Solicitors Steel themselves for negligence decision
Steel and another v NRAM Limited (formerly NRAM Plc) (Scotland)  UKSC 13
The Supreme Court has stated that a solicitor who made a careless misrepresentation is not liable in damages to a company in circumstances where the correct facts within the knowledge of the company.
In 2007 Jane Steel, a partner in Bell & Scott LLP, solicitors in Glasgow, acted for Headway Caledonian Ltd (“the company”).
The company owned a Business Park in Hamilton, comprising four units over which the company had granted NRAM an ‘all sums’ standard security and floating charge. NRAM agreed to release one unit from the security for a repayment of £495,000, but agreed that the security would remain in place for the two remaining units (the fourth unit having been sold in 2005).
In advance of the completion Ms Steel sent an email to NRAM asking for a letter of non-crystallisation of the floating charge, and for the execution of deeds of discharge. In her email Ms Steel said: “I also attach discharges for signing and return…as the whole loan is being paid off for the estate and I have a settlement figure for that.” This was incorrect. Ms Steel had never been instructed that the whole loan was to be repaid, and did not have a settlement figure for that repayment.
NRAM executed the deeds of discharge in relation to all three units, rather than just one unit, and provided a signed letter of non-crystallisation. The head of NRAM’s Loan Review Team signed the letter but did not make any internal investigation as to the accuracy of Ms Steel’s statements.
NRAM did not notice that the standard security had been discharged in relation to all units until 2010 when the company went into liquidation.
NRAM raised proceedings against Ms Steel (and Bell & Scott LLP) for damages suffered as a result of its reliance on her email. NRAM alleged that she had owed them a duty of care and had made the statements in the email negligently.
At first instance, the court dismissed NRAM’s claim. On appeal, the court awarded NRAM damages of £369,811.18. Ms Steel then appealed to the Supreme Court.
Case law provides that in order for the representor (in this case Ms Steel) to be liable, the representee (in this case NRAM) must reasonably have relied on the representation, and the representor must have reasonably foreseen that he would do so.
In this case, at first instance the Lord Ordinary had found that Ms Steel generally expected NRAM to check her requests before complying with them, and therefore she had not foreseen that they would rely on her assertions without checking their accuracy. In addition, any prudent bank taking basic precautions would have checked the accuracy of such statements, and it was therefore not reasonable for NRAM to have relied on the email.
On appeal, the Inner House had disagreed, and held that there were certain circumstances which led to the conclusion that Ms Steel had assumed responsibility for the representations in the email, such that the court did not even need to consider whether NRAM should have checked its file. These circumstances included, amongst other things, Ms Steel’s area of expertise, and the fact the NRAM had not instructed solicitors.
The Supreme Court agreed with the approach of the Lord Ordinary and allowed Ms Steel’s appeal.
The Supreme Court held that a solicitor will not assume responsibility towards the opposite party unless: it was reasonable for the opposite party to have relied on what the solicitor said, and unless the solicitor should reasonably have foreseen that the opposite party would actually rely on the statement.
The Supreme Court also stated that the Lord Ordinary was correct to find that it is not reasonable for a commercial lender about to implement an agreement relating to its own security to proceed with no more than a description of the agreement’s terms put forward by the borrower.
Solicitors and insurers will welcome this decision. The Supreme Court has taken a cautious approach to imposing a duty of care from solicitors to third parties. It is important for third parties, particularly corporate bodies, to ensure they take steps to satisfy themselves of the position put forward by the opposite party.