"From the time when the pursuers first consulted the defender in relation to the land, a relationship had developed between them whereby the defenders reposed considerable trust and confidence in the defender. The said relationship of trust and confidence continued after the defender proposed his own purchase."

The duties which it is said the defender continued to labour under are exactly those which are averred to have applied to him as agent, including the duty not to allow his interests to conflict with theirs.

[13 ] The defender avers that

"from the time the defender indicated, and the pursuers accepted, the defender's proposal for the purchase of the land, the relationship was one of arm's-length dealing. Both parties were separately represented by law agents in the negotiation of the sale of the land."

He avers that none of the duties averred by the pursuer were incumbent upon him.

Evidence/facts

[14 ] The pursuers initially engaged the defender as their agent to act for them in marketing the property and to get "the best deal possible" for them, having been introduced by his brother whom they knew. He advised them to market the property by targeting specific builders known to be active in the area and undertook to do this on their behalf. As a result of his efforts a number of builders voiced an interest, with an actual offer finally being made by Tulloch Homes Ltd in September 1996 in terms of which a price of £450,000 would be paid by instalments. A new house would be built for the pursuers, the cost being deducted from the overall price. There were numerous conditions in this offer which had not been resolved when the defender wrote to the pursuers suggesting a rethink. Shortly after this, the defender, at a meeting with the pursuers, made the proposal that he would become involved in developing the site, having by now become involved in doing some development work. The pursuers understood that this would be a joint venture between the defender and Cala Finance. There was some discussion of the price being increased by £40,000 or £50,000. The defender said, and I accept it, that it was the pursuers who wished to get the sum to amount to £500,000 in total and he later came up with a mechanism (a top-up for each house sold) to achieve this. The pursuers responded favourably to the defender's offer. Asked why, the first pursuer replied:

"Well, I trusted him. I also felt that it was protracted negotiations all the way up till then. Things hadn't seemed to go as fast as I would have thought they would have gone."

"He was going to increase it (the offer) by £50,000 and he was going to make it a lot faster and speedier, and that seemed a positive overture."

He also added:

"I felt comfortable that he was acting in my interests at that time and that that was a fair offer."

"It looked as if it was going to be speedier, it looked attractive and there was more money on the table and I trusted Neville Brown."

[15 ] The pursuers' evidence was that they took no independent advice on whether the price was a good one, explaining that the defender was aware of market values and they trusted his advice, guidance and support in this exercise.

[16 ] The defender's solicitor, Mr. Haniford, contacted the pursuers' solicitor, Mr. McFarlane, by telephone, after which Mr. McFarlane had a meeting with the pursuers to advise them that if they intended to withdraw from negotiations with Tulloch, he would feel compromised and unable to negotiate with the defender on their behalf. He had given an assurance on their behalf that they would negotiate in good faith with Tulloch. As a result of this Mr. McFarlane ceased to act for them, (apart from completing work already well underway in relation to the access issue), considering himself to be professionally compromised

[17 ] Mr Haniford prepared a draft offer which was sent by the defender to the pursuers on 6 April 1998. The pursuers replied that they were agreeable in principle and had engaged the services of Mr. Vause of Peterkin & Kidd, who would prepare a draft acceptance. Mr. Vause wrote to Mr Haniford on 21 April that "... the offer is, in principle, acceptable to our clients, subject of course to negotiation of the particular terms and conditions".

[18 ] Mr. Vause wrote to the pursuers on 22 April 1998, commenting in detail on the draft offer and saying "we assume that the overall price of £450,000 plus £2,000 for each dwelling house has been agreed. Obviously the number of houses which are built will have a direct bearing on calculating the final value." Mr. Vause offered advice on a number of technical points. However, advice was tendered in relation to two matters which took on a greater significance in the negotiations in due course. First, a proposal to qualify the condition regarding planning permission; and secondly, a suggestion that the defender, rather than the pursuers, should bear the cost of securing the access rights.

[19 ] The pursuers, in the meantime had received letters from both Cala and Tulloch, the first indicating a willingness to increase their offer and the second expressing their dismay at what had happened. There was some evidence that Cala had increased their offer, directly to the pursuers and unknown by the defender, to £425,000 but this evidence was too vague to place much reliance in. The first pursuer sent the two letters to the defender with a letter dated 30 April in which he says "despite the depressing news I get from builders crying about costs viability servicing number of houses etc etc, we are still getting positive overtures..." The defender took this as a "warning shot" to keep him up to the mark.

[20 ] Mr. Vause replied to the draft offer on 21 May 1998 indicating agreement to the basic price of £450,000 and the method of calculating additional payments (£2,000 per house sold), but suggesting that the additional payments be guaranteed at a minimum of £40,000. He also proposed that the defender bear the cost of securing the access. Other proposals were made the most relevant being a security in respect of future payments and a long stop of one year to purify the planning clause.

[21 ] Following further discussion between the parties, a fax dated 28 May 1998 from the defender's solicitors recorded what was understood to have been agreed, which included: payment of £440,000 in full rather than stages (in which case no security was required); that the planning long-stop would be removed to allow for appeal; that the pursuers would be responsible for the cost of securing the access route and that the additional payments would reach a guaranteed minimum of £40,000.

[22 ] It is clear, however, that the pursuers remained concerned about the effect payment to the Woodland Trust would have on the final sum obtained by them. To allay this concern the defender raised the prospect of a profit share, in which he would take 20% of development costs and thereafter profits would be split on a 50/50 basis. The pursuers' replied that this might be attractive, but would need to be discussed in more detail. It indicated that they had asked Mr. Vause to reply on the matter.

[23 ] Mr. Vause wrote to Mr. Haniford on 7 July in that connection and in response to the suggestions referred to at paragraph 21 above, saying that the price of £440,000 payable on entry was acceptable but removal of the planning long stop was not. He said that a period of twelve months represented "a generous concession to your clients". The profit share suggestion was rejected with the comments:

"Having taken expert advice, we understand that the construction industry generally works on 'on site' profit margins of up to 20% but rarely over that level. In addition the net profit made is often less than 10% return on investment once ... (certain costs) (are) taken into account."

