UK: Supreme Court Decision: Assumption Of Responsibility

Last Updated: 9 March 2018
Article by Colette Finnieston and Anne Kentish

Most Read Contributor in UK, November 2018

In Steel and another (Appellants) v NRAM Limited (Respondent (Scotland) [2018] UKSC 13, the Supreme Court confirmed that, in order to prove an assumption of responsibility by a professional for a careless misrepresentation, reasonableness is a key factor. The representee must show that it was reasonable for it to rely on the representation and that the representor should reasonably have foreseen that the statement would be relied on.

The facts

The appellant solicitor acted for a company called HCL which, in 2002, purchased a business park using funds borrowed from the respondent, a commercial lender. The loan was secured over 4 commercial units in the business park.

In 2005, HCL sold one of the units. The respondent consented to the release of that unit from its security in return for partial redemption of the loan.

In 2007, HCL was selling a second unit. The respondent had confirmed that it would release that unit from its security in return for repayment of £495,000, with the balance of the loan being secured over the remaining 2 units. The appellant acted for HCL on both sales.

On the eve of the sale, the appellant emailed the respondent and asked for discharges to be signed and returned as soon as possible "as the whole loan is being paid off for the estate and I have a settlement figure for that". It was later accepted that this statement was completely inaccurate.

The respondent did not query the terms of the appellant's email and provided the discharges, which meant that it no longer had security over any of the units. It did not check the accuracy of the appellant's statement against its own file.

HCL continued to make loan repayments until 2010, when it became insolvent. At that stage, the respondent realised that its outstanding debt was unsecured.

The respondent raised proceedings against the appellant, alleging careless misrepresentation.

The judge at first instance held that it was not reasonable for a bank in the position of the respondent to rely solely upon a statement from the borrower's solicitor, without first checking its records. He also held that the appellant could not reasonably foresee that the respondent would rely on her statement without first checking it.

The Inner House (the Scottish court of appeal) held that the appellant had, in the circumstances, assumed responsibility for her representation to the respondent, and that the court did not have to consider whether the respondent had acted reasonably in relying in the representation.

The solicitor appealed to the UK Supreme Court.

The issue

The question for the Supreme Court was this - did a professional, in the position of the respondent, and in these circumstances, assume a responsibility to a third party non client for its representation?

Additionally, was the respondent's conduct (in failing to check the accuracy of the representation) relevant?

The decision

In a unanimous decision, the Supreme Court allowed the appeal, reinstating the first instance decision, and re-asserted the requirement for a representee to establish: (i) that it was reasonable for it to rely on the representation; and (ii) that the representor should reasonably have foreseen that the representee would do so.

Reasonableness is an essential element of the concept of assumption of responsibility and, therefore, the reasonableness of the respondent's actions was relevant. The respondent was a commercial lender and it was not reasonable for it to simply rely on a description of the agreed terms put forward by the borrower (through its solicitor), rather than checking its own information to make sure that this was accurate.

The court commented "these ingredients of reasonable reliance and foreseeability are particularly relevant to a claim against a solicitor by an opposing party, because it is presumed to be inappropriate for a solicitor to assume such a responsibility towards the other side".

The court identified that, whilst this concept of assumption of responsibility was the foundation of liability for careless misrepresentation, the concept might require cautious incremental development in order to fit cases to which it does not readily apply.

Comment

This is a welcome decision for solicitors (and their insurers), who are routinely required to communicate with third parties, including opponents, when handling a transaction on behalf of their client. This judgment reaffirms that the representor does not automatically assume responsibility for the accuracy of its statements in those circumstances and that reasonableness will be a key factor. The factual and commercial context will be relevant when assessing whether, in the full circumstances, it was reasonable for the third party to rely on the representation and whether it was reasonably foreseeable to the representor that the third party would do so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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