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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Thomson v. Royal Bank Scotland Plc [2002] ScotCS 143 (22nd May, 2002) URL: http://www.bailii.org/scot/cases/ScotCS/2002/143.html Cite as: [2002] ScotCS 143

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Thomson v. Royal Bank Scotland Plc [2002] ScotCS 143 (22nd May, 2002)

OUTER HOUSE, COURT OF SESSION
	OPINION OF LORD CLARKE in the cause MRS LAURA THOMSON (A.P.), Pursuer; against ROYAL BANK OF SCOTLAND PLC AND ANOTHER, Defenders:   ________________

 

 

Pursuer: Upton; Haig-Scott & Co, W.S.

Defenders: MacIlvride, Solicitor Advocate; Bennett & Robertson

 

22 May 2002

1. In this action the pursuer seeks production and reduction of a Standard Security, granted in favour of the first defenders by herself and her husband, the second defender who has not entered appearance in the action, over the matrimonial home of the pursuer and her husband. She also seeks interdict against the first defenders from taking steps to enforce the Standard Security.
2. The case came before me for debate on both parties' pleas to the relevancy. The first defenders sought dismissal of the action. The pursuer moved for deletion of certain averments of the first defenders and otherwise sought a proof before answer. In the alternative, the pursuer moved me to allow a proof before answer leaving all averments and pleas standing.
3. The discussion before me was, to a very considerable extent, taken up with a detailed consideration of the recent decision of the House of Lords in the case of Royal Bank of Scotland plc v Ettridge (No.2) (2001) 3 WLR 1021 and various other conjoined appeals. The decision in those cases is the latest chapter in the revision and development of the law by the House of Lords, in relation to the protection which is to be afforded to wives, and others, who may have been induced, by the undue influence of other parties to a relationship in which they stand, to grant a security for that other's personal debts, or the debts of a business in which the other person has an interest. This topic was dealt with for the law of England in the previous decision of the House of Lords in Barclays Bank plc v O'Brien (1994) 1 AC 180. In due course, the House of Lords examined the position for Scotland in the case of Smith v Bank of Scotland 1997 S.C. (H.L.) 111 which, to a large extent, sought to bring the law of Scotland into line with the law of England on these matters, but did so by the development and application of what were seen to be existing Scottish principles.
4. The pleadings of both parties, in the present case, can be seen to have been drafted with those two previous House of Lords' decisions in mind, taken together with certain other cases from the lower courts, which followed the decisions in O'Brien and Smith. It was the first defenders' position, however, that the speeches in Ettridge, which were delivered on 11 October 2001, have significantly changed the law on the matter for England and, following the approach in Smith, the Scottish position should now be equiperated to that which obtained in England. If that was correct, then the pursuer's pleadings, in the present case, were fundamentally irrelevant and the action should be dismissed.
5. On the other hand, counsel for the pursuer contended that, following certain of the remarks made by their Lordships in Ettridge, the first defenders' averments in respect of their case that they had acted in good faith, in taking the security in question, were irrelevant and should not be admitted to probation. Counsel for the pursuer did not rely exclusively on dicta in Ettridge in support of his submission in that respect, but argued that these dicta were reflective of existing common-law principles in the law of agency.
6. Before turning to consider the details of the submissions made by both sides, and having regard to the essential and dominant role that the case of Ettridge assumed in the discussion before me, I think it right that I should put at the forefront what, as it seems to me, the case was concerned with deciding. There were, it appears to me, two issues with which their Lordships were concerned. The first was an evidential question and involved considering in what circumstances might a wife rely on an evidential presumption that a transaction she had entered into, at the behest of her husband, had been induced by undue influence. The second question was what steps does a bank or other lender require to take to protect a wife, who is to be a cautioner for the indebtedness to the bank of her husband, or his business, or a company in which he is a shareholder, against agreeing to grant a security for those purposes, because of undue influence or misrepresentation by him.
7. In answering the first question, the House of Lords held that there was no presumption of undue influence, arising simply from the ordinary relationship of husband and wife, since the fortunes of husband and wife were ordinarily bound up together, and, accordingly, a guarantee given by the wife, with a charge on her interest in the matrimonial home, to secure her husband's debts, was not plainly to her disadvantage, so as to be explicable only on the basis that the transaction had been procured by the husband's undue influence or misrepresentation. On the other hand, if a wife, on the facts of a particular case, were able to establish that she had placed trust and confidence in her husband in the management of her financial affairs and that the impugned transaction was not explicable in the ordinary way, she could rely on a presumption which, as an evidential tool, shifted the burden of proof to the person seeking to enforce the transaction and this could be rebutted, on appropriate evidence, by that party. With regard to the second question their Lordships updated and refined the steps which lenders are required to take to protect themselves, if put on inquiry that the security was improperly obtained.
8. In none of this, however, as I read the speeches of their Lordships, were they setting out to re-state the substantive law of undue influence for the law of England, far less, of course, for the law of Scotland. It is also important, in my judgment, to keep in mind that the discussion of these matters contained in the Ettridge case is in the context that English law, which is concerned, in this branch of the law, with identifying whether, or not, the lender can be fixed with constructive notice of the impugned transaction having been obtained by reason of undue influence or misrepresentation. While the House of Lords in the case of Smith sought to demonstrate that the law of Scotland and the law of England reached similar conclusions in such cases, the route taken to arrive at these conclusions is different in Scotland from that taken in the law of England. In the law of Scotland the question is not one of whether or not the lender can be fixed with constructive notice that the challenged transaction has been entered into through undue influence or misrepresentation. The question in Scotland is whether the lender can be said to have acted, in all the circumstances, in good faith.
9. Having made those preliminary points with regard to what was being dealt with in the case of Ettridge, I turn now to consider the submissions of the parties in the present case.
10. Mr MacIlvride, Solicitor Advocate for the first defenders, submitted that, whatever the position might have been pre-Ettridge, it was now the position that the pursuer's averments, in support of the transaction in question, having been obtained by undue influence were insufficient, even if proved, to meet the requirements of the law. In a nutshell, his position was that those averments simply pointed to a transaction which the wife had entered into, as part of the normal, and ordinary, arrangements that a wife might be expected to make in the context of the relationship of husband and wife. The pursuer avers, in Article 2 of Condescendence, that she and her husband have been estranged since about 1995 "because of the matters condescended upon", though they continue to live under the same roof.
11. She then avers that all material times title to the family home has been in their joint names. The averments then continue as follows:

"In 1992 the second defender was one of the three directors of a company of insurance brokers named Thomas Loudon Limited. The first defenders lent the company a sum of money by way of an overdraft. The first and second defenders agreed that a Standard Security would be granted over the family home. The pursuer was not a party to the said agreement with the first defenders. The cautionary or other arrangements between the defenders and the company, by virtue of which the family home became collateral for the company's debts, are to the pursuer unknown."