The letter goes on to make a further counter proposal, namely that the pursuers would settle for 10% of the sale price of each plot as it was sold.

[24 ] At some stage in the summer of 1998 the impression was created that the pursuers were concerned that the defender was going to make an excessive profit from the development. It remains unclear where that suggestion came from: in evidence no-one could say. Undoubtedly, the defender had that impression. In a letter of 10 July, Mr. Haniford wrote that the profit share proposal was to be in addition to, and not in substitution for, the earlier proposals and that it came about "as a response to your firm's suggestion that as the developers were going to make significant profits our clients should pay for any additional land required". Mr. Haniford reminded Mr. Vause that the defender was paying for relocation of the electricity equipment, a cost currently estimated at £80,000. His letter also asked that the defender be allowed scope to appeal any planning decision in the event that, for reasons beyond his control, determination of the application was delayed.

[25 ] The defender then advanced to the pursuers two options: payment of £440,000 plus £2,000 per house, the pursuers paying for the cost of the access route, but with a profit share agreement in addition, to provide an opportunity of recouping some of that cost; or a deal whereby whatever the cost of the access route, the pursuers received a minimum payment of £400,000. In this way the cost to the pursuers of the access route would be limited to £94,000, on the assumption that 27 units were sold.

[26 ] The pursuers' response indicated that a 50/50 deal on the access route would be more attractive to them.

[27 ] Further discussion took place and Mr Vause indicated (16 July) that the pursuers might require to compromise. The first pursuer indicated that he had accepted that the access matter would require to be settled by his paying for it up to a limit of £90,000 with a guaranteed minimum payment to him of £400,000. There then followed a formal offer dated 2 September 1998. This provided for (a) payment of £440,000; (b) payment of £2,000 per unit sold; and (c) that payment for the access route would be met by the seller by deduction from the price, subject to a guaranteed minimum payment of £400,000. The planning long stop was proposed at 18 months. This letter was met, not with a qualified acceptance, but with a further letter from Mr. Vause commenting on the offer. Eventually a qualified acceptance was sent on 6 October, containing substantially altered instructions in relation to the house to be provided for the pursuers. The bargain was eventually concluded on 18 December.

[28 ] The defender's planning application, for 27 houses, had been granted on 15 December. On 7 December 1998, Bryant Homes had made an offer to purchase the site from the defender at a price of £1.1 million pounds. The defender's intention all along was to develop the site himself. He had instructed architects for that purpose and submitted a planning application on that basis. Again on that basis, he approached Mr. John Brown of DTZ to seek advice on pricing and marketing of the houses he proposed to build, and how to present those to the market as well as possible. During this discussion, John Brown indicated that Livingston was becoming something of a hot spot, having gone from over-supply to demand. It was explained that the defender could proceed to build himself, as intended, or that other routes might be available, including that of finding an alternative buyer. The defender took time to consider these possibilities before agreeing that it would be worth while for Mr. John Brown to make further inquiries. John Brown contacted Bryant, who were major clients of his, and whose initial interest was quickly followed by an offer. The period of time which elapsed from Bryant first expressing an interest to their offer of 7 December was a matter of weeks. Hitherto they had not known of the site and had not had contact with anyone about it. They first entered the picture in mid to late November and had no prior dealings with the defender.

[29 ] The pursuers were unaware of this offer or of the involvement of Bryant until sometime in the summer of 1999. Exactly how that information came to them was unclear, but it seems likely that the first pursuer learned of Bryant's involvement from a plumber on site. In any event a meeting took place with Bryant, the defender and the pursuers, at which Bryant produced a plan showing 30 houses. The first pursuer initiated discussion on what the pursuers might get from the fact that the proposal was now to build 30 houses. The result was an agreement that Bryant would provide the pursuers with an extra plot (as well as the house which was being built for them) and an additional payment of £50,000.

[30 ] Various suspensive conditions in the missives between the parties were waived by letter dated 29 July 1999 and the rest were waived by letter dated 16 December. On 25 January 2000 the first pursuer wrote to the defender indicating his unhappiness with the way things had developed, expressing the view that he had lost income on the sale and stating:

"I intend to take whatever steps are necessary to recover a substantial amount of this loss of income. No doubt, during any lengthy processes involved a lot of other issues may be addressed and obviously the press and various professional bodies may have a field day."

In that letter he impugned the defender's integrity, although he also stated: "I am however, at this late stage prepared to negotiate a settlement with you if we can agree terms." Mr. Haniford replied to the letter insisting that they adhere to the bargain as concluded or as per a revised draft which accommodated the additional payment from Bryant and the additional plot. The transaction settled eventually on that basis.

[31 ] It is convenient at this point to consider the evidence in the context of certain specific issues which were of importance at the proof.

Density

[32 ] When the land was zoned for development in the local plan it was for low density development which meant about 2 houses per acre. In his letter of December 1995 the defender advised the pursuers that the low density was a "potential downside" because of the high development costs associated with it. He noted that this "may have a depressing effect on the final value". The density for which the land had been zoned was for about 17 or 18 houses, and as indicated above, this appears to have been off-putting for developers. Compared with this proposed density of 2 houses per acre, Cala were developing sites nearby at 8-10 per acre. It was anticipated that any interested builder would seek to have the density increased. Cala's proposal, for example, had been for 24 houses, the defender reporting to the pursuers that if the existing house were taken into consideration it appeared that the planners were willing to see the density increased slightly. Tulloch Homes Ltd had been seeking permission for 27 units, a proposal which the planning officer indicated was unacceptable. In a letter dated 22 November 1996 to agents for Tulloch, he suggested that the number of houses should be limited to 18 or 19 although "I may be prepared to agree to a proposal which slightly exceeded this number of houses if your client can provide a satisfactory justification for the increase ..."

[33 ] The defender's original intention was to build 20 houses. In time he told the first pursuer that he was in fact looking at 27 houses as a possibility. Certainly the first pursuer was aware of that by 25 May, as a fax from him refers to the "extra number of houses".

