Hilary
Term
[2018] UKSC 13
On appeal from: [2016] CSIH 11
JUDGMENT
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Steel
and another (Appellants) v NRAM Limited (formerly NRAM Plc)
(Respondent) (Scotland)
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before
Lady Hale, President
Lord Wilson
Lord Reed
Lord Hodge
Lady Black
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JUDGMENT GIVEN ON
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28 February 2018
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Heard on 7 November 2017
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Appellants
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Respondent
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Alastair Duncan QC
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Ronald Clancy QC
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Chris Paterson
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Graeme Hawkes
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(Instructed by CMS
Cameron McKenna Nabarro Olswang LLP)
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(Instructed by TLT
LLP)
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LORD WILSON: (with whom Lady
Hale, Lord Reed, Lord Hodge and Lady Black agree)
1.
A makes a careless misrepresentation which causes economic loss to B. There
was no contract between them. But did A owe a duty of care to B? No, said the
trial judge. Yes, said the appellate court. So it is A who brings this further
appeal.
2.
Ms Steel, who was the first defender and is now the first appellant, is
a solicitor. At the material time she was a partner in Bell & Scott LLP, a
firm of solicitors in Glasgow, who were the second defenders and are now the
second appellants; I will refer to them as “the firm”. NRAM Ltd, until recently
named NRAM Plc and, prior to that, named Northern Rock (Asset Management) Plc,
was the pursuer and is now the respondent; I will refer to it as “Northern
Rock”.
3.
Ms Steel and the firm appeal against an interlocutor issued by an Extra
Division of the Inner House of the Court of Session (Lady Smith; Lord Brodie
who dissented; and Lady Clark of Calton who agreed with Lady Smith) on 19 February
2016. By its interlocutor, the Inner House allowed Northern Rock’s reclaiming
motion in respect of an interlocutor which had been issued in the Outer House
by the Lord Ordinary, Lord Doherty, on 5 December 2014. He had sustained the
pleas in law of Ms Steel and the firm and had assoilzied them from the first
conclusion of the summons. In other words he had dismissed Northern Rock’s
claim. The Inner House, however, sustained Northern Rock’s second plea in law
and substituted an award of damages in its favour against Ms Steel and the firm
in the sum of almost £370,000, being the sum which the Lord Ordinary had
assessed as the amount of damages payable by them to Northern Rock in the event
that, contrary to his conclusion, they were liable to it at all.
4.
For many years prior to 2007 Ms Steel had acted for Mr Hamish Munro. From
2005 onwards she also acted for a company in which he had an interest, namely
Headway Caledonian Ltd; I will refer to it as “Headway”.
5.
In 1997 Headway had purchased Cadzow Business Park in Hamilton. The
property, which comprised Units 1, 2, 3 and 4, had been registered in the Land
Register under two separate titles. In order to make the purchase, Headway had
borrowed part of the price from Northern Rock; and in return it had granted
Northern Rock an “all sums” standard security over the property, which had been
registered against the titles in 1998. Indeed in 2002 Headway had granted
Northern Rock a floating charge over all its assets.
6.
In 2005 Headway proposed to sell Unit 3 of the business park. Ms Steel
acted for it in the sale. So she negotiated on Headway’s behalf with Northern
Rock for the release of the unit from its security. Northern Rock did not
appoint solicitors to represent it in that regard; it was not its practice to
do so in relation to a negotiation of that character. It agreed to release the
unit from its security in return for a partial redemption of its loan, namely a
repayment of almost £470,000. The transaction duly proceeded. Ms Steel
forwarded for execution by Northern Rock deeds of restriction, by which its
security was restricted to Units 1, 2 and 4. It executed them and returned them
to her. The sale of Unit 3, unencumbered, then proceeded; and, on behalf of
Headway, Ms Steel remitted the sum of almost £470,000 to Northern Rock.
7.
Later in 2005 Headway proposed to sell a property in Lossiemouth over
which Northern Rock held a standard security for a separate loan. Again, Ms
Steel acted for Headway in the sale. Again, she dealt directly with Northern
Rock in respect of the repayment of its loan and the discharge of its security.
The sale, the repayment and the discharge all duly proceeded.
8.