In Article 3 of Condescendence, it is averred that

"on or about 27 November 1992, the second defender presented the Standard Security to the pursuer and asked her to sign it. She did so. The pursuer's signature was neither witnessed by, nor was it acknowledged by her to the persons who bear to have signed it as witnesses."

In Article 4 of Condescendence are to be found the following averments regarding undue influence, which the defenders' Solicitor Advocate, attacked, as being insufficient to instruct such a case. The averments are as follows:

"The second defender unduly influenced the pursuer, and thereby impetrated the Standard Security from her. (1) The pursuer is employed as a secretary, at a primary school. The second defender is an insurance broker. The price that the pursuer and second defender originally paid for the family home was borrowed from the Bank of Scotland, and the loan secured over the family home. The pursuer relied on the second defender to make all of the financial arrangements in that regard. The second defender never discussed with her the practical aspects of the company's business as insurance brokers. The pursuer relied on the second defender to take all and any decisions relating to the business in the interests of both of them. Accordingly, in respect of financial matters relating to the family home and the business, the second defender had in the foregoing circumstances a dominant or ascendant influence in relation to the pursuer. (2) The pursuer at all material times reposed confidence, trust and affection in the second defender. She had confidence in him and trusted him when he presented the Deed to her for execution. (3) By granting the security the pursuer gave a material and gratuitous benefit to both of the defenders. (4) The pursuer entered into the transaction without the benefit of independent advice or assistance. Neither of the defenders advised her to take independent legal advice before she granted the security. (5) The pursuer executed the Deed in ignorance of material facts. When the second defender presented the Deed to her, he told her only that it was needed for the funding of a transaction by the company, sc., the purchase of another company, and that it was necessary 'to keep everybody happy'. He did not tell her anything else about its nature or affect. He failed to disclose to her at least two other material facts:

(i) he did not tell her that the fact that the loan was by way of overdraft; and

(ii) he did not tell her that he was the only one of the three directors who was granting such a security, (as was in fact the case).

The pursuer did not understand that she was granting the first defenders the right to take possession of the family home and other interests therein. Had he advised the pursuer of the foregoing matters, she would not have signed the security."

12. Mr MacIlvride submitted that those averments were made, it seemed, deliberately to meet the definition of undue influence set out in the Scottish case of Gray v Binny (1879) 7 R 332. In Smith, Lord Jauncey, at p.114 said that the doctrine of undue influence was received from England into Scots law via the decision in Gray v Binny. Lord Clyde in Smith at p.119, pointed out that "the reception from England of the concept of undue influence as a ground of action, distinct from fraud was clearly established in Gray v Binny, but in relation to contracts between close relations the necessity for fairness and avoidance of undue pressure had already been recognised." His Lordship then referred to the case of Fraser v Fraser's Trustees (1834) 13 S. 703 where Lord President Hope at p.710 observed

"where bargains and contracts are entered into between persons standing in the relationship to each other, such as that of husband and wife, parent and child, everything ought to be done as fairly, equally, openly and candidly as possible."

The decisions in Gray v Binny and Fraser v Fraser's Trustees, are binding upon me and Mr MacIlvride did not invite me to do anything other than regard them as setting out the law of Scotland. Nevertheless, he contended that, since the House of Lords in Smith had said that the law of undue influence in both jurisdictions is substantially the same, those earlier Scots decisions had to be read along with the recent pronouncements of the House of Lords in the Ettridge case. Seen in that light, and properly understood, Mr MacIlvride contended that what was said by the court in Gray v Binny set out the requirements for establishing a valid case of undue influence, which the pursuer's pleadings, in the present case fell short of. The facts in Gray were extraordinary. A son, who was 24 years of age, had been induced to grant a deed of disentail for a grossly inadequate consideration by his mother and the family's solicitor, who was also the mother's creditor. This had been done taking advantage of the son's ignorance of his rights and the confidence he placed in both his mother and the family's solicitor. Mr MacIlvride referred me to what was said by Lord President Inglis at p.342, where his Lordship was to the following effect:

"It is not enough, however, for the pursuer of such an action as this to prove that he has given away valuable rights for a grossly inadequate consideration and that he has been betrayed into the transaction by his own ignorance of his rights, without proving deceit or unfair dealing on the part of those who take benefit by his loss. But in order to determine what kind and amount of deceit or unfair practices will be sufficient to entitle the injured party to redress, regard must always be had to the relation on which the transacting parties stand to one another. If they are strangers to each other, and dealing at arms length, each is not only entitled to make the best bargain he can, but to assume that the other fully understands and is the best judge of his own interests. If, on the other hand, the relation of the parties is such as to beget mutual trust and confidence, each owes to the other a duty which has no place as between the strangers. But if the trust and confidence, instead of being mutual, are given on one side and not reciprocated, the party trusted and confided in is bound, by the most obvious principles of fair dealing and honesty, not to abuse the power thus put into his hands."

In his judgment, in the same case, at p.347, Lord Shand said:

"The circumstances which establish a case of undue influence, are, in the first place, the existence of a relation between the grantor and grantee of the Deed which creates a dominant or ascendant influence, the fact that confidence and trust arose from that relation, the fact that a material and gratuitous benefit was given to the prejudice of the grantor, and the circumstance that the grantor entered into the transaction without the benefit of independent advice or assistance. In such circumstances the court is warranted in holding that undue influence has been exercised; but cases will often occur - and I think the present is clearly one of that class - in which over and above all this, and beyond what I hold to be necessary, it is proved that pressure was actually used, and that the grantor of the Deed was in ignorance of facts, the knowledge of which was material with reference to the act he performed. In such a case the right to be restored against the act is of course made all the more clear".

