Borrower’s solicitor not liable for bank’s loss because it should have realised her error

Supreme Court: Unanimous ruling

A bank that relied on inaccurate information supplied by its borrower’s solicitor should not have won a negligence claim against her, because it failed to carry out its own checks, the Supreme Court has ruled.

In a Scottish case that applies equally to England and Wales, the court unanimously overturned the decision of the Inner House (Scotland’s court of appeal) and restored the original judge’s ruling.

The judge at first instance held that NRAM Ltd (formerly Northern Rock (Asset Management) plc) did not act reasonably.

At the time, Jane Steel was a partner at Bell & Scott, an Edinburgh firm that claimed to be Scotland’s first specialist property practice. In 2011, it was acquired by Anderson Strathern.

Lord Wilson, giving the ruling, said that “no doubt Ms Steel is usually a solicitor of the utmost competence but on this occasion she was guilty of gross carelessness”.

She acted on the sale of one of three units owned by her client, Headway Caledonian, on a business park in Hamilton, on which NRAM had security. Its loan at the time was £1.2m and it required repayment of £495,000 in return for the release of its security upon the unit.

However, for reasons that Ms Steel could not explain when the matter reached court several years later, a key email she sent to NRAM sought to discharge the security over the other two units as well, and went through without the bank checking its own records to confirm this.

The ultimate loss, net of recovery elsewhere, was almost £370,000. NRAM sued for negligent misrepresentation.

The original judge dismissed the claim because, prior to executing and returning the deeds of discharge, NRAM – which was not represented by solicitors in the transaction – had failed to check the accuracy of the representations made by Ms Steel against the material on its file.

Had it done so, it would have seen immediately that it was “entirely inappropriate” to execute the deeds of discharge.

By a majority, the Inner House overturned this, ruling that in the circumstances Ms Steel had assumed responsibility for the representations in the email without any need for the court to inquire whether NRAM should have checked its file.

Restoring the original decision, Lord Wilson said: “Neither the general jurisprudence relating to liability in negligence for a misrepresentation leading to economic loss nor the focused jurisprudence relating to a solicitor’s liability to the opposite party in that regard supports a conclusion that it is not always necessary for the representee to establish that it was reasonable for him to have relied on the representation.

“On the contrary, the reasonableness of his reliance on it is, as I have explained, central to the concept of an assumption of responsibility…

“We should accept that 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 lender knows the terms of the agreement and indeed, as in this case, is likely to have evolved and proposed them.

“Insofar as the particular officers in Northern Rock who on 23 March 2007 saw and acted upon the email had never been aware of the terms or had forgotten them, immediate access to the correct terms lay – literally – at their finger-tips.”

There was no authority that imposed responsibility for a careless misrepresentation about a fact wholly within the knowledge of the representee, he added.

“The explanation is, no doubt, that in such circumstances it is not reasonable for the representee to rely on the representation without checking its accuracy and that it is, by contrast, reasonable for the representor not to foresee that he would do so.”

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