[34 ] From the evidence of Mr. George McNeill, a former planning officer with the Council, it appears that during 1997/1998 there was, unofficially, a slight relaxation of the local plan in relation to Ardnaree. The density allowed for in the local plan had been artificially low in order to promote building in other areas. However, by 1997/8 a decision had been made that this could be relaxed somewhat, so long as the proposal was for large, high quality expensive houses with large gardens. No announcement was made of this and developers were reliant on making successful applications to be treated as an exception to the local plan.

Access

[35 ] The problems with access were identified at an early stage, certainly by the time of the Tulloch offer, which was conditional on these problems being resolved at no cost to them.

[36 ] When the defender became involved, his proposal from the outset was that the cost of resolving the access issue required to be deducted from the price and he intimated this in his letter to the pursuers dated 3 February 1998. There was also an issue in relation to payment of the cost of re-aligning electricity poles. The first pursuer's evidence was that: "We agreed that he'd pick up the cost of the telegraph (sic) poles removal and I would contribute to the access issue". The first pursuer's evidence was that he had agreed in principle that the defender would pay for the "telegraph" poles and the pursuers would pay for the access. He said:

"I knew that Neville had agreed that he would be looking after the telegraph poles and to develop the site we would need to get this land, and I thought that was fair at the time. ... ... so I was aware that it would have to be purchased to allow the development to be placed, and I thought at that time that the onus was on me to try and get that."

Q: "You accepted that ultimately you were going to have to pay for this?"

A: "I would have liked to have said no, but it did seem a bit unfair on my behalf, you know, that Neville Brown was going to pick up the £90,000 for telegraph poles and £90,000 for that as well."

The evidence from Mrs. Connolly also was that the pursuers knew from the outset that they were expected to pick up the cost of securing the access to the site.

Meetings between the parties

[37 ] There was evidence that the Connollys and the defender continued to meet from time to time to discuss certain matters between themselves. Mr. Vause and Mr. Haniford both said that this was fairly normal, although Mr. Vause thought the previous relationship between the parties was an "odd" element. But for that, it would not have been unusual. He said:

"Sometimes in the middle of a commercial transaction, the clients knocking their heads together is the only way to get the lawyers to get the transaction done... I would regard it as a fairly normal element for clients to speak direct".

The pursuers maintained that throughout the transaction the defender called at their home on a very regular basis, as it was on his way home. The defender on the other hand said that there were a few meetings at the beginning, when he was their agent, but once Tulloch came on the scene these dwindled away. There were more meetings after he became involved as developer, mainly to discuss matters in relation to the house. (This element was regarded by all but the Connollys as a complicating factor. Mr. McFarlane thought it was "bound to cause complications" and tried to talk them out of it. As events progressed they changed their minds several times about the exact nature of the house they wanted and it is clear that a great deal of time and discussion was spent on this issue).

The role of Mr. Vause

[38 ] The pursuers both said that Mr. Vause was going to do the legal paperwork to get them from A-Z in the legal transaction and he did not discuss the price with them in any particular depth. He was there to sort out the legal technicalities. That had also been the role of Mr. McFarlane, who described the pursuers as quite naïve in business matters. However, he added that Mr. Connolly was an intelligent man and a good client. By that he meant someone who listened to what was said, digested it and typically would rely on the advice that was given. Mr. Vause's own evidence was that he did not give advice on "whether they were getting a fair basic price for the land".

[39 ] However, it is clear that the advice which Mr. Vause gave was not purely restricted to conveyancing technicalities. In particular his advice in relation to payment for securing the access rights was significant, and resulted in what was clearly a counter proposal which would have a considerable effect on the price received by the pursuers. In his letter of 22 April Mr. Vause advised the pursuers that the need to obtain the access strip might lead to a "ransom" situation and that the defender "should be well aware of this and the price which he has submitted should take this into account". Accordingly, he proposed putting this cost back on the defender.

[40 ] The sum which might have to be paid to the Woodland Trust was at that stage unknown but might have been significant, possibly as much as £90,000. (It was eventually £60,000). Mr. Vause's letter of 22 May to Mr. Haniford made a counter proposal regarding this payment. During negotiations he also proposed a long stop of a year to purify the planning clause, describing this in later correspondence as a "concession". In addition, the profit share was rejected on the basis that expert advice had been taken and a further counter proposal - 10% on each sale - was made.

[41 ] Mr. Haniford considered that he and Mr. Vause were dealing with non‑conveyancing matters and still negotiating terms. It was unusual for solicitors to be involved almost as principals in negotiating terms rather than simply to document an agreement. "Something new was always coming out of the bag". His impression was certainly that Mr. Vause was giving commercial as well as conveyancing advice and he described him as a "formidable negotiator".

The market

[42 ] At the time of the Tulloch proposal, and again at the time of the defender's offer, the market in Livingston was fairly flat. Mr. Ross, the Managing Director of Cala Finance, and the defender's Joint Venture partner, had carried out an appraisal of the land in May 1998. This was essentially a residual valuation carried out with a view to seeing what could be paid for the land. It is an exercise carried out by all developers, and although there may be an element of caution in it, they cannot be too conservative with their calculations regarding the price to pay for land or they would cease to be competitive. Mr. Ross felt at the time that £450,000 represented a reasonable sum for the land, although it was perhaps a bit "toppy".

[43 ] Craig Brown, a surveyor with J & E Shepherd had been asked to prepare for the defender a valuation of the land as at 1998. On a comparison basis and on a residual valuation he estimated £450,000, although that was based on a density of 24.

[44 ] Mr. McNeill mentioned, as several other witnesses had, that in 1996 or thereabouts there had been a "glut" of land available in Livingston because of the sell-off of assets of the Development Corporation.

[45 ] The evidence was divided about when the market began to move significantly. Mr. McNeill's evidence was that there were significant increases from then on and into 1997/1998. Other witnesses suggested it was much later. Even Mr. John Brown, who perhaps, as matters turned out, had his finger closer to the pulse than most, only suggested that the area was "becoming" a hot spot.

The legal principles.

