NRAM Ltd. v Steel [2018] UKSC 13, [2018] 1 W.L.R. 1190, centred around the interactions between a solicitor, Ms. Steel, and NRAM Ltd., formerly part of Northern Rock, a now-defunct bank which collapsed late in 2007 during the global financial crisis. Ms. Steel acted for a company (Headway) which had borrowed from NRAM to purchase commercial units. NRAM had been granted a standard security over the properties. Headway decided to sell one of the units, and agreed with NRAM that it would be released from its security in return for partial repayment. In March 2007, shortly before completion, Ms. Steel sent an email message to NRAM, incorrectly asserting that the whole loan was being repaid, that she had a settlement figure and asking for deeds to discharge the security over all units. In fact, she had no such instructions. NRAM was unrepresented (a fact, we can speculate, perhaps connected with its financial situation), and its employees did not check the email's accuracy but executed the deeds. NRAM's security on all units was discharged. Headway later went into liquidation.
NRAM's claim for loss arising from misrepresentation was, in effect, dismissed at first instance. The Lord Ordinary, who heard evidence in a proof before answer, decided it was not reasonable for a bank such as NRAM to rely on the misstatement without confirming accuracy, and that a solicitor in the position of Ms. Steel would not foresee it would reasonably do so without checking. The email, he found, was ambiguous and any prudent bank taking basic precautions would have checked the file or sought clarification. There was no duty of care owed, whether the test was that in Caparo Industries plc v Dickman [1990] 2 A.C. 605 or “assumption of responsibility”. He indicated that he would not, if his finding were otherwise, have upheld defences of volenti, sole fault or contributory negligence. Breach was not contentious. The principal point of failure, therefore, was duty.
Two matters formed the basis of an appeal to an Extra Division of the Inner House of the Court of Session: duty of care and assessment of damages. Lady Smith (Lady Clark of Calton agreeing) found Ms. Steel to have assumed responsibility towards NRAM for reasons including that she was a solicitor acting within her area of expertise, she knew NRAM was unrepresented, and made urgent demands. If it were necessary to apply the threefold Caparo test (although she thought it was not, given the assumption finding), it was satisfied. NRAM's reclaiming motion was allowed in part, although damages awarded were as assessed by the Lord Ordinary. Lord Brodie, dissenting, considered the decision inappropriate for appellate intervention.
Lord Wilson delivered the Supreme Court's decision, allowing the further appeal and restoring the Lord Ordinary's interlocutor. He noted that this case could, instead, be cast in terms of causation. He focused on Hedley Byrne & Co. v Heller & Partners [1964] A.C. 465 and the emphasis said to be given there to reasonable reliance by the representee, and the reasonable foreseeability of reliance. A commercial lender, Lord Wilson said, on the brink of executing an agreement concerning its security, “does not act reasonably if it proceeds upon no more than a description … put forward by or on behalf of the borrower” (at [38]). Usually, as in this case, the lender will know, and have been involved in creating, the terms. If it had forgotten, the answer lay at its fingertips.
Three things are noteworthy about the court's decision. First is its treatment of Caparo. Second is its approach in determining whether or not a duty existed. Third is the restrictive view taken of solicitors’ duties to opposing parties for economic loss following misstatement. It is well known that solicitors generally owe no duty to opposing parties; confirmation of a similarly restrictive approach to misstatement will be welcome news to many in the legal profession.
Lord Wilson appeared to see little utility in the Caparo test. He observed (at [22]) that the threefold test for a duty of care, originally set out in Smith v Eric S Bush [1990] 1 A.C. 831 and requiring reasonable foreseeability of harm, a sufficiently “proximate” relationship, and that imposing a duty would be fair, just and reasonable, was understood for “years afterwards” as endorsed in Caparo. This was, he said, incorrect: “Lord Bridge … with whom three other members of the committee agreed, observed … that the concepts of proximity and fairness were so imprecise as to deprive them of utility as practical tests” (at [22]). He went on to list subsequent decisions in which it was explained that the House of Lords in Caparo was not, in fact, endorsing the test. Instead, Lords Bridge and Oliver should be taken as approving of incrementalism: the law should develop novel categories of negligence incrementally, by analogy with established categories. After finding no assumption of responsibility by Ms. Steel, Lord Wilson seemingly found it unnecessary to consider the Caparo factors. The approach taken was markedly different to that in Customs and Excise Commissioners v Barclays Bank [2006] UKHL 28, [2007] 1 A.C. 181 (CEC), where a finding of no assumption was followed by consideration of the Caparo factors, to see whether a duty should nevertheless be recognised. CEC suggested that “assumption of responsibility” was one way of establishing “proximity” which, if found, could be sufficient to impose a duty, but proximity not amounting to assumption could, if the other Caparo factors were satisfied, still lead to a finding of a duty. Caparo was given a different role by Lord Wilson (at [23]): “[m]ore important for present purposes” was the reassertion in Caparo of the need for reasonable and foreseeable reliance.