Mr MacIlvride, stressed that these dicta were pronounced in a case where the facts were that actual pressure was borne upon the son and, moreover, he drew my attention to the judgment of Lord Deas as p.350-351 in which his Lordship indicated that he would have been prepared to decide the case on the basis that facility and fraud or circumvention had been established. It is to be noted, however, that Lord President Inglis in his judgment, at p.339, expressly adopted the reasoning of the Lord Ordinary in the case, Lord Young who at p.338 of the report said:

"I considered all the authorities to which I was referred, and the decision at which I have arrived at is, I believe, according to the principle which pervades them applying to the facts with which I have to deal. The principle is that where a relation subsist which imports influence, together with confidence reposed, on the one side, and subjection to the influence of the giving of the confidence on the other, the Court will examine into the circumstances of any 'transaction of bounty' (to use Sir S Romilly's expression) between parties so related, whereby the stronger party (using the term for brevity) greatly benefits at the cost of the weaker, and will give relief if it appears to have been the result of influence abused or confidence betrayed. I do not represent this as a complete and exhaustive statement of the principle, which is very general, and applicable to an infinite variety of cases, and only submit it as sufficient for the case I am now dealing with. That a person sui juris may be as liberal as he pleases, and to whom he pleases, is a truism, and assuredly no bounty is more natural or commendable than that of a son to his mother. The facts of particular cases are nevertheless to be considered, and when it appears that the bountiful party has not been fairly dealt by, relief may, at least in many cases, be given. What shall be accounted unfair dealing towards a party from whom a benefit is taken may be a question of more or less difficulty, and there are no doubt cases in which the court declined to interfere on any grounds short of fraud of the character which would taint any ordinary transaction. It is here that the doctrine of the cases applicable to relations importing influence and confidence reposed on the one side, and subjection to that influence and the giving of that confidence on the other, is of practical importance. The doctrine limits the class of cases which the court may investigate and decide by rules which, while importing no interference with liberty, are promotive of justice and public utility. That a party has obtained from a dependent what appears prima facie to be an undue advantage is not, in general (subject to some exceptions) conclusive, for the dependant in the full knowledge of what he was doing, may have meant to give it to him. In such a case a court will only suspect some abuse of influence and confidence and therefore investigate the circumstances of the transaction. One very general rule of the court (I do not put it more strongly) is that in a transaction such as is generally accomplished with professional assistance the party from whom any considerable benefit is taken by one standing to him in a relation of influence and confidence, ought to have the protection of independent and professional advice and that there is a presumption (which it will be at least hard to overcome) of unfair dealing if he had not. The present case, in the view I take of it, is a particularly strong one for the application of this rule."

It will be seen that Lord Young, in that passage, stressed the need for independent advice to be given to the party conferring the gratuitous benefit at least where the transaction in question was one which normally would be attended with professional advice or assistance. The Solicitor Advocate for the first defenders then referred me to the case of Honeyman's Executors v Sharp 1978 SC 223 for the proposition that what one is looking for, before there can be a case of undue influence operating in the relationship of husband and wife is "a transaction crying out for explanation". In Honeyman, the Lord Ordinary, Lord Maxwell, after a procedure roll discussion, allowed a proof before answer, in a case where it was averred that a woman had gifted valuable paintings to a fine art dealer, due to the undue influence he exercised over her. His Lordship held that, in principle, the law of undue influence could apply to such a relationship of adviser and client, and that undue influence involved some kind of abuse of a position of trust for the benefit of the person in whom the trust was confided. His Lordship, furthermore, held that whether or not there had been such abuse could not readily be confined within stated rules or ascertained on the basis of written pleadings, without enquiry into the facts. Mr MacIlvride, however, relied on a passage in Lord Maxwell's opinion at p.230 where his Lordship said:

"This brings me to the question of presumptions and onus. Without at this stage going so far as suggested by counsel for the pursuer, in my opinion, there must be cases where the facts as proved raise a prima facie inference that a gift has been acquired by abuse of a position of trust and which at least cry out for an explanation even though the precise mode of abuse is not known and might indeed be too subtle to be readily capable of precise expression. In my opinion the averments in this case, if proved, in the light of the appearance these facts take on when developed in the evidence may (I put it no higher) raise such an inference."

Adopting that passage, Mr MacIlvride, said that the pursuer's pleadings, in the present case, did not set out a transaction crying out for an explanation and, absent any averments of other exceptional, special or extraordinary circumstances in the relationship, no relevant case of undue influence had been averred. That reference, by Lord Maxwell, to a transaction crying out for an explanation was also reflected, Mr MacIlvride submitted, in the approach of their Lordships in the House of Lords in the case of Ettridge. He referred me to a number of passages in the speeches in Ettridge in support of that submission. So, for example, Lord Nichols, at p.1030, para.14 had said:

"Proof that the complainant placed trust and confidence on the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence contrary, to discharge the burden of proof."

The sort of exceptional circumstances that require to be averred, and proved, were what were described by Lord Clyde at p.1050, para.93 when he said:

'There is a considerable variety of the particular methods by which undue influence may be brought to bear on the grantor of a Deed. They include cases of coercion, domination, victimisation and all the insidious techniques of persuasion."

I was further referred to what Lord Scott said at p.1073, para.156 where he stated:

"It is, in my opinion, the combination of relationship and the nature of the transaction that gives rise to the presumption and, if the transaction is challenged, it shifts the onus to the transferee."

