Last month the Supreme Court decided, on an appeal from the Scottish Inner House of Court of Session, that a borrower’s solicitors did not assume responsibility for, and thereby owe a duty of care to, the other side (the financier) in a commercial transaction.

Whilst this was a Scottish case, the principles considered by the Supreme Court were the same ones as apply to the law negligent misstatement in England and therefore the decision is very important on both sides of the Border.


The finding of an assumption of responsibility by one party to another when making a (mis) statement to another is rooted in case law dating back to the 1960s.

The House of Lords decision in Hedley Byrne v Heller established the requirements for finding an actionable duty of care as being:

  • a reasonably foreseeable loss;
  • a special relationship with a sufficient degree of proximity; and
  • it is fair, just and reasonable to impose a duty of care.

In the 1990s, the House of Lords, in Caparo Industries plc v Dickman, gave guidance on establishing a relationship of “sufficient proximity”. In particular, a duty to take care when giving advice/providing information may arise, broadly, where:

  • the advice/information is required for a purpose known/ought to be known by the person providing that advice/information;
  • the claimant is a person whom the individual providing the advice/information knew or should have known, might use that advice/information for that purpose;
  • the person providing the advice/information knew, or should have known, that the claimant was likely to act on the advice for that purpose without independent inquiry; and
  • the claimant so acted on the advice to its detriment.

The facts

NRAM (“Lender”) held security over four units of a business park owned by a customer (“Customer“). In 2005 one of the units was sold. Ms Steel and her firm (“Solicitor”) acted for the Customer in relation to the sale and negotiated with the Lender (on the Customer’s behalf) for the release of the unit from its security. In 2007, the Customer sold another one of the units. The Lender agreed to discharge the related security in return for a partial redemption of the loan.

However, on the eve of the sale, the Solicitor emailed the Lender negligently informing it that the Customer would be repaying the whole loan in full and accordingly requested discharge of the security over the other two units. The Lender did not access the Customer’s file in order to verify the accuracy of the Solicitor’s statement. Rather, the Lender simply proceeded in accordance with the Solicitor’s request and signed the deeds of discharge.

The error went undetected until 2010, when the Customer went into liquidation. The Lender suffered a loss of almost £370,000 and accordingly claimed damages for negligent misstatement.

The decisions below

The Lender was unsuccessful at first instance. The Court held that the Lender’s reliance on the Solicitor’s statements without any independent checks was neither reasonable nor foreseeable.

The Inner House however allowed the Lender’s appeal. It decided that the Solicitor had assumed responsibility to the Lender and, as a result, the Solicitor was liable to pay damages to the Lender for the loss suffered because of her negligent misstatement.

The ruling was highly significant as the Court appeared to side step a key element of the “Caparo test” in its analysis. The Court did not look at whether it had been reasonable for the Lender to rely on the Solicitor’s statement. The majority ruled that the Solicitor had assumed responsibility to the Lender by reference to the Hedley Byrne requirements and thereby owed a duty of care to the Lender. The relevant factors in their assessment included the Solicitor’s expertise in the area and the Lender’s lack of representation by a solicitor.

The Solicitor appealed to the Supreme Court.

The Supreme Court’s decision

The question for the Supreme Court was whether a solicitor instructed on an arms-length transaction by a borrower was liable for the resultant loss suffered by the lender bank.

The Supreme Court unanimously allowed the Solicitor’s appeal.

Lord Wilson (with whom the other Justices agreed) ruled that the Solicitor had not assumed responsibility to the Lender. Applying the Hedley Byrne test, the Court found that it was not reasonable for the Lender (which was a commercial lender with full knowledge of the terms of the loan) to rely on the Solicitor’s statements without independent inquiry. Nor was it foreseeable by the Solicitor that the Lender would so rely. This was especially the case given that a party’s reliance on an opposing party’s solicitor is presumptively inappropriate. In these regards, the Court cited with approval the 1980 decision in Ross v Caunters that solicitors do not generally owe a duty to the other side.

A prudent financier would have taken basic precautions to check the accuracy of the Solicitor’s statement before releasing the security (rather than acting solely on the terms put forward on behalf of the borrower). A key consideration in the Court’s analysis was the fact that the Lender was in possession of the necessary information relating to the transaction. The absence of a solicitor was not an adequate excuse. The correct information was in the knowledge of the Lender.


The Supreme Court’s decision helps to further nuance the applicability of the Hedley Byrne/Caparo test in the area of negligent misstatement in the absence of a contractual relationship between parties. In particular, an assumption of responsibility must generally be proven in order to establish liability on the maker of a statement if it later turns out to be untrue.

In practice, this means that in claims against a solicitor acting for an opposing party (a) the solicitor must know that the representee would act on the statement without independent inquiry; and (b) the representee must show that its reliance on the statement by the solicitor was reasonable.

The decision also sounds a cautionary note to financial institutions who do not instruct lawyers on a deal. They may not be able to rely on statements made to them by, amongst others, borrowers or their advisers if these statements turn out to be untrue and the institution suffers loss because of their reliance.