What, then, was the approach taken to determine whether or not a duty of care existed? Assumption of responsibility was confirmed as “the foundation of … liability” for misstatement leading to economic loss (at [24]). The court's ultimate conclusion seemed to be reached by application of this concept, cross-checked by incrementalism. Lord Wilson concluded by noting that there was no authority cited where assumption of responsibility was found for misrepresentation “about a fact wholly within the knowledge of the representee” (at [38]). The explanation, he said, was that reliance in such circumstances would not be reasonable or foreseeable.
As Lady Smith noted in the court below, this area is “suffused with policy” with “no hard and fast rules” (NRAM plc v Steel [2016] CSIH 11, 2016 S.C. 474, at [42]). Nevertheless, several courts have considered it prudent to use three approaches to the duty question in turn—assumption of responsibility, Caparo factors and incrementalism—for example, CEC; Dean v Allin & Watts [2001] EWCA Civ 758, [2001] 2 Lloyd's Rep. 249. Dean is one of the few cases where a solicitor was found to owe a duty to an opposing party, but it involved exceptional circumstances and, importantly, an unrepresented and commercially-inexperienced party. Lord Wilson adopted a different, multi-stage, approach, without applying the Caparo test. It may well be that it would have failed, in Lord Wilson's view, at the first limb (foreseeability of harm), but no explicit application of the threefold test is evident in the judgment. This is perhaps unsurprising against the backdrop of his disparaging discussion of the test. Nevertheless, the Caparo factors remain useful in focusing the mind on whether or not any overriding factors exist against a duty, despite indications in favour – a valuable exercise in cases like this. It is possible that we are seeing a return to coyness about policy reasoning. This would be a U-turn from CEC. Perhaps more clarity and predictability were considered necessary.
Another striking feature of the court's approach to the duty enquiry was the content given to “assumption of responsibility”. The court seemed to provide a two-stage test, based on reasonableness and foreseeability of reliance. However, Lord Wilson did not make clear whether these were the only factors needed, or whether it was simply that their absence precluded assumption. There was no mention of earlier guidance: something “akin to contract”, where the defendant might be said to have undertaken to act for the claimant's benefit (e.g. CEC at [4], [94]).
As noted above, the third noteworthy element of this decision is the narrow view taken of solicitors’ duties to opposing parties. The authorities considered by Lord Wilson indicated that something exceptional is required; some additional burden benefiting the other party. However, he stressed that there will be no assumption of responsibility unless reliance was reasonable and foreseeable. While these were two ingredients of general liability for misrepresentation, they were particularly relevant to solicitors sued by opposing parties because reliance is “presumptively inappropriate” (at [32]). He batted away any suggestion that it was not always necessary to establish reasonable reliance. This is significant. It has sometimes appeared that absence of foreseeable and reasonable reliance would not necessarily be fatal: for example, Spring v Guardian Assurance plc [1995] 2 A.C. 296. It now seems it will be, at least for misrepresentation. While undoubtedly correct in this context, the comments were not so confined. We are far from the CEC view that we gain little from rigid requirements, and that we step back and consider the relationship's features.
The overall outcome seems right. NRAM was a commercially-astute lender; one would expect it to carry out its own due diligence. The email's inconsistencies and urgent tenor (appearing hastily-drafted and informal) should have raised alarm bells. It is also clearly desirable that courts are slow to impose such duties upon solicitors. The decision is correctly restrictive.
A niggle remains. There was significant focus upon NRAM's failure to verify the contents of the email. The court was correct to emphasise that commercially-savvy conduct could be expected of a party like NRAM. Traditionally, in cases of pure economic loss where the default rule is that no duty is owed, courts have looked for an appropriate “relationship” to justify imposing a duty and, of course, there are two sides to a relationship. However, the reasonableness of a claimant's response to a negligent act seems more a question for the causation stage or defence of contributory negligence, rather than for the artificial duty analysis based on the parties’ “relationship”. This decision highlights the difficulty of asking similar questions at multiple stages.
We were told here again that a “special relationship” is required. Surely more is needed than foreseeable and reasonable reliance, the core of Lord Wilson's approach, to constitute such a relationship. While in some ways restrictive, this decision has the potential to be interpreted in a permissive way: foreseeable and reasonable reliance gets us only onto the first rung towards the old “akin to contract” test. If this was a move to inject certainty into this confused and confusing area, we have a way to go.
