Steel and another v NRAM Limited

Liability for economic loss caused by a careless misrepresentation remains founded on the representor’s assumption of responsibility. The representee must establish both that reliance was reasonable and that the representor should reasonably have foreseen it. These inquiries are distinct.

A solicitor generally owes no duty of care to the opposing party in an arm’s-length transaction. Reliance by that party is presumptively inappropriate, although responsibility may arise in a special case where the solicitor steps outside the normal professional role.

A commercial lender does not reasonably rely solely on a borrower or its solicitor for the terms of the lender’s own agreement, particularly where the correct information is within the lender’s knowledge and immediately accessible.

A solicitor acting for a borrower incorrectly told its commercial lender that the whole secured loan was being repaid and sent deeds discharging all the lender’s security. The lender executed the deeds without checking its file, although the agreed transaction required only a partial repayment and release of one property. Following the borrower’s insolvency, the lender claimed almost £370,000 for the resulting loss.

The Lord Ordinary dismissed the claim. A majority of the Inner House allowed the lender’s reclaiming motion and awarded damages: [2016] CSIH 11. The solicitor and her firm appealed. The central issue was whether the solicitor had assumed responsibility towards the opposing party for her careless misrepresentation, thereby owing it a duty of care.

1. Appeal allowed unanimously. Lord Wilson, with whom Lady Hale, Lord Reed, Lord Hodge and Lady Black agreed, held that the solicitor and her firm owed no duty of care to the lender. The Lord Ordinary’s interlocutor dismissing the claim was restored.

2. Liability for economic loss caused by a careless misrepresentation is founded on an assumption of responsibility within Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. The assumption may be express or implied from all the circumstances. Although cautious incremental development may be needed in cases to which the concept does not readily apply, the concept fitted this case and governed it directly.

3. An assumption of responsibility requires reasonable reliance by the representee and reasonable foreseeability by the representor that such reliance would occur. The two inquiries are distinct. The reasonableness of reliance remains essential and cannot be displaced merely because the representor possesses professional expertise.

4. A solicitor generally owes no duty of care to the opposing party in an arm’s-length transaction. Reliance by that party is presumptively inappropriate. A duty may arise in a special case, including where the solicitor steps outside the normal professional role, but the essential requirements of reasonable reliance and reasonably foreseeable reliance remain applicable.

5. The Inner House majority erred by treating the solicitor’s status, expertise, knowledge that the lender lacked separate solicitors, and request for urgency as sufficient without determining whether the lender reasonably relied on her statement. The lender and borrower were dealing at arm’s length concerning the release of security.

6. A commercial lender implementing its own agreement with a borrower does not act reasonably by relying solely on the borrower’s description, or its solicitor’s description, of the agreement’s terms. The lender knew those terms and had immediate access to its file. The relevant fact was therefore wholly within its knowledge. Reliance without checking was unreasonable, and the solicitor could reasonably be expected not to foresee such reliance. She had not assumed responsibility towards the lender.

• United Kingdom Supreme Court: Unanimously allowed the appeal and restored the Lord Ordinary’s interlocutor dismissing the claim.
• Inner House of the Court of Session: By a majority, allowed the lender’s reclaiming motion and substituted an award of almost £370,000 against the solicitor and her firm: [2016] CSIH 11.
• Outer House of the Court of Session: The Lord Ordinary dismissed the lender’s claim, holding that no duty of care was owed.