NRAM PLC AGAINST JANE STEEL AND BELL & SCOTT LLP
OUTER HOUSE, COURT OF SESSION
[2014] CSOH 172
CA7/13
OPINION OF LORD DOHERTY
In the cause
NRAM PLC
Pursuers;
against
JANE STEEL
First Defender;
and
BELL & SCOTT LLP
Second Defenders:
Pursuers: Clancy QC, Hawkes; TLT LLP, Solicitors
Defenders: Duncan QC, Paterson; CMS Cameron McKenna
5 December 2014
Introduction
[1] The pursuers were formerly incorporated under the name Northern Rock (Asset Management) plc. At all material times their business included commercial lending. The first defender is a solicitor. Until 1 September 2006 she was a partner in Clairmonts, Solicitors. On that date Clairmonts was taken over by the second defenders and she became a partner in the second defenders. She continued to be a partner of the second defenders until November 2009 when she left to become a partner in another firm.
[2] The pursuers seek to recover damages from the defenders in respect of loss and damage which they claim to have suffered as a result of reliance by them on statements made by the first defender in an email to them of 22 March 2007, during the course of a transaction where she acted for a client, Headway Caledonian Limited (“HCL”). I heard a proof before answer on 11, 12, 16 and 17 September 2014.
The pleadings
[3] The pursuers’ primary case is that the first defender owed them a duty to take reasonable care that the statements which she made in the email were accurate. They were inaccurate, and they were negligent misstatements upon which the pursuers had reasonably relied. As a result the pursuers had been misled into discharging a security over three properties owned by HCL when in fact only one property ought to have been released from the security.
[4] The pursuers’ secondary case is that in the circumstances it was the first defender’s duty to take reasonable care not to release the discharges for registration until she had received funds sufficient to redeem HCL’s outstanding loan with the pursuers. In releasing the discharges for registration she had breached that duty, causing the pursuers loss and damage. The factual foundation for this secondary case is set out in condescendence 5 and 8:
“5. …Due to the formalities of settling Scottish conveyancing transactions (the purchase price will only generally be released, in exchange for inter alia a discharge of the security over the sale subjects), executed Discharges were as a matter of course provided to the borrower’s solicitors in advance of funds being made available to NR. It was therefore necessary for NR to rely exclusively on the borrower’s solicitor where direct requests were made, such as here, for discharge documentation. This was the process which NR followed for the partial discharge of Unit 3. By way of further example, the same solicitor had in November 2005 requested the execution of a full discharge (drafted by her firm) of a security over other subjects owned by HCL (Macdonald Drive, Lossiemouth). This was provided to her in advance of funds being received for the redemption of the loan. Ms Steel was accordingly well aware that any request by her for discharge documentation from NR would generally be acted upon by them without question. She was also aware that it would be provided to her, and could be passed to the purchaser, in advance of redemption funds being transferred. This was on the implicit understanding that such funds would then be held by her to the strict order of NR and, in the absence of any contrary instruction, should be remitted to them forthwith…
8. … The members of the pursuers’ CMT team who received the email…, the members of the pursuers’ Admin Team who were responsible for having the discharges executed and the signing officer who executed both discharges were misled into believing that the first defender would repay or arrange repayment of the whole borrowings on receipt by her of the executed discharges. They were misled into believing that the first defender would not deliver the discharges to the purchaser of unit 1 or would not otherwise cause or permit the discharges to be registered without effecting or arranging repayment of the whole borrowings. If they had not been misled in this way they would not have arranged for the discharges to be executed or returned to the first defender … NR are content to execute the discharge documents in advance of funds being received by them only because they rely on the requesting solicitor not releasing those documents without receiving in exchange a sum sufficient to redeem the outstanding loan and thereafter to hold those funds to NR’s order. The first defender knew that this was a common practice in transactions where a solicitor acts for a party selling heritable property in Scotland which is burdened by security. She knew that the pursuers were relying on her not to release the discharges or otherwise cause or permit their registration unless or until they were repaid in full …”
[5] The defenders deny that the first defender owed a duty of care the pursuers. They deny that the pursuers sustained the loss and damage they claim to have as a result of either of the suggested failings. They also have pleas of volenti non fit injuria, sole fault, and contributory negligence.