Reliance was also placed, by Mr MacIlvride, in this respect, on what Lord Nichols had to say at paras.30-31, at p.1034 and what Lord Scott said at para.159 at p.1076, all of which, taken together, in the submission of the first defenders' Solicitor Advocate, meant that, absent some averments of the relationship of husband and wife in the instant case being in some respects extraordinary and/or the transaction being one that cried out for an explanation, a relevant case of undue influence did not arise. It was submitted that an illustration of an extraordinary husband and wife relationship was provided by the facts of one of the conjoined cases considered in Ettridge, viz. Barclays Bank plc v Coleman & Another. In that case the couple were Hassidic Jews whose religion required the wife to accept a position of subservience and unquestioning obedience to the wishes of her husband. Lord Scott at para.291, p.1101 agreed that the Court of Appeal was quite right in regarding this as a case in which there was a presumption of undue influence because of the nature of the relationship in question. Mr MacIlvride's submission was that this was in line with Scots law which required the party, seeking to challenge the transaction, being in a peculiar degree liable to the influence of the other party in the relationship. What was missing from the pleadings of the pursuer in the present case, he contended, were averments of an exceptional relationship of husband and wife or a bargain crying out for explanation or some clear abuse of the ordinary relationship of husband and wife. In the absence of such averments, no relevant case of undue influence had been pled. All that had been pled in the present case, were averments which, following the approach of their Lordships in Ettridge, involved a transaction which was to be expected in the ordinary relationship of husband and wife. Even if one tested the matter simply by reference to the older Scottish cases, the averments did not meet the test set out, for example, by Lord Shand in Gray v Binny, since there were no factual averments supportive of a dominant or ascendant influence being exercised by the second defender upon the pursuer. It had to be averred that the wife was, for some particular reason, in "a peculiar degree liable to the influence" of the husband to use the words of Lord President Inglis in Gray v Binny at p.342. The fact that the transaction was said to be gratuitous did not avail the pursuer because it was simply averred that what had occurred was the granting of a security over the matrimonial home in connection with the husband's business and such transactions were, following the approach of their Lordships in the case of Ettridge, not to be regarded as inappropriate, rather they were to be regarded as normal, absent special facts and circumstances. The averments of lack of independent advice, again, did not assist the pursuer because that was a feature of some of the cases considered by the House of Lords in Ettridge and yet the transactions in question were held not to be attackable. To aver, as the pursuer did, she signed the security document in ignorance of the material facts, did not sit easily with her averments that she trusted her husband to take the decisions relating to their financial affairs. Mr MacIlvride asked how this squared with any need to be told about the effect and nature of the transaction in question.

13. In reply, as previously noted, counsel for the pursuer sought a proof before answer but under deletion of certain averments of the first defenders to be found in Answer 5, p.14D to the end of that Answer at p.16, which apparently seek to set out in what way the first defenders were acting in good faith.
14. The pursuer had four propositions to support the relevancy of her pleadings regarding undue influence, at this stage, at the proceedings. The first was that she offered to prove sufficient facts to make out a plea of undue influence in terms of which the plea had been authoritatively defined in the law of Scotland. The second proposition was that the attack by the first defenders, on the pursuer's pleadings, in relation to undue influence, under reference to English and Scots authority was unsound because it, at times, confused two things, the first being the definition of undue influences as a matter of the substantive law of obligations relating to consent improperly obtained, and the second being the circumstances, under which a presumption of undue influence, may arise as a matter of the law of evidence.
15. The pursuer's third proposition was that the submissions on behalf of the Bank, in effect, amounted to saying that there is a presumption that transactions involving husbands and wives, are post-Ettridge, not impetrated by undue influence, and such a presumption is simply not supported by the authorities, including Ettridge. The fourth and last proposition was that undue influence was a doctrine of imprecise definition which the authorities hold is a matter which should not be determined, normally, without first hearing evidence relating to it.
16. In advancing his first proposition, counsel for the pursuer founded on Gray v Binny. That case, I was reminded, is binding on me and Mr Upton referred to the passage cited supra from the judgment of Lord Shand, at p.347, which, he submitted, was the locus classicus, of the definition of undue influence in Scots law. The judgments of both the Lord President and Lord Deas did not, in any material respect, contradict it. The pursuer, in the present case, had pled all the components contained in Lord Shand's definition, i.e.:

(1) A relationship which created a dominant and ascendant influence;

(2) Confidence and trust arising from that relationship;

(3) A material and gratuitous benefit given to the prejudice of the granter; and

(4) That the granter had entered into the transaction without the benefit of independent advice or assistance.

In Forbes v Forbes' Trustees 1957 S.C. 325, which was not a husband and wife case, but one involving a parent and child, Lord Guthrie, after a proof reviewed the Scots authorities on undue influence and, in particular, at p.332 applied the dictum of Lord President Clyde in Ross v Goselin's Executors 1926 SC 325 at p.334 to the effect that:

"The essence of undue influence is that a person who has assumed or undertaken a position of quasi fiduciary responsibility in relation to the affairs of another, allows his own self interest, to deflect the advice or guidance he gives, in his own favour."

Lord Guthrie went on to say that the statement of the law was consistent with what was set out by Lord President Inglis in Gray v Binny at p.342 supra. These dicta, counsel submitted, did not desiderate, for the principle to be applicable, that the relationship itself had to involve some extraordinary dominance of the one party over the other. The essence of the matter was the abuse of a position of trust for the benefit of the person in whom the trust was confided. Counsel referred to the passage in Smith where Lord Clyde at pp.119-120 had referred, with apparent approval, to the observations of Lord President Hope in the case of Fraser v Fraser's Trustees at p.710. Counsel for the pursuer accepted that it was insufficient to support a case of undue influence to aver simply the existence of a relationship of husband and wife and a transaction entered into by the wife which benefited the husband, but the pursuer's averments, cumulatively, he submitted in this case, went significantly further than that. Of particular significance was the fact that the transaction involved not simply a guarantee in respect of the debts of her husband or his business, but also his co-shareholders, who themselves did not, on the face of things, provide any security. She was providing the security for his business associates therefore, who were not putting their own assets at risk. In addition, of considerable importance, was the fact that the pursuer executed the Deed in ignorance of material facts and that the second defender, her husband, had not disclosed material facts relating to the transaction. She was offering to prove that had she known the true position, she would not have signed the Deed. Counsel relied on the passage from the judgment of the Lord Ordinary, Lord Young in Gray v Binny which I have set out supra. He pointed out that both the Lord President and Lord Deas in Gray v Binny had associated themselves with Lord Young's reasoning. The averments of the pursuer amounted to a claim that there had been "unfair dealing" towards her as the bountiful party to use Lord Young's language. Both he and Lord Deas had stressed that the absence of independent advice might be very significant. The pursuer, in the present case, averred that factor. Lord Deas had, at p.351 in Gray v Binny, pointed out that it was not for the court to speculate what the granter might have done had he or she known of the true position, but, in any event, here the pursuer offered to prove that she would not have signed the Deed had she known all the material facts.

