Nram Plc Against Jane Steel And Bell & Scott Llp
| Jurisdiction | Scotland |
| Judge | Lord Brodie,Lady Clark Of Calton,Lady Smith |
| Judgment Date | 19 February 2016 |
| Neutral Citation | [2016] CSIH 11 |
| Court | Court of Session |
| Published date | 19 February 2016 |
| Docket Number | CA7/13 |
| Date | 19 February 2016 |
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 11
CA7/13
Lady Smith
Lord Brodie
Lady Clark of Calton
OPINION OF LADY SMITH
in the cause
NRAM PLC
Pursuers and Reclaimers;
against
JANE STEEL
First Defender and Respondent;
and
BELL & SCOTT LLP
Second Defenders and Respondents:
Act: Clancy QC, Hawkes; TLT LLP
Alt: Duncan QC, Paterson; CMS Cameron McKenna LLP
19 February 2016
Introduction
[1] NRAM Plc, the pursuers and reclaimers, are commercial lenders. Jane Steel, the first respondent, is a solicitor and, until 1 September 2006, was a partner in Clairmonts, solicitors. Clairmonts was, on that date, taken over by Bell and Scott, the second respondents, and Ms Steel then became a partner in that firm.
[2] NRAM granted loan facilities to Headway Caledonian Limited (“HCL”), a client of Ms Steel’s, in relation to its purchase of four commercial units at Cadzow Business Park in Hamilton, in return for which HCL granted security over the whole property. NRAM were misled into discharging the entire security at a stage when it ought to have been left in place in relation to two of the units. NRAM say that that was due to negligent misstatements for which Ms Steel should be held responsible. HCL has since gone into liquidation and NRAM says that there is little or no prospect of their recovering the outstanding loan. NRAM looks to the respondents to make good their losses which, they aver, amount to £458,723.99 plus relevant interest.
The issue
[3] There are two issues in the reclaiming motion:
- Did the Lord Ordinary err in law in holding that Ms Steel owed no duty of care to NRAM when she made the erroneous statements that led to the discharge of their entire security?
- Did the Lord Ordinary err in law in assessing damages on the basis of assuming that NRAM would recover £ 70,351.50 from the liquidator of HCL?
It was not disputed that Ms Steel’s conduct fell below the requisite professional standard. What, according to the Lord Ordinary, prevented NRAM from recovering their losses from the respondents was that she did not, in the circumstances, owe them a duty of care.
Background
[4] The facts agreed and as found by the Lord Ordinary – who heard evidence – can be summarised as follows.
Ms Steel, HCL and Cadzow Business Park
[5] By 2006, Ms Steel had acted for Hamish Munro for many years. Mr Munro had interests in various companies including HCL. In 1997 HCL bought Cadzow Business Park; there were four units – Units 1,2,3 and 4 - and the property was held on two separate titles both registered in the Land Register. HCL borrowed money from NRAM and granted an “all sums due and to become due” standard security over all four units when it was acquired.
[6] It also, on 27 June 2002, granted a floating charge over all its assets in favour of NRAM.
Sale of Unit 3, Cadzow Business Park
[7] In May 2005, HCL sold Unit 3. Ms Steel acted for HCL in the transaction in the course of which she sent NRAM two Deeds of Restriction – to release Unit 3 from NRAM’s security - for execution by them. NRAM executed those documents, returned them to Ms Steel and following settlement of the sale of Unit 3, received a capital repayment reducing HCL’s overall indebtedness but leaving it secured over Units 1, 2 and 4.
Lossiemouth Sale
[8] In November 2005, HCL sold a property that it owned in Macdonald Drive, Lossiemouth. Once more, Ms Steel acted for HCL. NRAM held a standard security over the subjects of the Lossiemouth sale. Ms Steel sent NRAM a draft discharge for signature, which they signed. They received funds in repayment of the whole of that loan.
Sale of Unit 1, Cadzow Business Park
[9] In May 2006, HCL entered into heads of terms for the sale of Unit 1 at Cadzow Business Park. Ms Steel was instructed by HCL to act for it in that sale. The price was to be £560,000. Ms Steel was instructed to obtain the release of Unit 1 from the standard security. By September 2006, Mr Munro had agreed a partial redemption figure with NRAM. On 17 September 2006, he forwarded to her an email he had received from Mr John Lindsay of NRAM:
“Subject: Headway Caledonian Limited
Hamish,
Further to last week’s discussions, I confirm we shall be satisfied to receive £495,000 coming in permanent Loan reduction from the sale of Unit 1 Cadzow Business Park, Hamilton. When Clairmonts require a formal figure, can you please ask them to write to Edinburgh office at the same timing advising the likely completion date. I am away over the next fortnight but either Julie or Patricia will address any queries.
