In Steel and Another v NRAM Limited, the Supreme Court unanimously reaffirmed that a solicitor acting for one party to a transaction will only owe a duty of care, and potential liability for negligent misstatement, to another party to the transaction if that other party’s reliance on the statement was both: (1) reasonable and (2) reasonably foreseeable.

Facts

Headway Caledonian Ltd (Headway) owned a business park comprising of four different units, the purchase of which it had part-funded through a loan from NRAM. Headway granted NRAM a standard security over the business park. In 2005, Headway sold Unit 3 of the business park and NRAM agreed to restrict its security in return for a payment in partial redemption of the loan.

In 2006, Headway entered into a contract for the sale of Unit 1. In September 2006, NRAM agreed that it would accept £495,000 from the sale of Unit 1 in reduction of Headway’s loan.

Prior to completion of the sale of Unit 1 in March 2007, the solicitor acting for Headway emailed NRAM. She said that the whole loan was being paid off for the business park and requested that NRAM sign a discharge of the security it held over the business park. NRAM was unrepresented.

The solicitor was mistaken; Headway’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.

NRAM duly signed the discharge without making any attempt to verify the accuracy of the solicitor’s statements. The fact that the security had been discharged was only discovered by NRAM when Headway went into liquidation in 2010.

NRAM brought a claim against the solicitor for damages. NRAM alleged that she had owed it a duty of care, which she had breached by making inaccurate statements, and that NRAM had suffered loss as a result of relying on these statements.

Decision

The Supreme Court, overturning the Inner House’s decision to award NRAM £369,811.18 in damages, unanimously held that the solicitor did not owe NRAM a duty of care.

In reaching this decision, the Court highlighted the principle that a solicitor generally does not owe a duty of care to the opposite party in a transaction. However, a duty could arise in ‘special cases’ where there had been an ‘assumption of responsibility’ by the solicitor.

The Court reaffirmed that a solicitor will only be deemed to assume responsibility for a statement made to an opposite party, and owe a duty of care in respect of it, if that party’s reliance on the statement was both: (1) reasonable; and (2) reasonably foreseeable.

Reasonable reliance is particularly relevant to a claim against a solicitor by the opposite party because such reliance is presumed to be inappropriate. 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 its terms put forward by, or on behalf of, the borrower.

The Court found here that NRAM had not acted reasonably in relying on the solicitor’s statements without verifying their accuracy (as any prudent bank would have done, and as NRAM could readily have done).

The Supreme Court’s decision will be welcomed by many in the legal profession as a clear restatement that the courts will not lightly or readily find that a solicitor owes a duty of care to an opposite party. However, the case also serves as a timely reminder to lenders of the fundamentals of prudent banking practice.

Further reading: Steel and Another (Appellants) v NRAM Limited (formerly NRAM Plc) (Respondent) (Scotland) [2018] UKSC 13.