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Supreme Court rules that solicitor did not owe a duty of care to lender

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Supreme Court rules that solicitor did not owe a duty of care to lender

05 March 2018

Steel and another v NRAM Limited [2018] UKSC 13

There is no general duty in law to avoid making a negligent misstatement or causing pure economic loss to a third party, even if that loss is foreseeable.  However, for many years the Courts have grappled with the test to be applied to determine the existence of a duty of care when such a negligent misstatement is relied upon.

In the present case the first appellant acted for a company, HCL, which, in 1997, had purchased a business park (registered under two separate titles).  HCL had borrowed part of the purchase price from the respondent, NRAM and in return HCL granted a NRAM a standard security over the property. In 2006 / 2007 HCL wished to sell Unit 1 at the business park. NRAM agreed that Unit 1 could be released from the ambit of its security in consideration of a payment of £495,000 for the reduction of the loan.

The first appellant was instructed to settle the transaction on behalf of HCL.  NRAM did not instruct solicitors.  On the eve of settlement the first appellant emailed NRAM.  The email erroneously stated that the whole loan was being paid off and attached discharges for signing and return by NRAM.  NRAM did not check its file relative to its agreement with HCL and instead accepted the email at face value, executed the discharges and returned them as requested.  The discharges were forwarded to the purchaser’s solicitors who registered them, causing NRAM’s security to be discharged.

The Supreme Court allowed the appeal and restored the Lord Ordinary’s interlocutor, assoilzing the defenders.  The UKSC held that the legal consequences of the first appellant’s misrepresentation were governed by whether, in making it, she assumed responsibility for it towards NRAM.   A solicitor will not assume responsibility to the opposite party unless it was reasonable for the latter to have relied on what the solicitor said and unless the solicitor should reasonably have foreseen that he would do so.  The UKSC held that while the resolution of the appeal could be based upon whether the majority of the Inner House were entitled to depart from the Lord Ordinary’s evaluation that NRAM’s reliance on the email was unreasonable, it was unnecessary to do so because the UKSC considered that the Lord Ordinary was right.  Lord Wilson, with whom the other Justices agreed, said this:

[A] commercial lender about to implement an agreement with its borrower referable to its security does not act reasonably if it proceeds upon no more than a description of its terms put forward by or on behalf of the borrower…… No authority has been cited to the court, nor discovered by me in preparing this judgment, in which it has been held that there was an assumption of responsibility for a careless misrepresentation about a fact wholly within the knowledge of the representee. The explanation is, no doubt, that in such circumstances it is not reasonable for the representee to rely on the representation without checking its accuracy and that it is, by contrast, reasonable for the representor not to foresee that he would do so.

Alastair Duncan QC and Chris Paterson appeared for the appellants.