A solicitor acting on one side of a conveyancing or security transaction does not normally owe a duty of care to the party on the other side.  A recent Scottish case re-examines that issue, demonstrating that the courts will take a cautious approach to imposing a duty of care in this situation.  The case also gives lenders some food for thought regarding their relationship with borrowers’ solicitors.

Background 

Headway Caledonian Limited (HCL) owned a business park near Glasgow.  It comprised four units.  HCL had granted a standard security over the business park to Northern Rock plc (NRAM).  In 2005 HCL sold Unit 3 and NRAM agreed to restrict its security in return for a partial loan redemption payment.  

HCL then agreed to sell Unit 1 of the business park.  In September 2006 NRAM emailed HCL to confirm that it would accept £495,000 from the sale of Unit 1 in reduction of HCL’s loan, leaving a balance of £726,850 secured by the remaining units.  NRAM’s email was forwarded to the solicitor acting for HCL.  NRAM was unrepresented.

In March 2007 the solicitor emailed NRAM attaching a discharge for the security held by NRAM, stating: “I also attach discharges for signing and return as well as the whole loan is being paid off for the estate and I have a settlement figure for that”.  She was mistaken; HCL’s loan from NRAM was only being partially redeemed and she did not have a settlement figure for full redemption of the loan.  She should have attached a deed to restrict the security rather than to discharge it.

The sale of Unit 1 settled the following day and the discharge was sent by NRAM to the solicitor.  It was subsequently registered.  

Later in 2007 HCL sold the other units.  On each occasion NRAM provided letters of non-crystallisation but no payments in redemption of the loan were agreed or made by HCL.  HCL continued to pay loan interest to NRAM until April 2010.  HCL then went into liquidation, with the loan to NRAM still outstanding.

NRAM sued the solicitor and her firm, seeking damages for losses which it claimed to have suffered as a result of its reliance on negligent misstatements made in the solicitor’s email.  NRAM argued that the solicitor owed it a duty to take reasonable care that the statements made in the email were accurate.  NRAM said that it had reasonably relied on what she told it and had been misled into discharging the security over the business park.  The solicitor and the firm denied that they owed a duty of care to NRAM.

The Court’s decision

The judge found that it was not reasonable for NRAM to rely on the information contained in the solicitor’s email without checking its accuracy.  A prudent bank taking the most basic precautions would have checked the information provided by seeking clarification from the solicitor and/or looking at its file.  A solicitor would not foresee that the bank would not carry out checks on the information.  The solicitor therefore did not owe NRAM a duty of care in the circumstances. 

There were some factors that favoured the imposition of a duty of care.  The solicitor’s email contained no disclaimer.  It had a degree of urgency in its tone.  It was communicated directly to NRAM rather than to professional advisers.  It also came from a trustworthy source: a solicitor.

However, NRAM was not vulnerable or dependant.  It was a commercial bank.  It had the ability to obtain legal advice – internal or external – if required.  Moreover, the critical information in the email was factual and concerned matters that could have been checked very easily and very quickly by NRAM.  Indeed, that information conflicted with what had previously been understood and arranged between HCL and NRAM.  In some respects the email was vague and ambiguous: the subject field of the email referred only to Unit 1 and it did not state what the settlement figure was, or by whom the solicitor had been provided with that information.  In the judge’s words, the email “cried out for clarification”.

Comment

Cases involving the question of whether a solicitor owes a duty of care to a party on the other side of a transaction are typically fact-sensitive.  The facts of this case were perhaps more unusual than many.  However, as solicitors continue to be the frequent targets of negligence claims, the decision will be welcomed by many in the profession as evidence that the courts will not lightly or readily find a solicitor to owe a duty of care to an opposing party, particularly a commercial party which could take its own legal advice.

The case also serves as a timely reminder to lenders of the fundamentals of prudent banking practice.

The case can be read here.