Steel v NRAM: Supreme Court holds that solicitor did not owe opposing party a duty of care
The Supreme Court has unanimously held that a borrower's solicitor did not owe the lender on the other side of the transaction a duty of care. The decision involved consideration of the principles governing negligent misstatements made by solicitors.
Last month, the Supreme Court gave judgment in a much anticipated appeal from the Inner House in Scotland, unanimously holding that a borrower's solicitor did not owe the lender on the other side of the transaction a duty of care. The lender had relied to its detriment on misstatements made by the solicitor without conducting any independent checks of its own.
In allowing the appeal, the Supreme Court clarified the principles governing negligent misstatements causing loss where there is no contractual relationship between the representor and representee.
The case concerned the sale of a unit of land belonging to Headway Caledonian Ltd ('Headway') in 2007. Headway's solicitor, Ms Steel, was at that time a partner in Bell & Scott Ltd (‘the firm"). The land being sold was one of a number of units purchased by Headway using a loan from Northern Rock (Asset Management) Plc ('Northern Rock') . The loan was secured by a floating charge over Headway's assets and an all monies charge over the units.
Northern Rock, then unrepresented, agreed that the sale of the unit could go ahead on condition that part of the loan was repaid, and that the balance was secured by charges over the remaining units.
Ms Steel emailed Northern Rock the day before the sale of the unit was due to complete, stating that Headway's entire loan was being paid off. She requested that Northern Rock accordingly execute two deeds of discharge and complete a letter of non-crystallisation. However, these representations were wrong and made without Headway's authority. There had been no agreement with Northern Rock that the entire loan be paid off, and it had been agreed that the security would be restricted rather than completely released.
Despite this, Northern Rock did not query Ms Steel's request and made no attempt to check the accuracy of her statements against the material on its file. The recipient of her email simply forwarded it to the head of Northern Rock’s Loan Review Team who promptly authorised the execution of the discharge deeds and signed a letter of non-crystallisation. The security was duly discharged and Headway continued to pay interest on the outstanding loan until it went into liquidation in 2010. It was only at this point that Northern Rock realised the error.
Northern Rock subsequently brought a claim against Ms Steel and the firm for negligent misstatement. This was unsuccessful at first instance, the Lord Ordinary holding that Northern Rock’s reliance on Ms Steel's statements without any independent checks was not reasonable or foreseeable. The Inner House allowed Northern Rock’s appeal, holding that there had been an assumption of responsibility by Ms Steel.
The Supreme Court's leading judgment was given by Lord Wilson, with whom the rest of the court agreed. Although a Scottish case, the principles considered by the Supreme Court were the same as those applicable in England and Wales.
In the absence of a contract, Lord Wilson's judgment necessarily focused on whether Ms Steel and the firm owed Northern Rock a duty of care. He considered that finding a duty of care in negligent misstatement claims rests on establishing an 'assumption of responsibility' by the party making the statement. The existence of an assumption of responsibility hinges on a two-pronged inquiry, developed in Hedley Byrne v Heller & Partners  AC 465: was it reasonable for the representee to have relied on the representation, and did the representor reasonably foresee that the representee would do so?
Lord Wilson deemed this test particularly relevant to claims made against solicitors by the opposite party, because the latter's reliance in such situations was "presumptively inappropriate". Cited with approval was the principle set out in Ross v Caunters  Ch 297, 322 that a solicitor will generally not owe a duty to the opposite party.
In light of this, and applying the Hedley Byrne test to the facts of the case, Lord Wilson considered that Northern Rock was a commercial lender with full knowledge of the terms of the agreement. Indeed, it had negotiated the terms itself, and immediate access to the correct terms lay at its fingertips. In these circumstances, it had not been reasonable for Northern Rock to simply rely on the representations put forward by Ms Steel without checking their accuracy first, and it was reasonable for Ms Steel not to foresee that Northern Rock would so rely.
For further information, please contact Emma Smith, Trainee Solicitor at email@example.com
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