Units 2 & 4: what sum comes in reduction will basically depend on which unit goes first. We now have up to date valuation figures from D M Hall and, subject to there being no major market movements over the next 3 – 6 months, will use these as the basis for our calculation.
John
Commercial Finance Manager
Northern Rock Commercial Finance…”
The repayment figure of £495,000 was stated in a “Partial Redemption Pro Forma” which had an expiry date of 9 October 2006. No further pro forma was prepared or issued in relation to the sale of Unit 1 or any other unit.
[10] The sale was delayed pending preparation and execution of a Deed of Conditions and the consequent revisals of various leases. By February 2007, that work appears to have been completed and on 10 February 2007, Mr Munro emailed Ms Steel in the following terms:
“Subject: Unit 1 Hamilton
Jane
In case this settles whilst I am away – please pay free proceeds after Northern Rock – they taking £470k to
Headway Caledonian Limited
………
.. .. 00
……..Bank ……..
Thanks
Hamish M Munro
Briar Hall Estates Ltd
………
Glasgow…..”
Ms Steel’s email of 22 March 2007 and subsequent events
[11] The transaction for the sale of Unit 1 was due to settle on 23 March 2007. At 5pm, on 22 March 2007, Ms Steel emailed NRAM’s case management team in the following terms:
“Subject: headway caledonian limited sale of Pavillion 1 Cadzow Park Hamilton (title nos LAN 6421 and LAN 124573)
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 to 0141 … …. marked for my attention – I have had a few letters on this one previously for various 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
Partner
For Bell & Scott LLP”.
Neil Atkin, one of the addressees in that email, forwarded it to Martin Clarke, the head of NRAM’s Loan Review Team; he read it and it caused him to authorise both a letter of non-crystallisation and the execution and release of the discharges.
[12] On 27 March 2007, NRAM posted the executed discharges to Ms Steel and, on that day, they received from her firm the sum of £495,000. A substantial part of HCL’s loan remained outstanding; despite that, on 29 March 2007, Ms Steel forwarded the discharges of the entire security to the purchaser’s solicitor and they were duly registered.
The misstatements
[13] NRAM did not have solicitors acting for them in any of these three transactions. The persons to whom the email of 22 March was addressed were not solicitors. Ms Steel knew that the persons she dealt with at NRAM in relation to the sale of Unit 3 and in relation to the Lossiemouth transaction were not solicitors. The Lord Ordinary (para 56) was satisfied that she either knew or ought to have known that NRAM would not instruct solicitors to act for them in relation to the sale of Unit 1.
[14] Mr Munro had not instructed Ms Steel that he was intending to repay the whole of the outstanding loan. He did not provide her with a settlement figure for repayment of the whole of the outstanding loan. He had not instructed her to seek or obtain discharges of the entire security. HCL were not entitled to seek discharges of the entire security. Nor had Mr Munro instructed Ms Steel that any unit other than Unit 3 had previously been sold. Accordingly, the email of 22 March 2007 contained a series of very significant misstatements and called on NRAM to execute discharges of the entire security but Ms Steel had no actual or ostensible authority from her client to make the statements or require wholesale discharge of the security; none of it emanated from HCL. The only source was Ms Steel (Lord Ordinary at paras 66 and 68). The Lord Ordinary inferred (para 67) that the purpose of the misstatements was to explain to NRAM “why it was that discharges were appropriate”.
NRAM’s reliance on the misstatements
[15] The Lord Ordinary (at para 73) found that the email of 22 March 2007:
“(i) contained no disclaimer; (ii) had a degree of urgency in its tone; (iii) was communicated directly to the pursuers, rather than to professional advisers; and (iv)..came from a solicitor – a trustworthy source.”
He accepted that those were factors which favoured the view that there was “the requisite foreseeability and reasonable reliance.”
HCL after the sale of Unit 1, its liquidation and the outstanding debt due to NRAM
[16] HCL continued to make interest payments to NRAM until 14 April 2010. It was put into liquidation in July 2010. Meanwhile, HCL had sold Unit 4 in September 2007 and Unit 2 in December 2007, for £750,000 and £325,000 respectively. Ms Steel acted for HCL in relation to each sale and her contact with NRAM was limited to seeking and obtaining letters of non- crystallisation. When HCL went into liquidation, the outstanding balance of its loan from NRAM was over £1/2m. The liquidator made one payment to them, of £50,000, in July 2014 but no further payments had been made by the date of proof; we were advised that, as at 20 October 2015, the final distribution to NRAM was not likely to be more than £2,500 – 3,000.
[17] In evidence which the Lord Ordinary appears...
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