In 2006 Headway entered into heads of agreement for the sale of Unit 1 of
the business park in Hamilton for £560,000. Ms Steel was instructed to act on
its behalf in the proposed sale. Either she or Mr Munro himself asked Northern
Rock to release Unit 1 from its security. Northern Rock obtained a valuation of
Units 2 and 4 in the sum of £1,425,000. It noted that its loan to Headway then
secured on the three units was about £1,222,000 and decided to require
repayment of £495,000 in return for the release of its security upon Unit 1,
which would leave the balance of its loan apparently well secured upon Units 2
and 4. In September 2006, by email to Mr Munro, Northern Rock therefore
confirmed that it would release its security upon Unit 1 in consideration of a
repayment of £495,000 by way of reduction of the loan. By its email Northern
Rock made clear that it expected its security to remain in place in relation to
Units 2 and 4 unless and until they were also sold. Mr Munro at once forwarded
Northern Rock’s email to Ms Steel. Headway accepted its terms.
9.
Ultimately it was agreed that the transaction of sale would settle on 23
March 2007. Several weeks beforehand Mr Munro had, by email, instructed Ms
Steel that, upon settlement, she should remit £470,000 (later corrected to
£495,000) to Northern Rock and should remit the balance of the proceeds to
Headway.
10.
At 5.00 pm on 22 March 2007, namely the eve of the proposed settlement,
Ms Steel sent to Northern Rock the email which is central to these proceedings.
She wrote:
“Subject: headway caledonian
limited sale of Pavilion 1 Cadzow Park Hamilton (title nos …)
Helen/Neil
I need your usual letter of
non-crystallisation for the sale of the above subjects to be faxed through here
first thing tomorrow am if possible … marked for my attention - I have had a
few letters on this one for previous other units that have been sold. I also
attach discharges for signing and return as well as the whole loan is being
paid off for the estate and I have a settlement figure for that. Can you please
arrange to get these signed and returned again asap.
Many thanks
Jane A Steel
…”
11.
On any view this was an extraordinary email. It was quite wrong for Ms
Steel to say that the whole loan was to be paid off. It had never been
suggested to her, or at all, that the whole loan was to be repaid. Her
instructions from Headway had never been to that effect. On the contrary, and
as she had been told, Northern Rock’s loan was to be reduced by repayment only
of £495,000 and its security upon Units 2 and 4 was to remain. Equally, it was
quite wrong for Ms Steel to say that she had a settlement figure for repayment
of the whole loan. She had no such thing. Northern Rock had never supplied such
a figure to her; it would have been irrelevant.
12.
In evidence to the Lord Ordinary given seven years later, Ms Steel said
that she accepted that she must have sent the email but said that she had no
recollection of having done so and that she could not explain why she had so
misrepresented the nature of the proposed transaction between her client and
Northern Rock. No doubt Ms Steel is usually a solicitor of the utmost
competence but on this occasion she was guilty of gross carelessness.
13.
Labouring, as she was at the time when she sent the email to Northern
Rock, under the misapprehension that Headway was undertaking to repay the whole
loan secured on the remaining three units, Ms Steel attached to it not the two
draft deeds of restriction of Northern Rock’s security to Units 2 and 4 which
would have been appropriate to the agreement reached, but, instead, two draft
deeds of discharge of its security upon all three units, being one deed for
each of the two registered titles.
14.
Ms Steel’s email, addressed to Helen and Neil at Northern Rock, was read
by Mr (Neil) Atkin, a case manager, and, at 8.58 am on 23 March 2007, attached
to an email of his own, he forwarded it and its attachments to Mr Clarke, who,
as the head of the Loan Review Team, had authority within Northern Rock to
authorise discharges. One minute after receiving the two emails Mr Clarke, who
had read them albeit not Ms Steel’s attachments, forwarded them to Ms Harrison
in Northern Rock’s administration team. Mr Clarke had made no attempt to check
the accuracy of Ms Steel’s statements against the material on Northern Rock’s
file. Ms Harrison apparently understood, and correctly understood, that, by
forwarding the emails to her, Mr Clarke was authorising her to cause the deeds
of discharge to be executed as well as to draft, for his signature, the
requested letter of non-crystallisation of the floating charge over Unit 1.
15.