The evidence
[6] The pursuers led evidence from three of their employees - Martin Clarke, Christine Stephenson and Ross Johnston. The only witness called by the defenders was the first defender. Signed witness statements had been lodged in advance of the proof and these were treated as the witnesses’ evidence-in-chief. A joint bundle (“JB”) of productions was prepared. There were two joint minutes of admissions (6/69 and 6/70 of process). In terms of 6/70 it was agreed that the witness statement of John Lindsay, and the witness statements of Kenneth Pattullo, were, in respect of each witness, “to be treated as his evidence in the cause.” Hamish Munro was on the defenders’ list of witnesses and a witness statement from him had been lodged, but neither party called him as a witness. Part of Mr Munro’s witness statement was put to the first defender in cross-examination. There was no agreement that the statement should be treated as Mr Munro’s evidence in the case, but the pursuers placed some reliance on it. In terms of 6/69 a variety of facts were agreed. Other matters were the subject of admissions made on record. In the result there was only very limited controversy as to the facts. In those circumstances I propose first to set out those parts of the evidence which were clearly uncontentious before turning to look at other matters.
Uncontentious evidence
[7] By 2006 the first defender had acted for many years as a solicitor for Hamish Munro and for companies in which he held an interest, including HCL.
[8] In 1997 HCL purchased Cadzow Business Park, Hamilton. It held the property under two separate titles registered in the Land Register: LAN6421 and LAN124573. The pursuers advanced HCL part of the purchase price. HCL granted the pursuers an “all sums” standard security over the property held under those two titles. The property comprised four units (Units 1, 2, 3 and 4). The standard security was registered in the Land Register on 15 September 1998. On 27 June 2002 HCL granted the pursuers a floating charge over all of its assets.
[9] In May 2005 HCL sold Unit 3. The pursuers agreed to release the unit from the standard security in return for a partial redemption payment of £468,588.95 being made. The first defender acted as HCL’s solicitor in relation to the conveyancing aspects of the sale and the release of the unit from the security. She wrote to the pursuers on 26 May 2005 enclosing two Deeds of Restriction in appropriate terms to restrict the pursuers’ security to Units 1, 2 and 4. The pursuers executed the Deeds on 20 June 2005 and returned them to the first defender. While initially the intention had been for settlement to take place on 27 May 2005 in fact the transaction did not settle until a month later. On 29 June 2005 the first defender made the capital repayment of £468,588.95 to the pursuers on behalf of HCL.
[10] In November 2005 HCL sold a property it owned at Macdonald Drive, Lossiemouth. The pursuers had a standard security over that property. Once again the first defender acted as HCL’s solicitor in relation to the conveyancing for the sale and for the release of the property from the security. She sent the pursuers a draft discharge of the security. On 9 November 2005 she made a capital repayment of £199,883.15 to the pursuers on behalf of HCL. The pursuers sent an executed discharge to the first defender on 16 December 2005.
[11] In May 2006 HCL entered into heads of terms for the sale of Unit 1 to Fred Berman Properties Limited (“FBPL”). On 23 May 2006 the first defender was instructed by HCL to act on its behalf in relation to the proposed sale. The pursuers, including Mr Clarke, had been informed by HCL in September 2006 of the proposed sale of Unit 1 at a price of £560,000. HCL requested the release of Unit 1 from the pursuers’ standard security. Mr Clarke authorised the instruction of DM Hall, Chartered Surveyors to provide a valuation of the property which would remain as security subjects - Units 2 and 4. On 11 September 2006 DM Hall reported that the total value of the two units was £1,425,000. On 12 September 2006 the commercial finance manager at the pursuers’ Edinburgh office, John Lindsay, sent a memo to Martin Clarke, the Lending Manager at the pursuers’ Head Office at Doxford, Sunderland. Mr Lindsay recommended that a capital repayment of £495,000 be required in return for the release of Unit 1 from the standard security. The following day a Partial Redemption Pro Forma for that capital repayment in relation to the proposed sale of Unit 1 was prepared by a case manager in the pursuers’ lending team and was approved and signed by Martin Clarke. It showed that the loan balance after the £495,000 repayment would be £726,850. The expiry date noted on it was 9 October 2006. The loan outstanding at that time was £1,221,850. On 17 September 2006 Mr Lindsay sent an email to HCL’s Mr Munro confirming that the pursuers would accept £495,000 in permanent loan reduction from the sale of Unit 1. The email was forwarded by Mr Munro to the first defender later the same day.