[46 ] Counsel were in general agreement about the legal principles which applied although obviously they differed as to their application. Reference was first of all made to Bowstead and Reynolds on Agency, 18^th Edition article 45, page 212 which deals with the situation of an agent dealing with his principal. The general principle is set out at paragraph 6-063 which states that:

"Where an agent enters into any contract or transaction with his principal, or with his principal's representative in interest, he must act with perfect good faith, and make full disclosure of all the material circumstances, and everything known to him respecting the subject matter of the contract or transaction which would be likely to influence the conduct of the principal or his representative."

Specifically dealing with the situation where an agent makes a purchase from a principal, paragraph 6-064 states that:

"A long-established line of cases indicates that a person who stands in a position of a confidential character in respect of the property of another, which would include many types of agent, cannot purchase it for himself without full and fair disclosure of all the facts to the principal. The onus in such a case is on the agent to show that the price was adequate, that the sale was as advantageous to his principal as any other sale he could have obtained from a third party, and that he disclosed all the relevant facts to his principal before the purchase and that the principal gave his informed consent."

[47 ] These passages are dealing with the situation of an agent, not of someone who has ceased to be an agent. That situation is addressed in paragraph 6-067:

"Difficult questions arise if the agent deals with his principal after he has ceased to be an agent. It appears that the duty to disclose can continue, but whether it does so in any particular case in fact will depend on all the circumstances of the case. For example, if the confidence created by the agency's relationship still exists at the time of the transaction, or if the agent has a personal ascendancy over his principal, or if he has acquired special knowledge during his employment relating to the subject matter of the transaction, a court will be inclined to hold that the duty of disclosure is still binding on the agent. Thus a solicitor's duty to disclose may last longer than the duty of a less confidential agent e.g. a stockbroker. An agent who resigns in order to exploit an appropriate opportunity remains subject to fiduciary obligations at any rate in respect of that matter."

[48 ] The pursuers are relying on the first of the examples given here, claiming to be in a situation where "the confidence created by the agency's relationship still exists at the time of the transaction".

[49 ] I accept that in certain circumstances an agent may continue to be under fiduciary duties to his former principal after the termination of the agency. The second and third of the examples given in the passage in Bowstead (6.067), personal ascendancy and special knowledge acquired during the agency, are situations in which one can readily see that some form of fiduciary duties might remain binding on the former agent. The first of these is something which one can see might more readily arise in the case of a confidential agent such as a solicitor. In the case of a less confidential agent, the extent of it is less apparent, but it would be open to a pursuer to prove that such confidence existed and continued to exist. The question of whether the trust and confidence reposed in the agent was such as to survive the termination of the agency and cause the agent to continue to be subject to fiduciary duties would be a matter of fact in each case.

[50 ] Moreover, in cases other than that of a confidential agent, it is hard to think of circumstances in which the obligations could extent beyond the matter which had previously been the subject of the agency. The statement in Bowstead, that "an agent who resigns to exploit an appropriate opportunity remains subject to fiduciary obligations, at any rate in respect of that matter" is too broadly stated. Such an agent may remain under such duties but I do not think that it can be said that he always will be. It really must be a question of circumstances. For example, if an agent resigns specifically and openly in order to exploit an opportunity, explaining that to the principal, who then willingly transacts with him at arm's length, I do not consider that he would remain subject to the fiduciary obligations imposed on him as agent.

[51 ] As to the nature of the fiduciary duty, Counsel referred to Jackson and Powell on Professional Negligence 5^th Edition, chapter 2, section 5, which deals with fiduciary obligations. In paragraph 2-125 it is stated that:

"Fiduciary obligations ... are based upon the trust reposed by a client in his professional adviser, and in particular the trust that the professional will act solely in his client's interest and not in his own. This is sometimes described as a 'duty of loyalty', but in effect it amounts to an inhibition: a professional should not put himself in a position in which his duty to act in his client's interest is in conflict with his own interest, let alone prefer his own interest to those of his client should there be a conflict. The obligations which flow from this general proposition are called fiduciary obligations."

Paragraph 2-129 states:

"Fiduciary duties or obligations are a difficult area of the law. In essence they represent equity's attempt to regulate the conduct of those whom it regards as bound to act in the interest of others rather than for themselves. While one person (the principal) is to be taking his trust in another (the fiduciary) to act in the principal's interest, equity will not allow the fiduciary to act in his own interests or those of a third party. The obligation of the fiduciary is not to allow his own self interest to conflict with his duty to act in the principal's interests. The extent of that duty will depend upon the extent which he is trusted to act in the interests of the principal so that it is not possible to postulate a series of fiduciary duties which apply to all fiduciaries."

[52 ] These duties clearly arise in relation to an agent, but in relation to someone who has ceased to be an agent and who has transacted with his former principal, Counsel for the defender submitted that the application of the duty set out in these paragraphs will be problematic. Where the parties are at opposite ends of a transaction it is inevitable that their interests will in some way conflict. I agree. However, to some extent the answer comes in a later passage in Jackson & Powell, paragraph 2-136, which tempers these earlier observations by noting that the duty:

"will apply where the fiduciary has sufficient duty to act in the interest of the principal in respect of a transaction that he will not be permitted to advance his own interest unless he obtains the informed consent of the principal and gives full value."

[53 ] This accords with the view I record above that an agent who resigns openly, frankly stating the reason for doing so, and explaining the opportunity he is seeking, and who does so with the consent of his principal, will be unlikely to continue to be under fiduciary duties. The phrase "informed consent" may in some cases give rise to questions of interpretation, but in most cases it will simply involve disclosure of relevant information to the principal, as an aspect of the duty of fair dealing. In the present case, Counsel for the pursuers did not suggest that the duty, if it applied, went beyond that of disclosure, observing that the extent of even that duty will vary according to circumstances. He submitted that it may be that there will be circumstances which lessen the need for disclosure of certain facts, for example in relation to specific sorts of information on which the pursuers have taken specific advice. That in turn accords with Jackson & Powell at paragraph 2-130:

"So, in each case it is important to establish the extent of the trust, for that will define the extent to which equity will intervene. The trust and confidence which gives rise to fiduciary obligations is not, or need not, be emotional. ... Nor is it simply reliance on another party to a contract to perform his obligations under it. Rather it is the fact that the principal so relies on the fiduciary as to leave the principal vulnerable to any disloyalty by the fiduciary and so reliant on his good faith. It follows that a commercial relationship at arm's length, with both parties on an equal footing is unlikely to give rise to fiduciary obligations."

