One of the great scandals of the British aristocracy, which transfixed Europe in the 18th century and led to one of the most expensive private lawsuits, has been reignited by the discovery of documents that may solve a case that divides historians.

The Douglas Cause, which pitted the Douglas family of the time against the powerful Dukes of Hamilton, split fashionable society down the middle. At the heart of it was the charge that Lady Jane Douglas, the beautiful sister of the Duke of Douglas, had, late in life, committed fraud by pretending to give birth to twins in Paris in 1748 to produce an heir to her brother and thus inherit his estate, rather than the next in line – the Duke of Hamilton. The Duke of Douglas was believed to be the richest man in Scotland.

Lady Jane’s claim was disputed bitterly by lawyers for the Hamiltons, who argued that she and her husband, Colonel John Stewart, had purchased two babies from a poor French couple and had brought them up as “born of her body” – an essential condition of her child inheriting.

The case, which lasted nearly ten years, and went all the way to the House of Lords, was a forerunner of Charles Dickens’s fictional Jarndyce v Jarndyce in Bleak House. One estimate put the costs of the legal actions at about £100,000 – £10 million in today’s money. The philosopher David Hume believed in Lady Jane’s guilt; James Boswell was a fiery supporter of the Douglas side. The scandal even aroused interest in France, where Voltaire followed its progress closely and the encyclopaedist Denis Diderot was called to give evidence.

But neither in the Court of Session in Edinburgh nor in the House of Lords did anyone produce a “smoking gun” proving Lady Jane’s guilt, and the decision finally went against the Hamiltons. By that time Lady Jane was dead, as was one of the twins. But the surviving twin, Archibald Douglas, was able to inherit, and his descendants, who included the British Prime Minister Alec Douglas Home and his family, have benefited ever since.

Now, documents discovered in the archive of the present Earl of Home suggest that Lady Jane lied, that she connived in her husband’s planned deceit, and that she regretted the falsehood ever after. The writer Karl Sabbagh, who has been researching the Douglas Cause for several years, has unearthed a document in Lady Jane’s handwriting which, he says, suggests that she was guilty, and she was well aware of the enormity of her crime.

“In the light of the ambiguous results of the years of legal investigation and court hearings, I didn’t expect to find much more than picturesque detail in the archives,” Sabbagh said. “I came across various letters written in a firm and measured way by Lady Jane about aspects of the case. But one document in her own hand is very different. It is a litany of guilt, written hastily and full of emotion to her God, in a barely legible scrawl.”

It is a letter craving forgiveness, Sabbagh believes. “O Lord of Infinite Mercy and Great Compassion,” it reads, “this is a day of great Perplexity with me and of great trouble & distress therefore I come to thee say thou the word and thy servant shall be healed thou even thou only can heal the brocken [sic] in heart and bind up all their wounds but I’m not worthy of such as this when my crimes are gone over my head and are a heavy burden too heavy for me to bear . . . Cleanse me from all my vileness and wickedness and make this guilty heart yet a sacrefise [sic] of Praise unto thee.”

Sabbagh said: “She was clearly in a highly emotional state when she wrote it and although she does not mention a specific cause for her guilt, these are the outpourings of a woman who feels herself a sinner and craves forgiveness, perhaps on the point of death, to avoid the torments of hellfire.”

Sabbagh came across a second item in the Home archives that shows that one of the lawyers for the Douglas side, James Carnegy of Boysack, had increasing doubts about Lady Jane’s innocence, despite representing the family. He spent a considerable time in Paris, and wrote a journal of his day-to-day activities, which shows his increasing frustration at the attempts of Lady Jane’s sister-in-law, the Duchess of Douglas, to go to any lengths to gather evidence in favour of her nephew, who stood to inherit. He came to believe that the Duchess was clutching too readily at made-up stories that supported Archibald Douglas’s claims and ignoring any evidence in favour of the Hamilton case.

“I know the Duchess well enough by sad experience to be sensible that she detests nothing so much as such discoveries,” Carnegy wrote, “and that in order to please her you must find out stories that appear favourable to her views, though they be never so vain and illusory . . . I am sorry to say it even to myself, that when the foundation is false it is a difficult matter to raise a superstructure that is good and honest and of which the different pieces tally and correspond.”

Sabbagh said that the insight the document offered on the scandal was compelling. “It is clear from Carnegy’s journal that it was not meant for anyone else’s eyes, and that he was being ruthlessly honest with himself. He described one of the witnesses for Douglas as a ‘bitch’ and another as a ‘rascal’, and the terms in which he wrote about his client, the Duchess, would have had him drummed out of the legal profession if they had come out.”

So where does the new evidence now leave the reputation of Lady Jane – and the Douglas cause? “I believe she was a devout and virtuous woman,” Sabbagh said. “But I also believe it’s possible that she connived at a plan to buy the babies, perhaps devised by her husband, and then bitterly regretted it afterwards.”

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