Frank Houlgate Investment Company Limited V. Biggart Baillie Llp
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2013] CSOH 80 |
| Court | Court of Session |
| Published date | 28 May 2013 |
| Year | 2009 |
| Date | 28 May 2013 |
| Docket Number | CA25/09 |
| OUTER HOUSE, COURT OF SESSION [2013] CSOH 80 | |
| CA25/09 | OPINION OF LORD HODGE in the cause FRANK HOULGATE INVESTMENT COMPANY LIMITED Pursuers; against BIGGART BAILLIE LLP Defenders: ________________ |
Pursuers: Dewar, QC; Thomson; Wilson Terris & Co SSC
Defenders: Hanretty QC; Paterson; HBM Sayers
28 May 2013
[1] In this action the pursuer ("FHI") seeks damages of £100,000 from the defenders ("BB") for a loss which it incurred as a result of the fraud of one of BB's clients, Mr John MacGregor Cameron ("JMC"). FHI claims that Mr Gregor Mair, a former director of BB, while not intending to deceive, acted in furtherance of KMC's fraud. That, FHI claims, exposes BB to liability to make reparation.
[2] The action has had a long history. On 10 December 2009 (2010 SLT 527, [2009] CSOH 165) Lord Drummond Young dismissed a claim for a larger sum which FHI had pleaded on the bases (i) that BB had failed in a duty of care to it and (ii) that BB had breached an implied warranty of authority. He suggested (para 21) that a solicitor might be liable for participating in a fraud once he knew of a client's fraud if he did not take steps to dissociate himself from the fraud and to prevent the victim suffering further loss. FHI lodged a reclaiming motion but amended its pleadings with the result that an Extra Division remitted the case to the Outer House. On 31 August 2011 ([2011] CSOH 160) Lord Glennie dismissed the amended claims based on negligence and breach of warranty of authority. He allowed a claim based on BB's participation in the fraud to proceed to proof before answer.
[3] FHI's case is now based on two closely related grounds, namely (i) misrepresentation and (ii) participating in and furthering a fraud. In reality the two grounds are different ways of looking at the same issue. Most of the relevant facts are not disputed. The principal legal issue is whether BB is liable in reparation to FHI because of Mr Mair's conduct if he, without any subjective dishonesty but knowing of JMC's prior fraudulent activity, acted in a way which assisted JMC to continue his fraudulent scheme and thereby caused FHI to suffer further loss.
The factual background
[4] FHI invests in shares and similar corporate investments. In 2004, Mr Frank Houlgate, the founding director and shareholder in FHI, was introduced by his investment advisers to JMC, who like Mr and Mrs Houlgate, lived in Leeds. JMC was developing a newly established business to provide secure storage for motorcycles through a company, Securimax Limited ("SL"). Between June and August 2004, FHI invested £100,000 in SL. In 2005 JMC proposed to Mr Houlgate that FHI should invest further in SL. Mr Houlgate was willing to increase FHI's investment to £500,000, but stated that he would require some security for the investment.
[5] JMC represented to Mr Houlgate that he owned an estate called Balbuthie in Fife which was worth £2.6 million and they discussed the possibility of a joint venture to create a luxury golf development there. In reality, a well-known Scottish farmer and businessman, Mr John Bell Cameron, lived at and owned Balbuthie farm. JMC and Mr John B. Cameron were not related and had not met. Mr John B. Cameron did not know of JMC.
[6] Mr Houlgate's son, who is a professional golfer, carried out a superficial search on the internet to confirm JMC's representation and found that a Mr John Cameron owned Balbuthie. In mid-2006 Mr Houlgate, his son and Mr Greg Norman's planning director visited Balbuthie Farm with JMC and then met the planning consultants, Montgomery Forgan Associates, whom JMC had engaged for the development. They did not visit the farmhouse at Balbuthie because JMC stated that it had been let to the Church of Scotland.
[7] FHI instructed A B & A Matthews LLP ("ABAM"), solicitors in Newton Stewart, to act for it in obtaining a standard security over Balbuthie farm. Mr Patrick Baxter of ABAM wrote to BB on 24 January 2006 to introduce himself as FHI's solicitor in the proposed transaction. He stated that "we understand that you act for Mr Cameron, the proprietor of the above farm". Mr Mair wrote back on 27 January to confirm that BB acted for "Mr Cameron" and to state that it had not yet received instructions in relation to the transaction. Between January and August 2006, Mr Mair corresponded with ABAM about the security transaction. Mr Mair prepared a standard security incorporating a personal bond for £300,000 in the name of "John Bell Cameron, residing at Balbuthie Farm, Kilconqhar, Elie, Fife" and on 24 August 2006 witnessed JMC's signature of that security. The standard security was registered on 28 September 2006.