[54 ] In relation to this passage, Counsel for the defender submitted that it required "unusual" trust and reliance to be shown before a court will be entitled to intervene. Trust and confidence is an ordinary concomitant of the relationship of agency, there must therefore be something else which justifies the continuation of the duty. The pursuers must show first, trust and reliance on the defender to an extent beyond that which is usual and customary; and second, trust and reliance to an extent which makes them vulnerable to disloyalty and reliant on the agent's good faith. He did not assert that some peculiarity or special aspect of trust and reliance need be shown in all cases, rather that the issue is whether the extent and nature of the trust and reliance in the circumstances makes the principal vulnerable. The ordinary trust and reliance arising from the contract of agency may suffice in certain circumstances, for example, where a former agent and principal transact on the subject of the agency without the intervention of legal or other advisers. Where independent legal advice has been taken, more may be required before a duty of disclosure will be imposed. In each case it will depend on the nature and circumstances of the trust, and of the transaction.

[55 ] Reference was then made to the case of Allison v Clayhills (1904-7) All ER 500 which illustrates the principles already referred to. Reference was also made to McMaster and Another v Burn (1952) 1 All E R (PC) 1362 for the propositions that (a) the necessity for full disclosure was to be tested, not by the probable reaction of the individual, but by what would be the natural reaction of the reasonable man; and (b) that the material date for determining whether a duty of confidence subsisted was the date when the option was granted and not when it was exercised.

[56 ] Counsel for the pursuer submitted that one had to ask whether the new role excluded the trust and confidence existing in the previous role. Here, it is a question of whether the actual trust and confidence reposed in the defender continued or whether it was supplanted by the taking of independent legal advice. He referred to the case of Horne v Whyte an unreported decision of Lord Drummond Young dated 25 November 2003, a case of undue influence in which the court observed that it was not the case

"... that the mere existence of independent advice is by itself sufficient to hold that undue influence cannot exist. Much will inevitably depend on the nature and quality of the advice."

[58 ] I was also referred by Counsel for the defender to Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 in passages at pages 67 to 73, 96 to 97, 118 to 119, and 146 to 147 and Nordisk Isulinlaboratorium v Gorgate Products Limited 1953 1 Ch 430 at page 446. These cases added nothing beyond the obvious point that caution is to be exercised in applying equitable principles to commercial transactions.

Submissions on the facts

Pursuers

[59] The submissions for the pursuers addressed the following issues:

(1) Did a relationship of trust and confidence exist in the first place?

(2) Did that continue after January 1998? and subsist to December 1998?

(3) Was it affected by the pursuers' own dealings with other parties?

(4) Availability of other advice: Was it broken by the role of Mr Vause?

(5) Do the discussions about the "profit share" proposal break the link?

(6) Were there material circumstances known to Mr Brown, undisclosed to the pursuers, which he had a duty to disclose, and which might have affected their decision to proceed with the sale to Mr Brown?

(7) Are the duties affected by amendment of the missives in Jan 2000?

[60 ] Did a relationship of trust and confidence exist in the first place?

Counsel submitted that the relationship was one of trust and confidence in which the pursuers depended on the defender as their agent for advice on value and marketing of their property. When negotiating with him as a principal, this left them vulnerable to disloyalty on his part. They lacked experience and expertise in these matters, and were "naïve" in business matters. The defender dealt with prospective purchasers for them and was a good negotiator on their behalf. The pursuers say he called frequently at their house in this period and that the friendly nature of these meetings fostered the relationship of trust and confidence into one with a particularly close bond. The defender disputed the extent of the visits but, given how important successful marketing of site was to the Connollys, their evidence should be preferred.

[61 ] Did the relationship continue after January 1998? and subsist to December 1998?

Under reference to Bowstead & Reynolds at paragraph §6-067 he submitted that an agent who resigns in order to exploit an appropriate opportunity remains subject to fiduciary obligations, at any rate in respect of that matter. That was precisely the situation here. The matters in respect of which they reposed trust and confidence in him were the value which could be expected to be obtained for subjects and all circumstances affecting the market for the subjects. The continuing close contact was not unusual, but the manner of it suggested continued trust and confidence. There were frequent informal meetings at the pursuers' house and discussions about the new house. The defender took Mrs Connolly to Ayr to view kitchens and made a jocular reference to the site becoming known as "Anne's View". The pursuers continued to rely on him for land values and were not getting advice on land prices from anyone else. All along they worked within the context of the money offered by him.

[62 ] Was the relationship affected by the pursuers' own dealings with others? The letters from Cala and Tulloch had come out of the blue, it was not the case that Mr. Connolly was actively checking the market himself. It was accepted that Cala might have contacted the first pursuer direct with an increased offer but it was unlikely that the defender had been unaware of it. The reference in that letter to news from "other builders" was to what the defender had told him.

[63 ] Was the relationship broken by the role of Mr Vause?

Counsel submitted that the instruction of a separate law agent does not necessarily break the trust and confidence in the defender. The question will be whether the role fulfilled by the new agent actually excludes or overrides the trust and confidence in the previous agent. Peter McFarlane, the pursuers' original solicitor, stressed that his role was for legal work only, not marketing or advising on value. When Mr. Vause was instructed, it was to assume the same role. The transaction came to him as a "done deal" in which the essential terms were agreed. He did negotiate on aspects of price - minimum figure for "top-up", the "unknown" aspects, and their likely effects - but said that the pursuers believed they were getting fair value for the land and the negotiation was about peripherals. There was no significant alteration of the basic price of around £440,000/450,000.

[64 ] Mr. Vause suggested that the cost of access should be put back to the defender because he understood it to be a new demand. This appears to be misunderstanding on his part, but his was accepted, as the pursuers did seek to put the cost back to defender and this led to the profit share proposal. They were negotiating about a share of the value of the asset but were relying on defender as to what that value was. The involvement of Mr. Vause did nothing to change that.