[12] The sale was delayed because of the need for the first defender to prepare and execute a Deed of Conditions (and to revise leases so as to make reference to that Deed). In an email of 11 October 2006 to the first defender the purchasers’ solicitors stated “You have exhibited copies of Discharges by Northern Rock which I presume have not yet been registered and I should be grateful if you would clarify the position.” In an email response the first defender replied:
“The two securities to Northern Rock remain in place and I will get discharges from them re the whole title - will let you have drafts later.”
[13] On 10 February 2007 Mr Munro emailed the first defender in the following terms:
“Subject: Unit 1 Hamilton
Jane
In case this settles whilst I am away - please pay free proceeds after Northern Rock - they taking £470k to
Headway Caledonian Limited
[Bank account and sort code provided]
Clydesdale Bank 30 St Vincent Place
Thanks
Hamish H Munro
Briar Hall Estates Ltd
…”
[14] Ultimately it was agreed that the transaction should settle on 23 March 2007. At 5 pm on 22 March 2007 the first defender sent the following email to the pursuers’ Case Management Team at Doxford Park:
“Subject: headway caledonian limited sale of Pavilion 1 Cadzow Park Hamilton (title nos LAN 6421 and LAN 124573)
Helen/Neil
I need your usual letter of non-crystallisation for the sale of the above subjects to be faxed through here first thing tomorrow am if possible to 0141 221 0123 marked for my attention - I have had a few letters on this one for previous other units that have been sold. I also attach discharges for signing and return as well as the whole loan is being paid off for the estate and I have a settlement figure for that. Can you please arrange to get these signed and returned again asap.
Many thanks
Jane A Steel
Jane Steel
Partner
For Bell & Scott LLP”
Two draft discharges of the standard security were attached - one in respect of its registration under Title Number LAN 6421 and the other in respect of its registration under Title Number LAN 124573.
[15] At 08.58 on 23 March 2007 Neil Atkin forwarded the first defender’s email to Martin Clarke with the message:
“Martin
As per the below request can you arrange for a letter of non crystallisation to be ssued. (sic)
Kind Regards
Neil Atkin
Case Manager
Commercial Finance – Northern Rock plc”
[16] At 08.59 Martin Clarke forwarded both emails to Sarah Harrison. He did not add any message of his own.
[17] The discharges were signed and sealed by the pursuers on 23 March 2007. The signing officer was Tina Randall and the witness was Linda Adamson. The discharges were sealed by Ross Johnston. Copies of them, and of a letter of non-crystallisation of the floating charge signed by Martin Clarke, were faxed by the pursuers’ Sarah Harrison to the first defender at 11.17 am that day. The letter stated:
“PRIVATE AND CONFIDENTIAL
FAO Jane Steel
Bell & Scott LLP
…
Dear Sirs
Commercial Mortgage Account Number: C2/14150T-00260
Headway Caledonian Limited
Pavilion 1 Cadzow Business Park Hamilton
We Northern Rock plc, the holders of a Floating Charge dated 27 June 2002 hereby confirm we have taken no steps to Crystallise the said Floating Charge.
Northern Rock consent to the sale of the subjects and will release the subjects from the floating charge on delivery of the disposition to the purchaser.
Yours faithfully
Martin Clarke
Manager – Loan Reviews
…”
[18] Settlement of the sale of Unit 1 duly took place on 23 March 2007. At settlement the defenders delivered to the purchasers’ solicitors a letter of obligation in terms of which they undertook to deliver to them within seven days discharges of the standard security over Title Nos LAN6421 and LAN124573.
[19] By letter dated 27 March 2007 the pursuers’ posted the discharges to the first defender. On the same day the pursuers received payment of £495,000 from the first defender. On 29 March 2007 the first defender forwarded the discharges to the FBPL’s solicitor. Shortly thereafter the discharges were duly registered in the Land Register.
[20] In September 2007 HCL sold Unit 4 at a price of £750,000. On 14 September 2007 HCL disponed the unit to the purchasers. The execution of the disposition by HCL was witnessed by the first defender. The first defender requested that the pursuers provide a letter of non-crystallisation. By letter dated 18 September 2007 the pursuers confirmed that they had taken no steps to crystallise their floating charge and they agreed to release Unit 4 from its ambit. The disposition was registered in the Land Register on 23 October 2007.
