Claim against other side’s solicitor fails

NRAM Ltd (formerly NRAM plc) v Steel and Another

Before Baroness Hale of Richmond, Lord Wilson, Lord Reed, Lord Hodge and Lady Black [2018] UKSC 13

A solicitor for one party would not assume responsibility towards the opposite party, for the purposes of liability in tort for negligent misrepresentation, unless it was reasonable for the opposite party to have relied on what the solicitor said and the solicitor should reasonably have foreseen that he would do so.

The Supreme Court so held in allowing the appeal of the defenders, Jane Steel and Bell & Scott LLP, a solicitor and her former firm, against the overturning by an Extra Division of the Inner House of the Court of Session (Lady Smith and Lady Clark of Calton; Lord Brodie dissenting) (2016 SLT 285) of the decision of the Lord Ordinary (Lord Doherty) in the Outer House of the Court of Session ([2014] CSOH 172) dismissing a claim by the pursuer lender, NRAM Ltd, for damages for negligent misrepresentation.

The lender had lent money to a borrower for the purchase of a property consisting of a number of commercial units, in return for security over the property. The borrower subsequently entered into an agreement for the sale of one of the units and agreed with the lender that, on the sale, the unit would be released from its security in return for a partial repayment and that the security would remain in place in relation to the remaining units.

However, after the borrower’s solicitor sent an email to the lender wrongly stating that the whole loan was being repaid and requesting the execution of two draft deeds of discharge in relation to the entire security, the lender discharged the security over all the units. When the borrower went into liquidation, the lender claimed damages from the solicitor and her firm for negligent misstatement.

Mr Alastair Duncan, QC, and Mr Chris Paterson for the lender; Mr Ronald Clancy, QC, and Mr Graeme Hawkes for the solicitor and the firm.

Lord Wilson, with whom the other members of the court agreed, said that in Hedley Byrne & Co Ltd v Heller & Partners Ltd ([1964] AC 465) Lord Devlin held that, in the absence of a contract between a representor and a representee, a duty of care in making the representation arose only if the representor had assumed responsibility for it towards the representee and the case emphasised the need for the representee reasonably to have relied on the representation and for the representor reasonably to have foreseen that he would do so.

In the decades that followed, it became clear that not all claims in tort for losses consequent upon representations carelessly made could satisfactorily be despatched by reference to whether the representor had assumed responsibility for it towards the representee.

Thus in Smith v Eric S Bush ([1990] 1 AC 831) Lord Griffiths propounded a threefold test that required: (i) that it was foreseeable that, were the information given negligently, the claimants would be likely to suffer damage; (ii) that there was a sufficiently proximate relationship between the parties; and (iii) that it was just and reasonable to impose the liability.

As explained in Michael v Chief Constable of South Wales Police (The Times February 16, 2015; [2015] AC 1732, paragraph 106) that test had not been indorsed in Caparo Industries Plc v Dickman ( [1990] 2 AC 605)

In Williams v Natural Life Health Foods Ltd ([1998] 1 WLR 830, page 837) Lord Steyn remarked that there was no better rationalisation for liability in tort for negligent misrepresentation than the concept of an assumption of responsibility. It had therefore become clear that, although it might require cautious incremental development to fit cases to which it did not readily apply, that concept remained the foundation of the liability.

The legal consequences of the solicitor’s careless misrepresentation were clearly governed by whether, in making it, she assumed responsibility for it towards the lender. The concept fitted the present case perfectly and there was no need to consider whether there should be any incremental development of it. Nevertheless, the case had an unusual dimension: for the claim was brought by one party to an arm’s-length transaction against the solicitor who was acting for the other party.

A solicitor owed a duty of care to the party for whom he was acting, but generally owed no duty to the opposite party. A solicitor would not assume responsibility towards 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.

Those two ingredients of the general liability in tort for negligent misrepresentation were particularly relevant to a claim against a solicitor by the opposite party because the latter’s reliance in that situation was presumptively inappropriate.

The Lord Ordinary was right to find that a commercial lender about to implement an agreement with its borrower referable to its security did not act reasonably if it proceeded upon no more than a description of its terms put forward by or on behalf of the borrower.

The lender knew the terms of the agreement and indeed, as in the present case, was likely to have evolved and proposed them. In so far as the particular officers of the lender who saw and acted upon the solicitor’s email had never been aware of the terms or had forgotten them, immediate access to the correct terms lay — literally — at their finger-tips.

No authority had been cited to the court or discovered by his Lordship in which it had 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 was, no doubt, that in such circumstances it was not reasonable for the representee to rely on the representation without checking its accuracy and that it was, by contrast, reasonable for the representor not to foresee that he would do so.

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