[65 ] Do the discussions about the "profit share" proposal break the link?

If the duty of disclosure continued, these did nothing to change it. They were brief and led nowhere. The pursuers and Mr. Vause all said that they did not really understand the proposal. The defender considered that the proposal would not in fact offer anything to the pursuers. To that extent, while it might be designed to allay any fears about excessive profits, it was hardly calculated to address fears about the unknown access land costs, as it was made on the basis of the pursuers bearing the whole of those. The counter proposal of 10% of sales was not a serious proposal.

[66 ] Were there material circumstances known to Mr Brown, undisclosed to the pursuers, which he had a duty to disclose and which might have affected their decision to proceed with the sale to Mr Brown?

The duty was to disclose any material fact within his knowledge which would have assisted or affected a reasonable person in the position of the pursuers in deciding whether or not to enter the contract with the defender in the terms proposed. The duties of confidence could subsist up to the conclusion of missives, until which point there was locus poenitentiae. An agent who chooses to contract with lay principals, in relation to the subject matter of his agency owes them a continuing duty of fair dealing, including full and fair disclosure, up to the point when a binding contract is concluded. There were two specific areas to consider:

Land values

[67 ] If the defender knew that a change in the market was underway, that would be a material fact which would affect the decision of a reasonable person whether to enter into the contract. Counsel referred to the planners' change of attitude, submitting that whilst there was no guarantee of a committee decision along these lines, there was a clear policy imperative. The defender said he did not know about the change in attitude, which was not generally announced. However, he was active in discussions with planners in early 1998 and it would be surprising if he was unaware of the change. Counsel did accept that the cost appraisal, in May, proceeded on the basis of a density of 27, which was what they got planning for, and was the basis of the initial deal with Bryant.

[68 ] John Brown told the defender that Livingston was becoming a development hot-spot for reasons connected with Edinburgh planning restrictions and absorption of the earlier glut of land. John Brown was very experienced and had particular expertise in this field so his evidence should be preferred to that of Craig Ross.

[68 ] John Brown's evidence was consistent also with Mr. McNeill's evidence of a generally rising market in 1997-98. John Brown's advice was a material circumstance which would have affected a reasonable person in the position of the pursuers in deciding whether or not to enter the contract and it should have been disclosed.

[69 ] The Cala appraisal figures would be cautious to protect the developer and the defender from proceeding with unviable projects. The house sale figures clearly were cautious, when seen against Bryant's figures only 7 months later.

Bryant Homes

[70 ] Counsel submitted that the pursuers and Mr. Vause were not aware of any involvement of Bryant until well into 1999. They appear to have become involved in late 1998, around November. Their interest would in itself be a material circumstance which would have affected a reasonable person in the position of the pursuers in deciding whether or not to enter the contract and should have been disclosed. The offer is clearly a major divergence from the market and should have been disclosed.

[71 ] Does the amendment of missives in Jan 2000 affect the defender's duties?

This proposal was a "take it or leave it" deal, to account for the increase to 30 units. In order to permit them to build on two further plots, they gave the pursuers the 30^th plot gratis and a payment of £50,000. It also regularised the fact that Bryant were not going to build for the pursuers the customised house the defender had contracted to give them. In substance it was a consideration by Bryant to the pursuers.

Defender's submissions

[72 ] For the defender, Counsel addressed two matters: first, the suggestion that the Connollys were naïve in business matters; and secondly, the question of whether they accepted advice from the defender or rather, negotiated with him. Although Mr Connolly was not an expert in property matters it was going too far to suggest that he was naïve. He was aware that houses were going for sale, who was selling them and formed his own opinion that the prices were somewhat low. He knew the defender was proposing a joint venture with a finance company. It seems he was approached directly by Cala with an increased offer, and it was he who initiated the discussion relating to a top up for the three extra Bryant houses.

[73 ] The counter proposal in relation to the access costs suggested a certain commercial awareness and a degree of negotiation. The first pursuer agreed that Mr. Vause's response to the offer was "very far from a simple acceptance". In fact two counter proposals were made. Mr. Connolly made his own discerning judgements

[74 ] Mr Vause said it was not unusual for parties to speak direct. He said that Mr.Connolly was looking for guidance from him on the issue of a profit share, which did not sit well with the suggestion that they were relying on the defender. Mr. Vause had said that he wanted to understand if there was value to the Connollys in accepting the proposal, which suggested that he was indeed advising in relation to value. In truth, Mr Connolly was more worldly wise and commercially aware than he suggested. The negotiations regarding the Woodlands Trust would affect what the final sum would be, in which context a figure of £90,000 can be very significant.

[75 ] Mr McNeill's evidence that in general prices were going up had to be compared with the evidence of Neville Brown, Craig Brown and Jim Ross.

[76 ] The defender's evidence was that far from continuing to rely on him, he felt that they were throwing obstacles in his way and making attempts to renegotiate the deal. From his point of view it was a commercial, arm's length transaction with each party having separate legal advice.

[77 ] The Connollys were mistaken in their recollection of his visits. His evidence was that nothing much happened in 1997 until about November, and this is borne out by the agreed chronology. There is no correspondence until the end of the year.

[78 ] Very detailed negotiations took place on matters which affected the overall value, conducted through separate legal representatives and in circumstances where expert advice was taken regarding the profit share. The Connollys were negotiating to get the best price. Mr. Haniford said that it was a difficult transaction, not merely one where the conveyancing formalities were being argued about. It was one of the most complicated negotiations he had dealt with. Mr. Haniford felt frustrated, thinking that they were taking two steps forward and one step back. Reference was made to his correspondence, which indicates his frustration.

[79 ] In any event, if there had been a duty, the earliest point at which the defender could be in breach was when he was aware of the Bryant interest, which even the pursuers accepted was only in November 1998. By that stage any fiduciary duties had flown off. There was a general assertion that values had been increasing but several people had valued the site at £450,000 which Ross thought even "a bit toppy". They cannot show that the defender knew that he was paying under value. The peculiarity is that just before the deal was concluded a new player appeared with a very high offer. It was an unforeseen event and Bryant predicted the marked better than others. There is no suggestion that Neville Brown anticipated that.