17. The pursuer's case, as pled, was that the second defender had abused the relationship of trust and confidence arising that from the fact of the parties' married state, by failing to fulfil his duty of candour in explaining a transaction from which he and others were going to benefit. If such a case was proved, on the facts, it would be sufficient to establish undue influence. That was wholly in line with what Lord Nichols said at paras.32-33 of Ettridge cited above. Moreover, that statement of the law was wholly in accordance with what was set out in the Scottish authorities, in particular, the dicta of Lord President Hope in Fraser v Fraser's Trustees. It was wholly at one with what was said in the case of Woodward v Woodward and Others (1910) 2 S.L.T. 153 at p.166, a father and son case, which was decided on the basis of the law relating to essential error, but where the Lord Ordinary castigated the conduct of the father whereby he took advantage of his position to further his own interest, without giving his son all the material facts and ensuring that separate advice was obtained by the son. Further reference was made to the judgment of Lord President Clyde in Ross v Goselins' Executors 1926 SC 325 at p.334 and to the judgment of Lord Walker in Allan v Allan 1961 S.C. 200 particular at p.204, all of which, counsel submitted, reinforced his position that it was sufficient to make out a case of undue influence to aver and prove the abuse of a relationship of trust and confidence where the abuse arose from the person in whom trust and confidence had been placed, advancing his own interests, without being open and candid about matters to the other party.
18. I am entirely satisfied that these submissions were soundly based. As I noted at the beginning of this Opinion, I do not read the decision of the House of Lords in Ettridge as involving any change in the substantive law on undue influence for England. It clearly did not set out to change the existing law of Scotland in this area. The law of Scotland on the subject, is to be found in the cases cited to me from Fraser v Fraser's Trustees to Smith v The Bank of Scotland. In my judgment, it cannot be said that the facts and circumstances set out in Article 4 of Condescendence, in the present case, to support the case of undue influence, fail to meet the requirements of the law to be found in those authorities. It is furthermore noted that the pursuer's averments include at least the suggestion of active misrepresentation by the husband of the nature and purpose of the transaction. Moreover, the circumstances set out in the pursuer's pleadings, appear to me to offer to prove a case which, having regard to what he said at paras.30-32 of his speech, Lord Nichols in Ettridge would have regarded as potentially amounting to a case of undue influence in England. On that ground alone, the first defenders' attack on the relevancy of the pursuer's pleadings, at this stage, fails.
19. Lest I be wrong about that, I now turn to deal with the pursuer's second proposition. While this was the subject of lengthy and detailed submissions by counsel for the pursuer, I can deal with it relatively briefly. While the first defenders' submissions, relying on certain dicta from Ettridge, built up a superficially attractive case that, the husband and wife relationship, undue influence would nowadays only be seen to operate where extraordinary circumstances are averred and proved, that case was based on a failure to keep in mind what their Lordships were dealing with when those dicta were pronounced by them. What they were concerned with was an evidential issue, namely, what circumstances must be averred and proved, before a presumption of undue influence, in the context of a husband and wife relationship arises. That is a different question from what is necessary, or sufficient, to aver and prove, to establish a case of undue influence, according to the substantive law on that matter. In Honeyman's Executors, supra, Lord Maxwell at p.229 identified these two distinct questions when he said, "there are two related questions here. First what kind of conduct amounts to 'undue influence' and second, how is it proved and where does the onus lie?" He went on to say at p.230 that certain cases, on their facts, may create a presumption that the transaction was brought about by undue influence. That passage was referred to by Lord Clyde in Smith v Bank of Scotland at p.119 where his Lordship was to the following effect:

"It appears from the study of a number of Scottish cases, which counsel for the Bank reviewed, that no obvious recognition is given in Scotland to any established presumptions in this area of the law. But on the other hand, in Honeyman's Executors v Sharp, Lord Maxwell, without defining the limits of the kinds of cases to which the principle of undue influence might arise, recognised at p.230, that: there must be cases where the facts as proved raised a prima facie inference that a gift has been acquired by abuse of a position of trust and which at least cry out for an explanation, even though the precise mode of abuse is not known and might indeed be too subtle to be readily capable of precise expression."

While it appears that there may be a greater and more defined role for the operation of presumptions in this area in English law, the distinction between evidential burden and the components of what might amount to undue influence, in any particular case, is recognised clearly in all the other speeches of the judges who in Ettridge gave detailed opinions. I would simply refer in that connection, in particular, to the speech of Lord Nichols at paras.13-14, and paras.16-17. The point is, in my judgment, best put by Lord Hobhouse in his speech in Ettridge at para.106 where he said:

"....the general burden of proving some form of wrongdoing remains with the wife, but the evidence which she has adduced may suffice to raise an inference of wrongdoing which the opposite party may find itself having to adduce evidence to rebut. If at the end of the trial the wife succeeds on the issue of undue influence, it will be because that is the right conclusion of fact on the state of the evidence at the end of the trial, not because of some artificial legal presumption that there must have been undue influence."

While the factual averments made by the pursuer, in the present case, may not raise any presumption or inference that the transaction was brought about by the undue influence which the second defender requires to rebut, that is not to say that, after proof of these facts, she will necessarily fail in establishing a case of undue influence. While passages from the speech of Lord Scott in Ettridge would, perhaps at times, at least, seem to suggest that the co-cautioner wife, absent exceptional circumstances, in a case like the present, may have a very difficult evidential burden to discharge in establishing undue influence, he did not rule out, at least, the possibility that such a case may be established. That is clear from what he says at para.162 where he was to the following effect:

"In the surety cases it should, in my opinion, be recognised that undue influence, though a possible explanation for the wife's agreement to become surety, is a relatively unlikely one." (my emphasis)

It is enough, applying the test in Jamieson v Jamieson, for the pursuer, in the present case, that it is possible that she will establish a case of undue influence after proof.