On that morning of 23 March 2007, the two deeds of discharge were
therefore executed on behalf of Northern Rock; a letter of non-crystallisation
was drafted and signed by Mr Clarke; and copies of all of them were at once
faxed to Ms Steel. Thus it was that, on that same day, upon her undertaking to
deliver the original deeds of discharge to the solicitors for the purchasers
within seven days, Ms Steel settled the sale of Unit 1 on Headway’s behalf. She
remitted £495,000 to Northern Rock, which received it on 27 March and apparently
raised no question about the amount of it. On that day it posted the original
deeds of discharge to her and two days later, in compliance with her
undertaking, she forwarded them to the purchaser’s solicitors, who caused them
to be registered in the Land Register. Thus was Northern Rock’s security on
Units 2 and 4 discharged.
16.
Until 2010 Headway continued to make interest payments to Northern Rock
on the balance of the loan. Headway then went into liquidation; and it was at
that time, according to evidence given on behalf of Northern Rock, that it
discovered that its security for the loan had been discharged. Units 2 and 4
had, however, by then been sold. As had been foreshadowed in 2006, Headway had
sold them later in 2007; Ms Steel had again acted for it in the sales and she
had extracted from Northern Rock the necessary letters of non-crystallisation
of the floating charge. One might expect that, when alerted to the proposed
sales and if continuing to believe that its standard security upon the units remained
in place, Northern Rock would then have purported to enforce it. But there is
no evidence to that effect. These later events are shrouded in mystery.
17.
The court will proceed, as invited, on the basis that, by the email
dated 22 March 2007, Ms Steel and the firm caused both the discharge of
Northern Rock’s security over Units 2 and 4 and, resulting therefrom, an
ultimate loss to it, net of recovery elsewhere, of almost £370,000. It notes,
however, that the issue in the case might well have been cast in terms of
whether they were the cause of Northern Rock’s loss rather than whether they
owed a duty of care to it.
18.
In Customs and Excise Comrs v Barclays Bank Plc [2006] UKHL 28,
[2007] 1 AC 181, Lord Mance at para 85 described the case of Hedley Byrne
& Co Ltd v Heller & Partners Ltd [1964] AC 465 as “the fountain of
most modern economic claims”. In the Hedley Byrne case the appellant
asked its bankers to inquire into the stability of a company and, in response
to the inquiry, the company’s bankers, acting (so it was assumed) carelessly,
gave false information about the company, which it expressed as “without
responsibility” but on which the appellant relied to its detriment. Because of
the disclaimer the appellant’s claim against the company’s bankers failed. The
House of Lords held, however, that in the absence of the disclaimer the bankers
would have owed a duty of care to the appellant. At p 529 Lord Devlin held
that, in the absence of a contract between a representor and a representee, a
duty of care in making the representation arose only if the representor had
assumed responsibility for it towards the representee; and he proceeded to
interpret all five of the speeches delivered in that case as requiring that the
responsibility should have been voluntarily accepted or undertaken. The
assumption of responsibility could, he explained at pp 529 and 530, be express
or implied from all the circumstances. Lord Pearce added at p 539 that
liability in such circumstances could arise only from “a special relationship”.
19.
What is noteworthy for present purposes is the emphasis given in the
decision in the Hedley Byrne case to the need for the representee
reasonably to have relied on the representation and for the representor
reasonably to have foreseen that he would do so. This is expressly stressed in
the speech of Lord Hodson at p 514. In fact it lies at the heart of the whole
decision: in the light of the disclaimer, how could it have been reasonable for
the appellant to rely on the representation? If it is not reasonable for a
representee to have relied on a representation and for the representor to have
foreseen that he would do so, it is difficult to imagine that the latter will
have assumed responsibility for it. If it is not reasonable for a representee
to have relied on a representation, it may often follow that it is not
reasonable for the representor to have foreseen that he would do so. But the
two inquiries remain distinct.
20.
