A cautionary tale for lenders

  • Insight

06 March 2018

‘Gross carelessness’ by a borrower’s solicitor is not negligent misrepresentation. Seonaid Sandham discusses the unanimous decision of the Supreme Court in the case of Steel and another v NRAM.

The facts

  • Headway Caledonian Ltd (“Headway”) was the owner of a business park comprising 4 different units. Headway had borrowed funds from NRAM to assist with the original purchase.
  • Ms Steel was the solicitor acting for Headway in the sale of one of the units. NRAM did not instruct solicitors.
  • NRAM held security over three of the units and agreed to release the unit from its security in exchange for partial repayment of around £495,000. The total loan to NRAM was approximately £1.2million. The other two units were not being sold and were to remain secured to NRAM.
  • Ms Steel emailed NRAM with discharges of the security for NRAM to sign, but (for reasons she could not explain when the matter reached court) she erroneously included all three units in the discharges stating in her email that the whole loan was being repaid.
  • NRAM did not query this and signed the discharges releasing the whole security.
  • NRAM did not notice the security had been discharged in full until 3 years later, when Headway went into liquidation. The two remaining units NRAM thought it had security over had by then been sold.
  • NRAM consequently issued a claim against Ms Steel (and Bell & Scott LLP) for damages suffered as a result of its reliance on Ms Steel’s email sending the discharges. NRAM alleged Ms Steel owed it a duty of care and had relied on the statements she had negligently made in her email.
  • The claim against Ms Steel was dismissed at first instance, with the court holding NRAM did not act reasonably and should have checked the accuracy of Ms Steel’s email.
  • On appeal by NRAM, the Inner House awarded damages in its favour of £369,811.18 ruling that in the circumstances Ms Steel had assumed responsibility for the representations in her email and it was reasonable for NRAM to rely on them.

Supreme Court Decision

The Supreme Court restored the original judge’s ruling. Ms Steel was said to have been guilty of gross carelessness. However, there was no authority that imposed responsibility (on Ms Steel) for a careless misrepresentation about a fact wholly within the knowledge of the representee (NRAM).

Some notable comments from Lord Wilson:

"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."

"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."


Is it obvious that a lender should check its own records before releasing any security, transacting or contracting with another party? Yes, particularly where a lender chooses not to instruct its own solicitor. There is no doubt that a solicitor owes a duty of care to its own client, but generally owes no duty to the opposite party. The test for professional negligence is well established. Had Ms Steel been acting for NRAM, the outcome may have been very different.

Taking that extra time to check its own records may avoid a lender facing significant unrecoverable losses. It may be a simple case of reviewing internal policies and making appropriate changes.

Our specialist Banking Litigation and Banking and Finance teams work with a number of lenders and are well placed to provide advice on any of the issues raised by the case referred to above.

For further information on this topic, please contact