently so that reference to it was removed from the register. JMC requested Mr Mair not to tell FHI or its solicitors about the fraud. BB's file record stated:
"You are well aware that what you have done is fraudulent and you accept full responsibility for all the consequences. On the basis however that you are absolutely sure you will be able to sort matters out you requested that we do not contact A B & A Matthews at least until you have had a chance to speak to Frank."
[19] Mr Mair, although very concerned about JMC's disclosure, complied with his request in the belief that he owed his client a duty of confidentiality. Surprisingly, although he was not certain about the extent of his duty of confidentiality, he did not consult another partner in BB or seek the advice of the Law Society of Scotland (the "Law Society"). On 19 January Mr Weatherley wrote to Mr Mair to state that his client was dissatisfied with his letter of apology. He stated:
"We would, therefore, be pleased to hear from yourselves confirming that you have withdrawn from acting on behalf of John MacGregor Cameron and that this matter, clearly an attempted financial fraud and theft of identity, has been reported to SOCA."
Mr Mair received that letter on 22 January. Unfortunately, he took no such action. He faxed JMC a copy of the letter and explained that SOCA was the Serious Organised Crime Agency. He stated that it was "a matter of absolute priority" to have the standard security discharged.
[20] Thereafter, on 30 January 2007, FHI provided JMC with the £100,000 which is the subject matter of this claim.”
The issue
[8] The issue in this case is whether the defenders are liable to make reparation to the pursuers because Mr Mair knew that JMC had deceived the pursuers and granted a security in their favour over property in which he had no interest, yet continued to act on behalf of JMC, took no steps to inform the pursuers or their agents of JMC’s admitted fraud, and did nothing to prevent JMC obtaining further funds from the pursuers.
Procedural matters
[9] The Lord Ordinary held that the defenders were liable in reparation to the pursuers as an accessory to fraud because Mr Mair failed to dissociate himself from JMC’s continuing fraud by withdrawing from acting and by warning the pursuers or their solicitors that they could not rely on the invalid security. He thereby acted in furtherance of JMC’s fraud, which caused the pursuers to lose £100,000. By interlocutor dated 3 July 2013 the Lord Ordinary sustained the second and third pleas-in-law for the pursuers, repelled the pleas-in-law for the defenders, and decerned against the defenders for payment to the pursuers of the sum of £100,000, together with interest. (The pursuers’...
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