In the decades which followed the decision in the Hedley Byrne
case, it became clear that not all claims in tort for losses consequent upon
representations carelessly made could satisfactorily be despatched by reference
to whether the representor had assumed responsibility for it towards the
representee. A case in point is the situation in which the representor is bound
by a contract with a third party to make a representation upon which the
claimant has relied: an analysis of whether, in making the representation in
those circumstances, he has voluntarily assumed responsibility for it towards
the claimant would be artificial. Thus in Smith v Eric S Bush and Harris
v Wyre Forest District Council [1990] 1 AC 831 the claimants, in purchasing
their houses, had relied on information about their condition contained in
reports given by surveyors pursuant to contracts between them and prospective
mortgagees. The House of Lords held that the surveyors owed duties of care to
the claimants. Lord Griffiths at p 862 explained that the law did not - in the
context before the court - ask whether the surveyors had voluntarily assumed
responsibility towards the claimants in giving the information. But he did so
in terms which were arrestingly wide. He said that the test of an assumption of
responsibility was neither helpful nor realistic (or, he added at p 864, at any
rate not so in most cases) and that it had meaning only if it referred to the
circumstances in which the law deemed responsibility to have been assumed. In
effect Lord Griffiths was suggesting that the test identified only a conclusion
rather than a criterion.
21.
Lord Griffiths, with whom three other members of the committee agreed,
proceeded at p 865 to propound a threefold test by reference to which the
surveyors owed a duty of care to the claimants. The test required first that it
was foreseeable that, were the information given negligently, the claimants
would be likely to suffer damage; second that there was a sufficiently
proximate relationship between the parties; and third that it was just and
reasonable to impose the liability.
22.
Months later the threefold test propounded by Lord Griffiths was
addressed by the House of Lords in Caparo Industries Plc v Dickman
[1990] 2 AC 605. The claimants had taken over a company in reliance on its
accounts and alleged that the defendants had negligently discharged their
statutory functions in the course of their audit of them. For years afterwards
the speeches in the House were taken to have indorsed the threefold test. In
fact, however, Lord Bridge of Harwich, with whom three other members of the
committee agreed, observed at p 618 that the concepts of proximity and fairness
were so imprecise as to deprive them of utility as practical tests; and Lord
Oliver of Aylmerton suggested at p 633 that the three suggested ingredients of
the so-called test were usually facets of the same thing and that to search for
a single formula was to pursue a will-o’-the-wisp. That the House in the Caparo
Industries case did not indorse the threefold test was explained by Lord
Toulson in Michael v Chief Constable of South Wales Police [2015] UKSC 2, [2015] AC 1732, at para 106; and it has recently been underlined by
Lord Reed in Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4, paras 21 to 29. In the Caparo Industries case both Lord Bridge
at p 618 and Lord Oliver at p 633 quoted with approval the remarks of Brennan J
in Sutherland Shire Council v Heyman (1985) 60 ALR 1, 43-44 that it was
preferable for the law to develop novel categories of negligence incrementally
and by analogy with established categories; and, as Lord Reed has explained in
the Robinson case, it was by declining to accept that the law should
develop incrementally to the point for which the claimants contended that the
House in the Caparo Industries case determined to allow the auditors’
appeal.
23.
More important for present purposes is the reassertion in the Caparo
Industries case of the need for a representee to establish that it was
reasonable for him to have relied on the representation and that the
representor should reasonably have foreseen that he would do so. Thus at pp
620-621 Lord Bridge observed that a salient feature of liability was that the
representor knew that it was very likely that the representee would rely on the
representation; and at p 638 Lord Oliver observed that a usual condition of
liability was that the representor knew that the representee would act on it
without independent inquiry. Some months later, in James McNaughton Paper
Group Ltd v Hicks Anderson & Co [1991] 2 QB 113, the Court of Appeal,
confronted with a similar claim against company accountants, rejected it by
reference to the decision in the Caparo Industries case. But Neill LJ
expanded on the need for foreseeability of reliance. At pp 126-127 he said:
“One should therefore consider
whether and to what extent the advisee was entitled to rely on the statement to
take the action that he did take. It is also necessary to consider whether he
did in fact rely on the statement, whether he did use or should have used his
own judgment and whether he did seek or should have sought independent advice.
In business transactions conducted at arms’ length it may sometimes be
difficult for an advisee to prove that he was entitled to act on a statement
without taking any independent advice or to prove that the adviser knew,
actually or inferentially, that he would act without taking such advice.”
24.
