Steel and another v NRAM Ltd (formerly NRAM plc)

Solicitor – Duty of care – Careless misrepresentation – Respondent bank seeking damages for loss arising from reliance on statements by appellant solicitor in email concerning property transaction – Respondent allegedly misled into discharging security over all properties owned by claimant’s client when only one property eligible for release from security – Judge concluding appellant owed no duty of care to respondent when making erroneous statements – Appeal court allowing appeal against that decision – Whether appellant owing duty to opposite party – Appeal allowed In 1997, a company (HCL) purchased Cadzow Business Park in Hamilton, Scotland comprising four commercial units. The respondent bank granted HCL an “all sums due” standard security over the property and a floating charge over all of its assets. In 2005, HCL sold one of the units and agreed to release that unit from the standard security and the proceeds of the sale were applied to reduce HCL’s overall indebtedness to the respondent. In May 2006, HCL instructed the first appellant solicitor to act on its behalf in relation to the sale of a further unit. The respondent e-mailed HCL confirming that it would accept £495,000 from the sale of the unit in reduction of HCL’s loan and that e-mail was forwarded by HCL to the first appellant. The first appellant sent an e-mail to the respondent attaching two discharges in respect of the standard securities held by the respondent over all three remaining units. That was an error since she should only have restricted the security rather than discharging it completely. Her e-mail stated: “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”. The respondent was unrepresented in respect of the transaction. The discharges were executed on the respondent’s behalf and returned to the first appellant who subsequently registered them. The fact that the security had been discharged went unnoticed by the respondent until 2010 when HCL went into liquidation. The respondent issued proceedings for damages in respect of loss and damage allegedly suffered by it due to its reliance on the erroneous statements made by the first appellant in the course of her acting for HCL. The claim was against the first appellant as an individual and against the firm of solicitors, of whom she was a partner (the second appellant). The respondent alleged that she had owed it a duty of care and had made the statements in the email negligently. The Lord Ordinary dismissed the claim: see [2014] CSOH 172. The Inner House allowed the respondent’s reclaiming motion and substituted an award of damages in its favour of £369,811.18: see [2016] CSIH 11. The appellant appealed. Held: The appeal was allowed. (1) In order to establish liability for a careless misrepresentation which caused economic loss, it had to be shown that the representee had reasonably relied on the representation and that the representor should have reasonably foreseen that he would do so. It had to be foreseeable that, were the information given negligently, the claimants would be likely to suffer damage, there was a sufficiently proximate relationship between the parties and it was just and reasonable to impose the liability: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Smith v Eric Bush; Harris v Wyre Forest District Council [1990] 1 AC 831 and Caparo Industries Plc v Dickman [1990] 2 AC 605 applied. (2) The concept of assumption of responsibility was the foundation of liability for a careless misrepresentation, although the concept might sometimes require cautious incremental development in order to fit cases to which it did not readily apply. However, such development was unnecessary in the present case as the concept fitted the case perfectly. 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 the opposite party would actually rely on the statement. The ingredients of reasonable reliance and foreseeability were particularly relevant to a claim against a solicitor by the opposing party, because it was presumed to be inappropriate for a solicitor to assume such a responsibility towards the other side: Allied Finance and Investments Ltd v Haddow and Co [1983] NZLR 22. Midland Bank Plc v Cameron, Thom, Peterkin and Duncans 1988 SLT 611, Al-Kandari v J R Brown and Co [1988] QB 665, Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560, Connell v Odlum [1993] 2 NZLR 257 and Dean v Allin and Watts [2001] EWCA Civ 758, [2001] 2 Lloyd’s Rep 249 considered. (3) In the present case, the Lord Ordinary had found that the first appellant generally expected the respondent to check her requests before complying with them, and therefore that she had not foreseen that they would rely on her assertions without checking their accuracy. In addition, any prudent bank taking the most basic precautions would have checked the accuracy of such statements, and it was not reasonable for the respondent to have relied on the email. The majority of the Inner House had been incorrect to hold that there were certain circumstances which led to the conclusion that the appellant had assumed responsibility for the representations in the email, such that the court did not even need to consider whether the respondent should have checked its file. It was always necessary for a representee to show that it was reasonable of it to have relied on the relevant representation. That was an essential element of the concept of assumption of responsibility. Moreover, a commercial lender about to implement an agreement relating to its security did not act reasonably if it proceeded upon no more than a description of the agreement’s terms put forward by the borrower. Alistair Duncan QC and Chris Paterson (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared for the appellants; Ronald Clancy QC and Graeme Hawkes (instructed by TLT LLP) appeared for the respondent. Click here to read a transcript of Steel and another v NRAM Ltd (formerly NRAM plc). Eileen O’Grady, barrister