Solicitor owed duty to lender when seeking discharge, court rules
A solicitor acting for commercial borrowers, who by a negligent misstatement procured and caused to be registered an executed discharge covering the whole of the security subjects, when only part of the subjects should have been released, has been held liable to the lending bank by a majority of the Inner House.
Lady Smith and Lady Clark of Calton, Lord Brodie dissenting, allowed a reclaiming motion by NRAM plc in its action against Jane Steel, who was at the relevant time a partner in Bell & Scott.
Ms Steel had acted for a company, HCL, which borrowed from the pursuers in 2002, granting a security over property comprising four units on a business park. In 2005 one unit was sold and the proceeds applied to reduce the loan. There were discussions in 2006 about selling a further unit, but nothing happened until March 2007 when Ms Steel emailed asking for discharges to be signed and returned as soon as possible "as the whole loan is being paid off for the estate and I have a settlement figure for that".
The lenders complied and received a further sum to reduce the loan; HCL continued to make regular payments until it became insolvent in 2010, at which point the lenders discovered that the loan was unsecured and the remaining units had been disposed of with no further repayments having been made.
At proof it was found that NRAM did not have solicitors acting for them, as Ms Steel knew. She had no actual or ostensible authority from her client to make the statements she did or to require full discharge of the security. The Lord Ordinary however held that it was not reasonable for a bank in the position of the pursuers to rely on the misstatement information without checking its accuracy against its file; and that a solicitor in Ms Steel's position would not foresee that such a bank would reasonably rely on that information without carrying out such a check.
Lady Smith, with whom Lady Clark of Calton agreed, said it was established that a solicitor acting as agent for one party might owe a duty of care to another party in a transaction when communicating with them; liability might arise where the agent chose to provide information and did so in such a way that it could reasonably be inferred that they undertook a duty of care in respect of it. It was of critical importance to have regard to the precise circumstances in which the communication came to be made. It was relevant that Ms Steel was acting within the area of her professional skill; that there had been previous similar dealings; that Ms Steel's representations were not qualified by reference to what her client had told her; that the matter was urgent as a transaction was about to settle; and that both lender and borrower stood to benefit from the transaction. Although the heading of the relevant email conflicted with the misleading text, it had not been regarded as doing so at the time and the message itself was unequivocal.
The Lord Ordinary had failed to consider whether this was a case where the law attributed assumption of responsibility to the solicitor; the inevitable conclusion was that it did. If the foreseeability test was relevant, it was reasonably foreseeable by Ms Steel that NRAM might act on her email to its loss; the fact that it might check its file before acting did not alter that. The imposition of a duty of care would also be fair, just and reasonable: in Lady Smith's words, "it might be thought invidious to suggest that a solicitor can abrogate responsibility for a serious error because the recipients of her communication might have checked rather than relying on what she, as a hitherto trustworthy professional, communicating with them as a solicitor, told them, particularly when she herself took no action to correct the error when, on receipt of the signed discharges, it was within her power to do so".
Lord Brodie, dissenting, said that the Lord Ordinary had taken into account the various factors relied on by the pursuers, and his conclusion that it was not reasonable for a bank in such a position to rely on the misstatement without checking its accuracy was "one that as the reasonable man on the bench he was equipped to make". The UK Supreme Court had emphasised the limited power of an appellate court to reverse the judge who had heard the evidence, and the Lord Ordinary had not made any error in his approach to the evaluation of the unchallenged findings in fact. The court was not better placed to substitute its own decision.
The Lord Ordinary's assessment of damages at just under £370,000 was affirmed.