In July 1994, in Spring v Guardian Assurance Plc [1995] 2 AC 296,
the House held that, in writing a reference for the claimant who had worked for
them and who was now seeking work elsewhere, the defendants owed a duty of care
to him. Lord Goff of Chieveley explained at p 316 that the basis of his conclusion
was that the defendants had assumed responsibility to the claimant in respect
of the reference within the meaning of the Hedley Byrne case. Weeks
later, in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, the House
held that underwriting agents at Lloyd’s owed a duty of care to a member in
their conduct of his underwriting affairs even in the absence of any contract
between them. In a speech with which the other members of the House agreed,
Lord Goff held at p 181 that the case should be decided by reference to the
concept of an assumption of responsibility. In Williams v Natural Life
Health Foods Ltd [1998] 1 WLR 830. Lord Steyn remarked at p 837 that there
was no better rationalisation for liability in tort for negligent
misrepresentation than the concept of an assumption of responsibility. It has
therefore become clear that, although it may require cautious incremental
development in order to fit cases to which it does not readily apply, this
concept remains the foundation of the liability.
25.
The legal consequences of Ms Steel’s careless misrepresentation are
clearly governed by whether, in making it, she assumed responsibility for it
towards Northern Rock. The concept fits the present case perfectly and there is
no need to consider whether there should be any incremental development of it. Nevertheless
the case has an unusual dimension: for the claim is brought by one party to an
arm’s length transaction against the solicitor who was acting for the other
party. A solicitor owes a duty of care to the party for whom he is acting but
generally owes no duty to the opposite party: Ross v Caunters [1980] Ch
297, 322. The absence of that duty runs parallel with the absence of any
general duty of care on the part of one litigant towards his opponent: Jain
v Trent Strategic Health Authority [2009] UKHL 4, [2009] AC 853. Six
authorities, briefly noticed in chronological order in what follows, may
illumine inquiry into the existence of an assumption of responsibility by a
solicitor towards the opposite party.
26.
First, the decision of the Court of Appeal of New Zealand in Allied
Finance and Investments Ltd v Haddow and Co [1983] NZLR 22. The claimant
had agreed to make a loan to X and to take security for it on a yacht. The
defendants, who were X’s solicitors, certified to the claimant that the
instrument of security executed by X in relation to the yacht was binding on
him. In fact, as the defendants knew, it was not binding on him because he was
not, and was not intended to become, the owner of the yacht. The court held
that the defendants had owed, and breached, a duty of care to the claimant. Richardson
J said at p 30, in terms which the other members of the court echoed:
“This is not the ordinary case of
two solicitors simply acting for different parties in a commercial transaction.
The special feature attracting the prima facie duty of care is the giving of a
certificate in circumstances where the [defendants] must have known it was
likely to be relied on by the [claimant].”
27.
Second, the decision of the Lord Ordinary, Lord Jauncey, in the Outer
House in Midland Bank Plc v Cameron, Thom, Peterkin and Duncans 1988 SLT
611. The pursuer had made a loan to X in assumed reliance on a statement by the
defenders, who were X’s solicitors, about the extent of his assets. The statement
was materially inaccurate. But the pursuer’s claim against the defenders
failed. Having referred to the Hedley Byrne case as the proper starting
point and to the Allied Finance case, the Lord Ordinary observed as
follows at p 616:
“In
my opinion four factors are relevant to a determination of the question whether
in a particular case a solicitor, while acting for a client, also owes a duty
of care to a third party: (1) the solicitor must assume responsibility for the
advice or information furnished to the third party; (2) the solicitor must let
it be known to the third party expressly or impliedly that he claims, by reason
of his calling, to have the requisite skill or knowledge to give the advice or
furnish the information; (3) the third party must have relied upon that advice
or information as matter for which the solicitor has assumed personal
responsibility; and (4) the solicitor must have been aware that the third party
was likely so to rely.”
The Lord Ordinary concluded that the pursuer was able to
establish none of the first three of the four factors.
28.
Third, the decision of the Court of Appeal in Al-Kandari v J R Brown
and Co [1988] QB 665. The claimant, a mother of two children, feared that
the father would abduct them to Kuwait. The court had made an order which, with
their consent, obliged the defendants, who were the father’s solicitors, to
retain possession of his passport on which the children were registered. With
the mother’s consent, the solicitors allowed their agents to take the passport
to the Kuwaiti embassy for alteration on condition that it would never be out
of their sight. In fact the embassy insisted on retaining it overnight. The
solicitors did not inform the mother that the embassy had retained the passport
nor that (as they knew) the father was due to attend there on the following
day. The embassy released the passport to the father, who abducted the children
to Kuwait. The court held that, in failing so to inform the mother, the
solicitors had breached a duty of care to her. Both Lord Donaldson of Lymington
MR at p 672 and Bingham LJ at p 675 explained that, in agreeing to become
obliged to retain possession of the father’s passport, the solicitors had
stepped outside their role as his solicitors and assumed responsibility towards
the mother.
