The Supreme Court were recently asked to consider the well-established “assumption of responsibility” test in the Scottish case of Steel and Another v NRAM Ltd (formerly NRAM plc) [2018] All ER (D) 148 (Feb). The decision of the Supreme Court applies equally to England and Wales.
Steel And Another v NRAM Ltd (formerly NRAM plc)
Background
S, the first Appellant, was a partner in the second Appellant law firm. She acted for a company called HCL and had done so since 2005. HCL owned property known as “Cadzow Business Park” which comprised Units 1, 2, 3 and 4. The Respondent had lent HCL part of the purchase price. In return NRAM had secured an “all sums” standard security over Cadzow.
In 2006 HCL entered into negotiations to sell Unit 1 (it had already sold Unit 3 in 2005). The respondent agreed to release its security on Unit 1 in consideration of a repayment of £495,000 to reduce the loan it had made. The respondent specifically made it clear that its security in respect Units 2 and 4 was to remain in place. During the sale S, acting on behalf of HCL, sent an email confirming that NRAM had agreed to discharge the entire security, as opposed to reserving the security over Units 2 and 4. The sale went ahead and HCL continued to make interest payments to NRAM.
HLC subsequently went into liquidation and at that stage, NRAM discovered its security over Units 2 and 4, had been discharged. By that stage Units 2 and 4 had also been sold. NRAM had lost security to the tune of £370,000.
NRAM sued S and her firm on the basis that she had made a negligent misstatement and she had assumed responsibility for it towards NRAM.
In the first instance the Lord Ordinary found it was not reasonable for NRAM to have relied on S’s representations without checking their accuracy. It was also reasonable for S not to have foreseen that it would do so. NRAM appealed and the first instance decision was reversed. The appellants appealed that decision.
The Issues
The Supreme Court was asked to consider whether the appellants owed NRAM a duty of care.
The Supreme Court found that the Lord Ordinary’s original decision was correct in all the circumstances. As such, the original decision was restored.
This decision was against the backdrop of the established authorities that: (i) a solicitor did not owe any duty to an opponent or opposite party; (ii) because of this a solicitor would not assume responsibility towards an opponent unless it was reasonable for an opponent to rely on what the solicitor had said and/or unless the solicitor should have reasonably foreseen that he would do so.
Therefore, the appropriate question to ask itself was whether S, in making the careless misrepresentation, had assumed responsibility for it towards NRAM. The Supreme Court thought not. Its view was that a commercial lender in the same circumstances that NRAM found itself did not act reasonably if it proceeded upon no more than a description of its terms put forward by or on behalf of the borrower. It (NRAM) had all the facts in its possession. As such, it was not reasonable for NRAM to rely on the representation without checking its accuracy and that it was also reasonable for S not to foresee that NRAM would do so.
Comment
This case is a helpful reminder and confirmation of the classic assumption of responsibility test. It should go some way to assist both claimants and defendant alike in deciding whether a solicitor has assumed responsibility to an opponent or third party.
How Nelsons Can Help
Daniel Brumpton is a Partner at Nelsons specialising in professional negligence claims.
For more information, please contact a member of Nelsons’ specialist Professional Negligence team on or via the online form.