Steel and another v NRAM Ltd (formerly NRAM Plc)

Heard on 7 November 2017

( with whom Lady Hale, Lord Reed, Lord Hodge and Lady Black agree)

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.

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”.

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.

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”.

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.

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.

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.

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.

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.

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

…”

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.

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.

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.

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.

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.

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...