29.
Fourth, the decision of Sir Donald Nicholls V-C in the High Court in Gran
Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560. The claimant wished to
purchase an underlease from the first defendant. The claimant’s solicitors
inquired of the second defendants, a firm of solicitors acting for the first
defendant, whether any provisions in the headlease might affect the length of
the underlease. The negative answer of the second defendants was a
misrepresentation, which, following its purchase of the underlease, caused loss
to the claimant. The Vice-Chancellor held that it had a valid claim against the
first defendant but that the second defendants had themselves owed no duty of
care to it. He observed at pp 571-572 that only in special cases, such as the Allied
Finance case, would a solicitor owe a duty of care to the opposite party
and that there was nothing special about the case before him.
30.
Fifth, the decision of the Court of Appeal of New Zealand in Connell
v Odlum [1993] 2 NZLR 257. Prior to his marriage to W, the claimant wished
to enter with her into an agreement of which the statutory effect would be to
contract them out of the law’s general provisions for the making of financial
adjustments between them in the event of separation. Pursuant to one of the
statutory requirements, the defendant, who was W’s solicitor, certified that,
prior to her signing the agreement, he had explained its effect to her.
Following separation a judge found that he had not explained its effect to her
and held that the agreement was void. The Court of Appeal held that it was
highly arguable that, in giving the certificate, the defendant owed a duty of
care to the claimant and that the claim should not be struck out. Thomas J
explained at p 269 that the claimant had relied, and had been expected by the
defendant to rely, on the certificate as a feature of the validity of the
agreement and that there had been the necessary assumption of responsibility
towards him on the part of the defendant.
31.
And sixth, the decision of the Court of Appeal in Dean v Allin and
Watts [2001] EWCA Civ 758, [2001] 2 Lloyd's Rep 249. The claimant proposed
to lend money to W and X on the security of property owned by Y and Z. W and X
instructed the defendants, their solicitors, to effect the security in favour
of the claimant, with which Y and Z were willing to co-operate. The loan was
made on the footing that the security was in place. But the defendants had
carelessly misunderstood what was legally required in order to effect the
security. In due course Y and Z established that the purported charge on their
property was ineffective. The court held that the defendants had owed, and
breached, a duty of care to the claimant. Robert Walker LJ explained in
summary, at para 69, that the provision of effective security was of
fundamental importance to the claimant and that, as the defendants knew or
should have known, he was relying on them in that regard.
32.
Perhaps it helps only slightly for us to have been reminded in the
authorities cited above that Ms Steel and the firm are liable to Northern Rock
only if it was a special case. Probably of greater assistance is the analysis
in the Al-Kandari case that the solicitors owed a duty of care to the
opposite party because they had stepped outside their normal role. But the six
authorities cited above demonstrate in particular that the solicitor will not
assume responsibility towards the opposite party unless it was reasonable for
the latter to have relied on what the solicitor said and unless the solicitor
should reasonably have foreseen that he would do so. These are, as I have
shown, two ingredients of the general liability in tort for negligent
misrepresentation; but they are particularly relevant to a claim against a
solicitor by the opposite party because the latter’s reliance in that situation
is presumptively inappropriate. Thus the reasonableness of the claimant’s
reliance and of the defendant’s foreseeability of it comprised the special
feature which gave rise to the liability in the Allied Finance case and
in the Dean case and to the arguable liability in the Connell
case; and, although the claim in the Midland Bank case failed for other
reasons, the fourth of the requirements valuably identified in Lord Jauncey’s
judgment was that the solicitor should have been aware that the pursuer was
likely to rely on what he had said.
33.
