Steel & Anor v NRAM Ltd (formerly NRAM Plc) (Scotland) [2018] UKSC 13

A solicitor, acting for a borrower, sent a careless email to the lender falsely stating the entire loan was being repaid, causing the lender to discharge its security over retained units. The Supreme Court held she owed no duty of care as the lender's reliance without checking its own file was unreasonable.

Facts

Ms Steel, a partner at Bell & Scott LLP, acted for Headway Caledonian Ltd, which owned units at Cadzow Business Park subject to an ‘all sums’ standard security in favour of Northern Rock. In 2006, Headway agreed with Northern Rock that, upon sale of Unit 1, Northern Rock would release its security over that unit in return for a partial repayment of £495,000, with its security over Units 2 and 4 remaining in place.

On the eve of settlement (22 March 2007), Ms Steel sent an email to Northern Rock stating that ‘the whole loan is being paid off’ and that she had a settlement figure. This was wholly inaccurate. She attached draft deeds of discharge (rather than deeds of restriction) for all three units. Northern Rock’s officers, without checking their file, executed the deeds of discharge. Headway later went into liquidation, and Northern Rock claimed it only then discovered its security had been fully discharged, resulting in a loss of almost £370,000.

The Lord Ordinary dismissed the claim; the Inner House (by majority) reversed and awarded damages. Ms Steel and the firm appealed to the Supreme Court.

Issues

Whether Ms Steel, as solicitor for the borrower, owed a duty of care to Northern Rock (the opposite party in an arm’s length transaction) in respect of the careless misrepresentation in her email, such that liability in tort for negligent misstatement could arise absent any contract between them.

Arguments

Northern Rock contended that Ms Steel had assumed responsibility for the accuracy of the representations in her email: she was a solicitor operating within her area of expertise; she knew Northern Rock was unrepresented by solicitors; she demanded an urgent response; and it was foreseeable Northern Rock would rely on her statements without independent inquiry.

Ms Steel and the firm argued that it was not reasonable for Northern Rock to rely on her representations without checking its own file, which would have immediately revealed that the whole loan was not being repaid. Accordingly no assumption of responsibility arose.

Judgment

Lord Wilson (with whom Lady Hale, Lord Reed, Lord Hodge and Lady Black agreed) allowed the appeal and restored the Lord Ordinary’s interlocutor.

The governing legal framework

Lord Wilson reviewed the authorities from Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 onward, noting that the concept of assumption of responsibility remains the foundation of liability for negligent misrepresentation causing economic loss. Central to that concept are two ingredients: that it was reasonable for the representee to rely on the representation, and that the representor should reasonably have foreseen such reliance.

Solicitors and the opposite party

Solicitors ordinarily owe no duty to the opposite party in a transaction (Ross v Caunters). Liability will arise only in ‘special cases’. Reviewing Allied Finance and Investments Ltd v Haddow and Co, Midland Bank Plc v Cameron, Al-Kandari v J R Brown and Co, Gran Gelato Ltd v Richcliff (Group) Ltd, Connell v Odlum, and Dean v Allin and Watts, Lord Wilson held that such a duty arises where the solicitor has stepped outside the normal role and where it was reasonable for the opposite party to rely on the representation, and reasonably foreseeable by the solicitor that they would do so. Reliance by the opposite party is presumptively inappropriate.

Application

The Lord Ordinary had found that Ms Steel did not foresee that Northern Rock would rely on her statements without checking, and that such reliance was unreasonable. The majority of the Inner House erred in holding that reasonableness of reliance need not be established, and in finding that there was no evidential basis for expecting the lender to check. The Supreme Court rejected both findings.

Lord Wilson concluded positively that the Lord Ordinary was right: 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 the terms put forward by or on behalf of the borrower. The lender knew, or had immediate access to, the true terms of the agreement. Since the misrepresented fact was wholly within the representee’s own knowledge, reliance without checking was unreasonable, and it was reasonable for Ms Steel not to foresee such reliance. No assumption of responsibility arose.

Implications

The decision reaffirms that assumption of responsibility remains the foundation of liability in tort for negligent misrepresentation causing pure economic loss, particularly in the context of statements made by a solicitor to the opposite party in a transaction. It confirms that such liability arises only in special cases where the solicitor has stepped outside the normal role.

Critically, where the misrepresented fact lies wholly within the knowledge of, or is readily accessible to, the representee, reliance without verification will not generally be reasonable, and the representor will not be taken to have assumed responsibility. This qualifies the scope in which lenders (or other commercial parties) may claim against the solicitors of their counterparties based on careless representations about terms the lender itself knows or has agreed.

The judgment is significant for commercial lenders, solicitors acting in secured transactions, and professional indemnity insurers. It places responsibility on lenders to verify information against their own files before acting on representations made by a borrower’s solicitor, particularly where they proceed without their own legal representation. It does not absolve solicitors of careless conduct generally, but limits their exposure to third parties in arm’s length commercial dealings where the relevant facts lie within the third party’s own records.

Verdict: The Supreme Court unanimously allowed the appeal and restored the Lord Ordinary’s interlocutor, dismissing Northern Rock’s claim against Ms Steel and Bell & Scott LLP. No duty of care was owed because Northern Rock’s reliance on the misrepresentation without checking its own file was unreasonable, and Ms Steel had not assumed responsibility for the representation.

Source: Steel & Anor v NRAM Ltd (formerly NRAM Plc) (Scotland) [2018] UKSC 13