20. I am satisfied, therefore, that the pursuer's counsel was well-founded in submitting that Mr MacIlvride's submissions, based on Ettridge, failed to recognise adequately that their Lordships, in that case, were not seeking to re-define the components of the law on undue influence either by increasing or reducing the necessary ingredients for a case to succeed after proof.
21. Pursuer's counsel's third proposition was related to the second and was to the effect that the submissions of the first defenders' Solicitor Advocate in effect amounted to saying that there was a presumption now, following Ettridge, that a transaction entered into by a wife, if done so on the basis of an ordinary husband and wife relationship, had not been entered into by any undue influence on the part of the husband. I am satisfied that there is simply no support in the speeches of their Lordships in Ettridge for the existence of such a presumption.
22. Finally, in his reply to the defenders' motion seeking dismissal, at this stage, counsel for the pursuer reminded me that the decisions of the courts, in this area of the law were, at one, in emphasising that the court should be slow to decide such cases without enquiry, provided that the pursuer made some averments of facts and circumstances which could provide the components of the concept. So, far example, in Forbes v Forbes' Trustees supra, Lord Guthrie at p.331 said:

"I do not think it is desirable or, indeed, possible to frame a comprehensive statement of what does and what does not amount to undue influence. 'As no court has attempted to define fraud, so no court has ever attempted to define undue influence, which includes one of its many varieties.' - per Lindley, L.J. in Allcard v Skinner at p.183. Indeed it is obvious that whether or not a transaction has been brought about by undue influence will depend on the circumstances of the particular relationship between the person exercising it and the person subjected to it, and the precise nature of the particular transaction."

Again, in Honeyman's Executors, Lord Maxwell, at p.230, having referred to the dictum of Lord Guthrie, which I have just quoted, said:

"What is involved is some kind of abuse of the position of trust for the benefit of the person in whom the trust is confided and it seems to me that whether there has been such an abuse to an extent which would justify the court's interference is a matter which cannot readily be confined within stated rules or ascertained on the basis of written pleadings, without enquiry into the facts."

In Ettridge, Lord Clyde at paras.92-93, in the passage cited above, was to the same effect and Lord Hobhouse, in the same case at para.106 opined that in a husband and wife surety cases a conclusion as to whether undue influence had been used or not should be reached after "having received evidence". Moreover, at para.123, Lord Hobhouse said:

"There is an important distinction to be drawn between cases which had been tried where the parties have been able to test the opposing case and the trial judge was able to make findings of fact having seen the critical witnesses and evaluated the evidence. By contrast, in those cases where the lender is applying for an immediate possession order without a trial or to have the defence struck out, and the court is being asked to hold that, even if the wife's allegations of fact be accepted, the wife's case is hopeless and bound to fail and that there is no reason why the case should go to trial. This conclusion is not to be arrived at lightly, nor should such an order be made simply on the basis that the lender is more likely to succeed. Once it is accepted that the wife has raised an arguable case that she was in fact the victim of undue influence and that the bank had been put on enquiry, it will have to be a very clear case before one can say that the bank should not have to justify its conduct at a trial."

These authorities give clear and powerful support for the proposition that a pursuer's pleadings, in a case like the present, should not be subjected to over-critical scrutiny at the stage of a debate on relevancy. Provided they set out some basis which arguably might, after enquiry, allow the pursuer to attack the transaction as having been obtained through undue influence, as that notion is defined in the authorities, she should be allowed an enquiry into the facts. In addressing the arguments put forward by the first defenders' Solicitor Advocate that the pursuer had failed to make out a relevant case of undue influence, I have had those authorities very much in mind.

23. I turn now to deal with the pursuer's attack on the defenders' pleadings, insofar as these seek to set out that they acted in good faith in the matter. Counsel for the pursuer's main basis of attack in relation to this matter turned on an application of the law of agency. The defenders' case on good faith, at pps.14-16 of the Closed Record, turns crucially on the averments that receipt of correspondence from the solicitor, Mr MacLeod, who was acting for them in the transaction, and in which he held himself out as acting also for the pursuer, entitled them to believe that he was truly so acting and that he would have advised the pursuer about the consequences of her signing the security deed and that she should seek independent advice, all in compliance with his duties under Rules 3 and 7 of the Solicitors (Scotland) Practice Rules 1986. Mr Upton contended that, on their averments, Mr MacLeod was acting as the agent of the first defenders and that, on that footing, they were fixed with his knowledge that he was not, in fact, acting for the pursuer. The first defenders' averments on this matter are, however, to the following effect:

"The first defenders reasonably believed Mr MacLeod acted for both the pursuer and the second defender. Mr MacLeod represented to the first defenders that he acted for both the pursuer and the second defender."

There are then averments relating to two letters sent to the first defenders, by the solicitor, Mr MacLeod, dated 2 November and 7 December 1992. The first defenders, in respect of these letters aver:

"In the heading of each letter he referred to both the pursuer and the first defenders, together with the address of the security subjects. It is customary for a solicitor in correspondence to identify his clients by naming them in the heading of his letters. On receiving said letters the defenders were reasonably entitled to, and did, believe that Mr MacLeod acted for both the pursuer and the second defender. Mr MacLeod did not at any time advise the first defenders that he did not act for the pursuer or that he acted for the second defender only."

It appears that the reference in those averments to the heading of each letter referring to the pursuer and the first defender should, perhaps, have said the pursuer and the second defender. Be that as it may, there is no admission on Record that Mr MacLeod did not, in fact, act for the pursuer in respect of the execution of the Security Deed.