Discussion

[78 ] Again it is convenient to address the various issues which became important in the proof, starting with two of the questions posed by the pursuers' counsel.

[79 ] Did a relationship of trust and confidence exist in the first place? I think that there was at the outset a relationship of trust and confidence of the sort which would naturally exist between an agent and principal in a matter such as this. The pursuers attempted to build this into a particularly close relationship, almost of friendship rather than amicable professionalism, but I do not accept that.

[80 ] Did that relationship continue after January 1998? Did it subsist all the way to December 1998? It did continue after January 1998 in the sense that when the defender made the offer verbally to the pursuers, without the intervention of solicitors, and again when he personally forwarded the draft offer to them in April, he was under a duty to deal fairly with them. In my opinion he did so. The evidence satisfied me that the price offered at that time was a fair, even slightly generous one. I accept on this matter the evidence of Mr. Ross, Mr. Craig Brown and the defender.

[81 ] The duty was fulfilled by the terms of a fair offer. With the response of Mr. Vause to that offer I conclude (a) that the pursuers were no longer in the same position of trust and confidence viz a viz the defender; (b) that they were essentially negotiating independently; and (c) the defender was no longer under any duty to the pursuers.

[82 ] To deal with some of the other issues which were of importance in the proof:

Density

[83 ] I accept that the defender was unaware of the unofficial relaxation of the local plan. The first pursuer had his own contacts regarding planning and was throughout of the view that planning would be granted for 20 houses at the most. This was not, however, based on intelligence supplied to him by the defender. Mr. Vause understood that 20 units would be optimistic and that intelligence came from Mr.Connolly, either from something he knew directly or from information he got from the planning department of the Council, of which he was an officer. Mr. Vause said that from what the first pursuer told him "even at a late stage it was still believed via Mr Connolly's contacts in the planning department that 20 was the most that was going to be achieved". He remembered a call from Mr. Connolly saying "you'd never believe they've managed to get 27 units" or words to that effect.

[84 ] I do not accept therefore that the pursuers were reliant on the defender for their belief in the density of development which would be allowed. The density, as was clear from the evidence, was a matter which would affect the overall value and at least to this extent the pursuers were not reliant on the defender. Moreover, this information, coming from the pursuers' planning contacts would suggest that the planners' change of attitude was not widely known.

Meetings between the parties

[85 ] It is true that during the negotiations of the solicitors, the parties themselves met from time to time to discuss matters. For example there was direct discussion regarding payment of the £440,000 upfront rather than £450,000 in staggered payments. They met to discuss other matters as well, but it seems clear that at these meetings they frequently did not reach consensus, whatever they might have thought at the time. This can be seen by the number of times the defender reported to Mr. Haniford his belief that agreement on certain matters had been agreed, only to be met with a reply from Mr. Vause disputing that. This confirms that the real negotiations were between the solicitors.

[86 ] The other thing on which the parties had direct dealings was in relation to the house which was to be built for the pursuers. This was only sensible and came from a suggestion made by the pursuers in a fax to the defender dated 29 May 1998: "One item probably best discussed by ourselves is our new house, its site and layout relative to other houses on site and obviously an agreed price". That same proposal was made to Mr. Haniford in Mr. Vause's letter of 21 May 1998. When Tullochs were involved, they also dealt directly with the pursuers in connection with this matter.

[87 ] I accept that the defender did visit them at home, that there were a number of such visits when he first became their agent, and again when Tulloch became involved. From the time of the Tulloch bid until the defender ceased to be their agent I think there were few visits, if any. After the defender became the developer I accept that there were numerous visits but these were substantially in relation to the house which was being built for them.

Access rights and the role of Mr. Vause

[88 ] Mr. Vause's response to the offer seemed to proceed on the assumption that the need to pay the Woodland Trust had not been taken into account in the overall price which had been offered. To that extent his advice did relate to the overall value of the deal. The sum which required to be paid to the Woodland Trust was a part of the whole price of the deal and cannot be viewed as merely incidental to it. The letter from Mr. Vause made a clear counter-proposal on a matter which was directly and significantly material to price. The rejection of this condition in the defender's draft offer, on the advice of their solicitors, and the making of the counter-proposal, indicates that the pursuers were not proceeding on the basis of the trust and confidence which they claim to have had in the defender in relation to the price which they might realise on sale of the land. Indeed, it was contrary to the agreement in principle which had been reached with the defender and was very much a re‑negotiation in the pursuers' own interests.

[89 ] The first pursuer accepted that Mr. Vause's letter was "very far" from a simple acceptance of the terms offered, but rather was a negotiating process. He described the negotiations as "cat and mouse", which again fits more with an arm's length transaction than one in which one party is wholly reliant on the trust placed in the other. Mrs. Connolly said: "I suppose in any business transaction you can always do a bit of negotiation" and "We were trying to get the best price as you would expect".

[90 ] I should explain in fairness to Mr. Vause that the evidence satisfies me that he was not made aware by the pursuers at the outset that it was part of the agreement in principle that the pursuers were to meet the costs of securing the access rights. There was some evidence that it would be normal for these sort of costs to be borne by a seller. That may often be the case. However, the position certainly seems to be that whoever is to bear such costs is determined at the very outset, in which case it is reflected in the price agreed. That is only to be expected, given the impact this can have on price. In this case it was part of the agreement in principle which the parties had entered into. However, Mr. Vause was not made aware of this. It is not therefore so surprising to see a letter in which he appears to conclude that that element of cost had not been taken into account in settling the price. Mr. Vause said that he was not aware that this issue was part of the agreement in principle and that to him it appeared a "new matter" beyond that which had been agreed.

[91 ] His evidence was that he viewed the term that the pursuers pay for access as a new species of demand, which did not form any part of what had actually been agreed between the parties beforehand. "I regarded the bearing of the cost by the pursuers as something beyond how the transaction had been presented to me ..." The approach was "this is an entirely new issue in front of us". When he was informed that Mr. Connolly's evidence was that it had actually been part of the original agreement, Mr. Vause said, somewhat unconvinced, that it was possible he was mistaken. I am satisfied he was not. His memory was vague on many matters this long after the events, but on this he was clear from the outset. It was an important part of the dealings which he had and a significant matter on which he had given advice. I do not think he was mistaken in his recollection.

