Solicitors exposed due to fraud by client
Frank Houlgate Investment Company Limited -v- Biggart Baillie LLP (2014) CSIH 79
A solicitor acting in a transaction gives a continuing implied representation to the other party that he is not aware of any fundamental dishonesty or fraud which might make the transaction worthless. Where a solicitor acts in breach of that continuing implied representation, he may be liable for losses incurred as a result.
Frank Houlgate Investment Company was an investment company who was defrauded by Mr John McGregor Cameron, a client of solicitors firm Biggart Baillie LLP. Mr Cameron persuaded the investment company to invest large sums of money in a new business he was establishing on the basis that he owned a large estate over which he would grant a standard security in their favour. In fact, the large estate was owned by a reputable businessman called Mr John Bell Cameron with no connection to this Mr Cameron. However, Mr Cameron proceeded to grant a standard security over the estate incorporating a personal bond in favour of the investment company prepared by his solicitor. The fraud was ultimately discovered by Mr John Bell Cameron, whose solicitor alerted Biggart Baillie LLP to it. Mr Cameron confessed to the fraud but requested time to allow him sort matters out himself with the investment company. Although very concerned, the firm of solicitors complied with Mr Cameron’s request in the belief that a duty of confidentiality was owed to their client, Mr Cameron. The investment company then, without knowledge of the fraud, proceeding to invest further sums with Mr Cameron. Having subsequently become aware of the fraud, the investment company sought to recover this loss from the solicitors who had acted on behalf of Mr Cameron.
The issue faced by the Court was whether the law firm was liable to compensate the investment company because they knew that Mr Cameron had deceived the investment company and had granted a security in their favour over property in which he had no interest, yet they continued to act on behalf of Mr Cameron, took no steps to inform them or their agents of Mr Cameron’s admitted fraud, and did nothing to prevent Mr Cameron from obtaining further funds from them.
Lord Menzies noted that a solicitor is expected to have the highest standards of honesty. An officer of the Court, a solicitor owes obligations to the client, to the Court, to fellow members of the profession, and to the general public. He quoted from Stair that “A solicitor requires to have the trust of his fellow solicitors, and it is a grave fault to do anything which betrays that trust. Thus a solicitor must always keep his word, even at extreme cost to himself, and must never knowingly mislead colleagues”. He opined that “The expectation that a solicitor will show the highest standards of honesty is neither an anachronism nor some pious expression of principle from the bench or from the leafy glades of academe: it is still the practical cornerstone of many commercial and conveyancing transactions concluded daily…I find myself easily persuaded that a solicitor acting for the recipient in a transaction which involves the transfer of money from one party to another secured by a security over heritable subjects gives a continuing implied representation to the solicitor for the transferor that he is not aware of any fundamental dishonesty or fraud which might make the security worthless.” The judge stated that an express representation is not necessary; such representation is implied by law, as a result of the position held as solicitor for Mr Cameron.
The Court held that there was a breach of the duty of care by the solicitor in this instance and the solicitor was therefore negligent. As a consequence the claimant could recover damages for loss suffered as a result of that breach. The Court also found that the knowledge of the fraud relieved the solicitor of the duty of confidentiality to his own client.
Whilst this is a Scottish decision and therefore not binding on the Irish Courts, deference may be paid to it should similar issues arise with likely comparable findings.