24. Moreover, while I can accept that, in certain circumstances, the knowledge of an agent is imputed to the principal, the metes and bounds of that must normally be circumscribed by the nature and extent of the mandate given by the principal to the agent. In addition, in my judgment, the principal may not necessarily be fixed with knowledge of the true position if the agent has deliberately misrepresented to him what the position was.
25. In making his submissions in support of his argument, Mr Upton relied largely on certain dicta from the speeches of their Lordships in Ettridge in which knowledge of the solicitor acting for the Bank is said to be attributable to the Bank. Those dicta, however, arose in the context of a discussion of the English law of constructive notice and the steps which their Lordships were setting out, in that case, which a bank must now take to avoid having ascribed to it constructive notice of the transaction having been brought about by undue influence. In particular, their Lordships were holding, as I understand them, that if a bank is put on enquiry that a transaction may have been brought about by undue influence, it cannot assume that a wife has had a solicitor acting for her in the transaction or that he has discharged his duties towards her. According to the decision in Ettridge in English law the Bank must now check the position directly with the wife and obtain confirmation from the solicitor that the transaction has been explained to her: see Lord Nichols at para.79 of his speech. None of this, in my judgment, turns on an application of the common law of agency as such and, in particular, the imputation of knowledge of the agent to his principal. To some extent the discussion in the case of Ettridge relating to these matters did turn on the provisions of the Law of Property Act 1925, which, of course, does not apply to Scotland: see, for example, Lord Scott, at p.176, paras.263-264 and compare Lord Hobhouse at p.1219-1202. Mr Upton sought to equiperate the approach reflected in these dicta with what arises from the common law of agency in Scotland. In this connection he referred me to the case of Leith Heritages Company v Edinburgh & Leith Glass Company (1876) 3 R. 789. That was a case in which the pursuers were suing on a warrandice clause in a disposition on the basis that they had not obtained a title to certain subjects. The pursuers' agent, who had been acting on their behalf in the conveyancing transaction, admitted that when he was preparing the disposition he had become aware that the defenders had no title to the subjects in question. The court, in concluding that, in the circumstances, the defenders had only undertaken to put the pursuers in their place and had not disponed, nor warranted the subjects in question to the pursuers, had regard to the fact that the pursuers' agent knew the true position regarding the title, before the transaction was completed. In deciding the matter, the Lord Justice Clerk at p.796 based his decision on two grounds, firstly, the true construction of the conveyance and, secondly, the good faith of the transaction. In respect of the latter, the disponee was fixed with the knowledge of his agent as to the true position regarding the title. That decision is entirely understandable. The pursuers had instructed their agent to obtain the title in question. That was the mandate given to the agent. If the agent, in the exercise of that mandate knew full well the extent of the title being offered did not cover the subjects in question, but, nevertheless, proceeded with the transaction, the pursuers could not claim any breach of warrandice arising from the disposition. But that case, in my judgment, is no authority for the proposition that where an agent, acting for one principal, informs that principal that he is also acting for another, when in fact he is not, the principal is fixed with knowledge of the true position, which has been misrepresented to him. It is not a case of the agent acquiring knowledge during and due to his agency with the principal. It is a case where what is being suggested is that the agent's misrepresentation as to who he was acting for, apart from the principal, does not allow the principal to proceed on that footing. Mr Upton referred me to the judgment of Hoffmann L.J., as he then was, in the case of El Ajou v Dollar Land Holding plc and Another (1994) 2 All ER 685. The question that arose in that case related to whether a company, receiving improperly obtained money, was liable to the true owner of the money. The Court of Appeal held it was so liable because the company had the required degree of knowledge that the money had been improperly obtained because its chairman, who was the "directing mind and will of the company" had actual knowledge of how the money had been obtained. The Court of Appeal, however, rejected an argument that the chairman's knowledge could be, as a matter of law, imputed to the company on the basis that he acted as the agent of the company in the transaction, because the company was under no duty to enquire as to the source of the monies. The court, moreover, held that, even if the agent was under a duty to inform the company that the monies in question were the proceeds of fraud, that duty alone was not a ground for imputing such knowledge to the company. In addition, as the agent had, in fact, acquired the information about the fraud while acting for a third party and not in his capacity as agent for the company, the principle that communication to an agent was deemed to be communication to the principle did not apply. For all these reasons the chairman's knowledge could not be imputed to the company on the ground of agency. Although Mr Upton sought to pray this case in aid in support of his submissions, I consider that, when it is properly understood, it is, in fact, rather against him. Moreover Hoffmann L.J., in addressing the argument based on agency, issued the following salutary warning, at p.702:

"The circumstances in which the knowledge of an agent is imputed to the principal can vary a great deal and care is needed in analysing the cases. They fall into a number of categories which are not always sufficiently clearly distinguished."

His Lordship then went on to discuss three categories of cases. Mr Upton founded on the second of these categories. This was described by Hoffmann L.J. in the following terms, at p.702:

"Secondly, there are cases in which the principal has a duty to investigate or to make disclosure. The duty to investigate may arise in many circumstances, ranging from an owner's duty to enquire about the vicious tendencies of his dog (Baldwin v Casella (1872) L.R. 7 Ex. Ch. 325 at 326-327) to the duty of a purchaser of land to investigate the title."

The latter type of situation might be seen to be of the sort dealt with in the Leith Heritage Company case supra. His Lordship then continued:

"or there may be something about a transaction by which the principal is 'put on enquiry'. If the principal employs an agent to discharge such a duty, the knowledge of the agent will be imputed to him. (There is an exception, the scope of which it is unnecessary to discuss, in cases in which the agent commits a fraud against the principal)."

In the present case it is not averred that the first defenders employed the solicitor for the purposes, inter alia, of enquiring or investigating into who (if anyone) was acting for the pursuer. Nor is it averred that there was anything in the transaction to put the Bank on enquiry that the solicitor was not acting for the pursuer, when he was holding himself out as doing so. Accordingly I do not see that the judgment of Hoffmann L.J. is relevant to the circumstances arising in the present case.