[8] This case does not turn on Mr Mair's knowledge before JMC signed the standard security because the claim against him rests on what he came to know in January 2007. Nonetheless, I set out briefly his prior dealings with JMC as background to the later events and the context of his subsequent knowledge.
[9] JMC first instructed Mr Mair in January 2004 when he sought to obtain funding from HSBC. At that time he told Mr Mair that he owned Balbuthie jointly with his cousin, whom Mr Mair described in a file note as Mr Bell. At a meeting on 17 February, after Mr Mair had seen the title sheet to Balbuthie farm, JMC explained that his cousin was Mr John Bell Cameron. In July 2004, when Mr Mair was on holiday, a representative of HSBC told Mr Mair's secretary that he understood that JMC and a female called Bell Cameron, who was elderly and in a nursing home, owned the property jointly. The HSBC representative did not wish to process the loan application unless it was shown that the property was jointly owned and that JMC and "Bell Cameron" could grant the security. JMC confirmed to Mr Mair's secretary that the property was jointly owned with Bell Cameron and that she was in a nursing home. JMC said that he owned 80% of the property and his cousin, Bell Cameron, owned 20%. He represented that an attorney acted for his elderly cousin and agreed to give Mr Mair his contact details. Mr Mair must have been aware of these exchanges at the time or shortly afterwards as they were recorded in entries in his file.
[10] Time passed. In a telephone conversation in July 2005, JMC informed Mr Mair that there was confusion about the ownership of the property. The registered proprietor of Balbuthie was Mr John Bell Cameron. But JMC informed Mr Mair that the land certificate should have read "John and Bell Cameron" and that he and his female cousin owned the property in the ratio of 80:20. Mr Mair obtained a copy of the land certificate and sent it to JMC. At a meeting on 28 September 2005 Mr Mair expressed concern about the ownership of the property but JMC confirmed the joint ownership.
[11] Later, when FHI proposed the security transaction, JMC came up with a different story. On about 29 March 2006 JMC informed Mr Mair that he had not used his name, John McGregor Cameron, when he took title because he had been a "name" at Lloyds and wished to shield the property from any liabilities from that involvement. Over the following months JMC discussed with Mr Mair his proposals to develop Balbuthie farm in a joint venture with Mr Houlgate. At a meeting on 24 August 2006 JMC again explained that he had used the name "John Bell Cameron" on the title deeds in order to keep at arm's length from his involvement as a name in Lloyds. In accordance with normal conveyancing practice, Mr Baxter of ABAM prepared a request for a form 12A report for "John Bell Cameron" residing at Balbuthie Farm and Mr Mair approved the terms of that request.
[12] FHI had provided a further £80,000 to JMC between March and May 2006, before JMC purported to grant the standard security. It provided a further £50,000 on 29 August 2006 and £50,000 on 13 December 2006. By that time FHI had provided £280,000 to SL.
[13] FHI agreed to provide a further £500,000 to JMC for investment in SL. Following correspondence with BB, ABAM on JMC's instruction, prepared a deed of variation of the standard security in December 2006 to increase the sum secured from £300,000 to £800,000. Mr Mair prepared heads of terms for the distribution of the proceeds of the sale of Balbuthie, approved ABAM's draft deed of variation and witnessed JMC's signing of both documents on 20 December 2006.
[14] FHI then gave JMC £100,000 on 2 January and a further £100,000 on 30 January 2007. FHI's claim in this action relates to the second payment of £100,000.
Mr Mair's knowledge of JMC's fraud in January 2007
[15] In December 2006 solicitors acting for Galen Finance Limited ("Galen") wrote to Mr John B. Cameron to intimate that Galen had obtained a county court decree against him in relation to a hire agreement and guarantee. Mr John B. Cameron, who had not entered into those transactions, consulted his solicitor, Mr Andrew Weatherley of Stevenson & Marshall LLP. Mr Weatherley wrote to Galen's solicitors to explain that Mr Cameron was not involved in any dealings with Galen. After learning of BB's involvement from Galen's solicitors, on 10 January 2007 Mr Weatherley also wrote by fax to BB. In that faxed letter he informed Mr Mair that Mr John B. Cameron of Balbuthie had never instructed BB or had dealings with Galen. He also stated that he had seen a credit finance agreement completed on behalf of SL and signed by a John MacGregor Cameron. He asked Mr Mair to contact him as soon as possible to "resolve what appears to be a case of mistaken identity".
[16] Mr Mair emailed JMC on 11 January to ask that he contact him urgently about correspondence which he had received concerning Balbuthie. He also telephoned JMC's home and his mobile phone. On the same day Mr Mair telephoned both Galen's solicitor, who alleged fraud against JMC, and Mr Weatherley, who explained that there was only one property called Balbuthie in Fife and expressed Mr John B. Cameron's anger at the attempt to steal or use his...
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