Negligent misstatement by a solicitor to the opposite party (Steel v NRAM)
Hollins LLP, a firm of solicitors in England, acts for Dorrance Ltd, which is selling one of four commercial units mortgaged to Northgate Bank plc. Northgate is a commercial lender and is not using its own solicitor for the release. A partner at Hollins carelessly emails Northgate stating that Dorrance will repay its entire loan on completion and asking Northgate to release its charges over all four units. In fact, only part of the loan is to be repaid. Northgate does not check the email against its own loan records, which would have shown the error, and releases all its security. Dorrance later becomes insolvent and Northgate sues Hollins LLP in negligence for its loss.
Which of the following best describes whether Hollins LLP owed Northgate a duty of care in respect of the email?
Choose one answer to see the reasoning.
Worked answer
Correct answer B: Probably not: a solicitor generally owes no duty to the other side, and a commercial lender could not reasonably rely on the email without checking its records.
THE RULE TO REMEMBER
A solicitor generally owes no duty to the opposite party; a duty for a misstatement requires an assumption of responsibility, including reasonable reliance that the solicitor should reasonably have foreseen.
Negligent misstatement by a solicitor to the opposite party (Steel v NRAM)
Liability for negligent misstatement causing pure economic loss rests on an assumption of responsibility under Hedley Byrne. In Steel v NRAM Ltd [2018] UKSC 13 the Supreme Court stressed that the claimant must show it was reasonable to rely on the statement and that the maker should reasonably have foreseen that it would do so. A solicitor owes a duty to his own client but generally owes no duty to the opposite party, and will not be taken to assume responsibility to that party unless it was reasonable for it to rely on what the solicitor said. On materially similar facts the Court held that a commercial lender could not reasonably rely, without checking its own records, on a statement by the borrower's solicitor about the terms of its own loan. Northgate could easily have checked and was acting for itself in an arm's length transaction. Hollins LLP therefore probably did not owe it a duty of care.
Why A is wrong: Foreseeability alone is not enough; reasonable reliance and an assumption of responsibility are required.
Why C is wrong: A solicitor generally owes no duty of care to the opposite party in an arm's length transaction.
Why D is wrong: Pure economic loss can be recovered in tort where Hedley Byrne liability arises; the claim fails here on duty, not because tort is excluded.
Why E is wrong: Hedley Byrne liability depends on a special relationship involving reasonable reliance, not on any business statement.
A little more practice done.
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