In dismissing Northern Rock’s claim the Lord Ordinary held that the
crucial question arose from the fact that, prior to executing and returning the
deeds of discharge, it had failed to check the accuracy of the representations
made by Ms Steel in the email dated 22 March 2007 against the material on its
file. Had it done so, it would have seen immediately that it was entirely
inappropriate for it to accede to her invitation to execute the deeds of
discharge. Having heard her evidence, the Lord Ordinary found that, although
she knew that Northern Rock was acting without solicitors in relation to the
sale of Unit 1 and to the two earlier sales, she had generally expected it to
check the propriety of her various requests before complying with them. Notwithstanding
her inability, when giving evidence, to recall her state of mind when sending
the email, the Lord Ordinary therefore found that Ms Steel had not foreseen
that Northern Rock would rely on her assertions in it without checking their
accuracy. He then proceeded to ask whether it was reasonable for her not to
have foreseen that it would do so. His answer was that any prudent bank taking
the most basic precautions would have checked the accuracy of her
representations by reference to its file or indeed by asking for further
clarification of an email which he had found in some respects to be vague and
ambiguous; that it was therefore not reasonable for Northern Rock to have
relied on her representations without thus checking their accuracy; and that it
was reasonable for Ms Steel not to have foreseen that it would do so. That the
Lord Ordinary had been entitled to reach this crucial conclusion formed the
basis of Lord Brodie’s dissent upon the appeal to the Inner House.
34.
But the majority in the Inner House took a different view. Lady Smith
held that circumstances were present which led to the attribution to Ms Steel
of an assumption of responsibility for the representations in the email towards
Northern Rock without any need for the court to inquire whether it should have
checked its file. These circumstances were said to be that Ms Steel was a
solicitor; that her representations fell within her area of expertise; that, as
she knew, Northern Rock was not represented by solicitors; that Headway had not
given her actual or even ostensible authority to make the representations;
that, by her email, she was demanding an urgent response; and that the
transaction between Headway and Northern Rock was not at arm’s length.
35.
With great respect, I would not accept that all the circumstances were
as described by Lady Smith. Whether Headway had conferred on Ms Steel
ostensible authority to make the representations had not been fully explored
before the Lord Ordinary - and rightly so because for obvious reasons no claim
was brought against Headway and because an agent may well owe a duty of care to
a third party even if he is acting within the scope of his authority. And,
although Headway and Northern Rock were not engaged in hostile litigation, I
find it impossible to subscribe to the suggestion that they were not at arm’s
length in relation to the removal of security over Unit 1. Overarchingly,
however, neither the general jurisprudence relating to liability in negligence
for a misrepresentation leading to economic loss nor the focussed 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.
36.
Lady Smith added however that in any event Ms Steel should have foreseen
that Northern Rock would rely on her representations without checking their
accuracy. There was, so she said, no expert or other evidence in relation to
the basic precautions taken by a lender to which the Lord Ordinary had referred
and no scope for judicial knowledge to be taken of them; and it was likely and
therefore foreseeable that Northern Rock would simply rely on Ms Steel’s
representations.
37.
Resolution of the further appeal to this court could no doubt be based
on inquiry into whether Lady Smith and Lady Clark were entitled to depart from
the Lord Ordinary’s conclusion that it was not reasonable for Northern Rock to
have relied on Ms Steel’s representation without inquiry. How does the law
classify a trial judge’s conclusion that it was not reasonable for a party to
act as it did? It is not a conclusion of fact. It is a judgement referable to
an already established fact and, albeit required by law, it is not a judgement
about what the law is. So it is difficult to pigeon-hole it as a conclusion
either of fact or of law or even in my view as a conclusion of mixed fact and
law. It is, rather, an evaluation; and in In re B (A Child) (Care
Proceedings: Threshold Criteria) [2013] UKSC 33, [2013] 1 WLR 1911, Lady Hale
at para 203 recorded all members of the court as having agreed that an
appellate court needed to be satisfied that an evaluative conclusion of a trial
judge was wrong before it could be set aside.
38.
But in my view this court does not need to explain why the Lord Ordinary
cannot be said to have been wrong in concluding that it was not reasonable for
Northern Rock to have relied on Ms Steel’s representation without inquiry. We
should bypass examination of whether he was wrong and should hold positively
that he was right. 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. No authority has been cited to the court, nor discovered by me in
preparing this judgment, in which it has been held that there was an assumption
of responsibility for a careless misrepresentation about a fact wholly within
the knowledge of the representee. 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.
39.
This court should allow the appeal and restore the Lord Ordinary’s
interlocutor.
