Earlier this year, the English Supreme Court was asked to consider whether a lawyer acting for a borrower in a commercial transaction owed a duty of care towards the lender in the same transaction. The court determined that the lawyer did not.

The case concerned a bank that lent money to a borrower for the purchase of four commercial real estate units. The loan was secured by a charge over the units. During the term of the loan, the lender agreed that the borrower could sell one of the units in return for a partial repayment of the loan. The lender agreed that the security over the unit to be sold would be released, but that the security over the other units would remain in place.

Before the sale was completed, the borrower's lawyer sent an email to the lender wrongly stating that the whole loan was being repaid, and requesting the discharge of the entire security. The lender acted on the request, without verifying the accuracy of the request or instructing its own lawyer to act on its behalf. The mistake was not identified until the borrower went into liquidation, resulting in a loss to the lender of nearly £370,000. To avoid a similar scenario, lenders should:

  • ensure that they have sufficiently thorough procedures in place for checking the accuracy of communications from the other side's lawyers against their own records;
  • only proceed with requests from the other side's lawyers where they have satisfied themselves that the information presented tallies with their records and understanding of the transaction; and
  • consider instructing their own lawyers to act on their behalf and ensure that matters proceed in accordance with their wishes.