26. I should before leaving this chapter of the case note that in a recent Scottish husband and wife cautionary case, the role of imputed knowledge of a principal in the principal/agent relationship was discussed. The case, in question, is Broadway v Clydesdale Bank, 27 April 2001 (unreported). In that case Lord Macfadyen was, it seems, prepared to accept that a bank, who had employed solicitors to act for them in the preparation of a security deed, could be regarded as having the knowledge or belief of the solicitor that he was acting for the wife and that his knowledge that he had tendered advice to her could be regarded as having transmitted to him in his capacity as the bank's solicitor, and through him, in that capacity, to the Bank - see p.27 of the Opinion. His Lordship, however, had already decided that the Bank had acted in good faith, in the circumstances of the case, and saw this factor simply as re-enforcing that good faith. Counsel for the pursuer in the present case did not refer me to that passage in Lord Macfadyen's judgment in the Broadway case. Without expressing any view about the soundness, or otherwise, of Lord Macfadyen's approach on this point, I have to observe that, in the present case, the point arises in a different way, that is what is being contended for here is that where there is no reasonable belief on the part of the solicitor that he is acting for the wife and, indeed, actual knowledge that he is not, and where, moreover, he is holding himself out to the principal that he is, in fact, acting for the wife, the principal should be fixed with the agent's knowledge, so as to put the Bank in bad faith. For the reasons I have already given I am far from satisfied that that is a proposition that is supported either by principal or authority.
27. It is, however, true that the first defenders' averments in the present case do not appear to meet the requirements now set out by the House of Lords in Ettridge if a bank, or other lender, is to obtain protection when a transaction has been brought about by undue influence and they had been put on enquiry about that possibility. Accordingly, ultimately, the real question appears to me, therefore, to be whether, having regard to what is said in Ettridge, about the steps that banks, or other lenders, must now take to obtain protection in such cases, the first defenders' averments in support of their having acted in good faith, are now no longer relevant in the law of Scotland. In a number of recent Scots cases averments, to similar effect as those relied upon by the first defenders in this case, have been held to provide a relevant defence to a claim against a lending institution that a Security Deed, granted in their favour, should be set aside because it was obtained through undue influence. I would refer, in particular, to the case of Forsyth v The Royal Bank of Scotland plc 2000 S.L.T. 1295. In that case the husband and wife granted a Standard Security over the matrimonial home in favour of the bank. The bank averred that they had a reasonable belief that the solicitors they had instructed acted for all parties in the transaction, and that they were entitled to rely on those solicitors fulfilling their duty to advise the wife that she should be separately and independently advised if there was a conflict of interest. Lord Macfadyen held that, in such circumstances, the bank was entitled to infer from the involvement of solicitors, on the wife's behalf, even though they appeared to be acting for both the wife and her husband, that she would be properly advised as to the nature and consequences of the transaction and that the bank did not require, in order to preserve their good faith, themselves to undertake the task of advising her, nor to seek express confirmation that the solicitors had done so. The wife's averments of lack of good faith on the part of the bank, in such circumstances, were, therefore, held to be irrelevant and the action brought by her was dismissed. It is to be noted that the bank in that case relied, for support of their position as being one of good faith, on the Solicitors (Scotland) Practice Rules 1986, which are relied upon by the first defenders in the present case and these clearly played a part in Lord Macfadyen's reasoning to the effect that the bank was entitled to believe that the solicitor would act in certain ways - see p.1304. Lord Macfadyen applied his reasoning in the Forsyth case to the circumstances of the subsequent case of Wright v Cotias Investments Inc. 2000 S.C.L.R. 326 and in the Broadway case supra. It is of some importance, in my judgment, to note that while in Ettridge, Lord Clyde began his speech by saying that he agreed with the speech of Lord Nichols (without any qualification) he, nevertheless, went on, it seems to me, at least on one reading of what he said, to distance himself, in effect, from the approach of Lord Nichols, and the other judges in Ettridge, who were, in my judgment, clearly setting out, in prescriptive form for English law, the minimum steps that a lender requires to take when put on notice as to possible undue influence having brought about the transaction. At para.94 Lord Clyde said:

"The second point relates to the steps which were suggested in Barclays Bank plc v O'Brien (1994) 1 AC 180 as being appropriate for the lender to escape constructive notice of the wrongdoing in question. I agree that what was suggested in the case was not intended to be prescriptive. So far as past cases was concerned it was said (Lord Browne-Wilkinson, at p.196) that the creditor 'can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice'. Those two courses of action were reflected in the Scottish case of Smith v Bank of Scotland 1997 S.C. (H.L.) 111, 122 by the suggestion which I made in relation to the corresponding situation under Scots law 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'. That statement echoed what was understood to be the existing practice recognised by banks and building societies and it seemed to me that steps of that kind ought to be enough to enable the creditor to counter any allegation of bad faith. But Lord Browne-Wilkinson proposed more stringent requirements for the avoidance of constructive notice in England for the future."

Lord Clyde then set out the steps that Lord Browne-Wilkinson had proposed in O'Brien and he then continued:

"One course is for the lender himself to warn the surety of the risk and to recommend the taking of legal advice. But there may well be good reasons, particularly for banks, to feel it inappropriate, or even unwise, for them to be giving any detailed form of warning or explanation, and to take the view that it is preferable for that matter to be managed by a solicitor acting for the wife. It is certainly possible to suggest courses of action which should be sufficient to absolve the creditor from constructive notice of any potential undue influence... But matters of banking practice are principally matters for the banks themselves in light of the rights and liabilities which the law may impose upon them. I would not wish to prescribe what those practices should be. One can only suggest some courses of action which should meet the requirements of the law. They are not matters of ritual, the blind performance of which will secure the avoidance of doom, but sensible steps which seek to secure that the personal and commercial interests of the parties involved are secured with certainty and fairness".

What is, in my judgment, of particular significance, for present purposes, is that his Lordship went on to refer to the case of Forsyth and did not seek to criticise the approach adopted by Lord Macfadyen in that case as to what would be sufficient, for a lender to establish that they had acted in good faith. His Lordship said:

"In the Scottish case of Forsyth v Royal Bank of Scotland plc 2000 S.L.T. 1295, it appeared to the creditor that the wife had already had the benefit of professional legal advice. In such a case, it may well be that no further steps need be taken by the creditor to safeguard his right."

It seems to me, therefore, that, as a result of what Lord Clyde said in Ettridge, in the passage just cited, taken together with what his Lordship said in the case of Smith, where a lender seeks to escape from the consequences of the transaction having been entered into due to undue influence on the basis that he acted in good faith, the approach of Scots law as to how this might be established by the lender, in the circumstances of any particular case, would appear, at present, to be less prescriptive than what is now required to be done by lenders in England, if they are not to be fixed with constructive notice that the transaction was entered into by reason of undue influence. It might be said that it is not altogether satisfactory to have the requirements which lenders must meet in such situations being different depending upon in which jurisdiction the matter arises, but that does appear, at least on one view of matters, to be the unavoidable result of what Lord Clyde had set out as being the position in Scotland in the case of Smith and which he has now discussed in his speech in Ettridge.

28. In any event, I am satisfied that, standing what Lord Clyde has said in those cases, it cannot be said that as Scots law presently stands, the first defenders' averments which seek to support their good faith in this case, can be said to be clearly irrelevant.
29. In the course of preparing this opinion it was brought to my attention that very shortly after the procedure roll discussion before me in the present case, an Extra Division heard the appeal in the case of Clydesdale Bank v Black which was concerned with certain of the issues raised in the present case. Their Lordships decision in the appeal was issued on 10 May 2002.
30. I have decided it would be appropriate to allow parties, in the present case, to address me, if so advised, as to whether the decision in Clydesdale Bank v Black has implications for the present case. I shall, accordingly, put the case out By Order, for that purpose.