[92 ] When the defender suggested a compromise whereby the cost to the pursuers of the access route would be limited to £94,000, the response of the first pursuer was that he was "hardly ecstatic" and he said he would prefer a 50/50 split. This was despite the fact that it had all along been in contemplation that a sum of this order would be paid by him for access while a similar sum would be paid by the defender in respect of electricity. Again this does not indicate the sort of trust, reliance and confidence on which the pursuers' case is based.

[93 ] The letter of 7 July 1998, in which Mr. Vause rejects the profit share suggestion confirms that the pursuers, with the advice of Mr. Vause, were quite ready to try to re-negotiate on price. First, that letter indicates that they had taken "expert advice" on how these matters work in the construction industry and is quite inconsistent with the pursuers' contention that they were wholly dependent on the defender in relation to the financial aspects of the transaction. Secondly, what that letter contains is a further counter proposal which re-opens entirely the issue of the value of the transaction. On any view one of the circumstances which must be taken into account is how these letters would reasonably be interpreted by the defender: do they indicate that the pursuers are placing trust and reliance in him on these matters? Or do they indicate that on these issues they are dealing independently and at arm's length? In my view, it is the latter.

The market

[94 ] It is my opinion that the defender's offer represented a fair price at the time it was made. Mr. McNeill's evidence of large increases from 1996 onwards was based on historical increases and was inconsistent with the evidence of the defender, Mr. Ross and Mr. Craig Brown, all of which I accepted, that the market was in fact fairly flat. There is no doubt that the perception of all three of these witnesses at the time was that the market in Livingston was fairly static, with rises well within inflation and, as Mr. Ross put it, that the situation was "not likely to improve". Mr. John Brown recognised that the market was on the move and so advised the defender but it is clear that the defender was cautious in his response to this. He did not respond quickly to Mr. John Brown and when he did get the offer from Bryant he found it difficult to take seriously. His own view was that "things were beginning to move" but he didn't think they were hotting up. He couldn't see how Bryant could get to these figures and thought they were "mad". The simple truth is that Bryant predicted the market better than anyone else. I accept that the defender was "absolutely astonished" by their offer and that he did not anticipate the market to move as it did. Mr. Craig Brown pointed out, as had others, that Cala had been the premium builders in the area and had not broken the £200,000 mark for house prices. The Bryant price range of £217,000-£275,000 broke new ground. He was very surprised when these houses went on market at these prices and did not expect them to sell, but they did.

Good Faith generally

[94 ] It was not part of the pursuers' case at proof that the defender had been negotiating with Bryant "all along". The averment at page 12 that "it was believed and averred that unknown to the pursuers, the defender had been negotiating a possible sale of the land to Bryant for some time prior to this" was specifically departed from, quite properly, by the pursuers' counsel who accepted that Bryant did not appear until about November 1998. Moreover, the evidence demonstrated that the defender from the outset did intend to develop the site himself. He instructed architects and had plans drawn up for housing. Even after Bryant made their offer he took time to consider whether to negotiate with them or whether to continue with the development himself. It was accepted that in May 1998 the defender was getting advice from Cala finance that the value of the site was £450,000.

[95 ] It is clear that the pursuers, once they became aware of the involvement of Bryant, became aggrieved with the defender. It is equally clear that they suspected him of having planned this all along. This underwrote a considerable part of their evidence. The first pursuer, referring to his reaction when he found out about the Bryant involvement, said: "I think Neville had been economical with the truth about how this whole project was going to be developed." As explained above, his letter of 25 January 2000 impugned the defender's integrity. It suggested that "a rather shady picture is emerging regards our contract and our previous negotiations." Later in his evidence the first pursuer said that his grievance was that the defender was aware of land prices. He also suggested that the defender had been calling to see him regularly when he was obviously planning missives with Bryant, and that he had tied the pursuers into missives which he knew all along was to their disadvantage. Mrs Connolly described finding out that Bryant had purchased the land saying: "I was very, very, very annoyed... The dishonesty, the deceit ... it seemed like a very dishonest thing to do." Later she said "all the while he was in negotiation with another firm." She said they had entered into a contract that the defender would "build the houses for us ... never thinking that he would have ulterior motives".

[96 ] These comments correctly did not form the basis of any submissions made by the pursuers' counsel, but I mention them because they seemed to me to be central to the underlying approach and grievance of the pursuers. It has coloured their whole view of the defender and all his actings; it has coloured their evidence and even their demeanour, which was occasionally bristling with indignation. Hence what was clearly, on the evidence a professional, if amicable relationship, has been built up into what is tantamount to a betrayal by a friend. The betrayal aspect is clearly exaggerated, although I do not say that they were doing this deliberately, it is simply their perception; but so has the "friendship" aspect. For example, the number and nature of the meetings with the defender, and their insistence that virtually all their actions were predicated on the fact that "we trusted Neville" when other factors were involved. I do not suggest that they did not trust the defender, clearly they did, but even at the outset other factors entered into their consideration, for example the fact that they thought it would be speedier, and the fact they were getting more money than from the offer which had been made by another company. Thereafter, it is clear that they did not act on the simple basis that they trusted the defender. They negotiated with him, quite hard on occasions, and throughout their dealings. They accepted advice from Mr. Vause beyond mere conveyancing technicalities and the negotiations through the solicitors were carried out on an essentially commercial basis.

[96 ] In the result I shall sustain the defender's second plea-in-law and grant decree of absolvitor.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Connolly & Anor v. Brown [2006] ScotCS CSOH_187 (06 December 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_187.html Cite as: [2006] CSOH 187, [2006] ScotCS CSOH_187

Scottish Court of Session Decisions

Background

History of the case and pleadings

Density

Meetings between the parties

The role of Mr. Vause

The market

Defender's submissions

Discussion

Density

Meetings between the parties

Access rights and the role of Mr. Vause

The market