[21] In late 2007 HCL sold Unit 2 to Golden Securities Limited for a price of £325,000. On 4 December 2007 HCL disponed the unit to that company. The execution of the disposition by HCL was witnessed by the first defender. The first defender requested that the pursuers provide a letter of non-crystallisation. By letter dated 6 December 2007 the pursuers confirmed that they had taken no steps to crystallise their floating charge and they agreed to release Unit 2 from its ambit. The disposition was registered in the Land Register on 13 December 2007.
[22] HCL continued making interest payments to the pursuers to its loan account with the pursuers until 14 April 2010. On 11 May 2010 HCL’s accountant informed the pursuers that HCL was insolvent and that its liquidation was being contemplated. A winding up petition was presented to Glasgow Sheriff Court on 30 June 2010. An interim liquidator was appointed on 28 July 2010 and a liquidator was elected at a meeting of creditors held on 2 September 2010. On 17 August 2011 the Sheriff appointed Kenneth Pattullo as liquidator.
[23] An inter-company loan had been made by HCL to Briar Hall Estates Limited (“Briar Hall”) of £255,150. The outstanding balance of HCL’s loan to the pursuers as at 14 February 2012 was £508,723.99. In July 2014 the liquidator made a payment to the pursuers of £50,000.
Other evidence
[24] I shall set out more fully certain aspects of the evidence of Mr Clarke, Mrs Stephenson, Mr Ross, the first defender and Mr Pattullo.
Martin Clarke: evidence-in-chief
[25] In 2007 Mr Clarke was head of the pursuers’ Loan Review Team. One of the team’s tasks was calculating partial redemptions. These had regard to the loan to security value ratio which the pursuers wished to retain following the partial redemption. Once a figure had been calculated a pro-forma was passed to him for approval. Once approved it would be issued to the customer or the customer’s solicitor. Mr Clarke indicated that the pursuers’ internal guidance was contained within the Trove Procedure Manual, paragraph 2.6 “Issuing a DS1 and Discharge of Security” (6/20 and 6/21 of process):
“The guidance for issuing a DS1 was only applicable to Scotland to a limited extent. This is because discharges were issued prior to redemption funds being received.” (paragraph 3.4 of his witness statement of 17 July 2004).
The pursuers’ normal practice was not to instruct their own solicitors when requests for discharges or deeds of restriction were received from customers’ solicitors. In relation to the email of 22 March 2007 he stated:
“The tone of the email indicated it was quite urgent. I therefore forwarded it immediately on receipt to Sarah Harrison who was a member of the Admin Team who deal with non-crystallisation and discharges. This email was the key thing which was relied upon by NRAM in issuing the discharges and letters of non-crystallisation. It is a very clear email. It unequivocally states that the full loan is being paid off and Jane Steel has a settlement figure for that. I note looking at the email now that the subject heading is “Headway Caledonian Limited Sale of Pavilion 1, Cadzow Park, Hamilton” however I do not think I would have looked at this at the time or taken it into any deal of consideration given the body text of the email. In consideration of the request made by Jane Steel I do not think that I would have questioned the request.” (paragraph 9.1 of his witness statement of 17 July 2004).
He continued:
“12.1 To my knowledge we have never had any other issues with discharges being registered when full redemption funds have not been provided. I do not think that NRAM were at fault here. NRAM acted on Jane Steel’s instructions and I think it was reasonable to expect full proceeds to be remitted following her email of 22 March 2007.
12.2 The departments in the Commercial Finance Team and procedures which are in place, as at 2007 and as at today’s date, would not necessarily tie together the requests for discharges and the partial redemption figure provided previously. This is because the request for partial redemption was undertaken as a completely separate process. In this case the request which came from Jane Steel on 22 March 2007 for letters of non-crystallisation and discharges to be signed and sealed was clear in that she stated that she had a full redemption figure. There was nothing in this email to raise concern or to cause us to question this. As a solicitor, we would be content to rely on her word.
…
12.5 NRAM acted in good faith based on the request made by Jane Steel. The nature of the Scottish conveyancing procedure meant that, in transactions such as this one, NRAM have no choice but to issue discharges pending receipt of redemption funds. The discharges are issued to be held to NRAM’s order. Requests for discharges are actioned immediately as it is felt to be in the best interests of the customers and potentially detrimental to potential sales if they are not. I am satisfied that there is a very very low probability that the mistake would have been picked up in any other way.”
[26] In a supplementary witness statement dated 22 August 2014 Mr Clarke added:
“1.4 The key difference between DS1 (English discharges) and Scottish release documents is the timing of issuing the documents to solicitors. For English discharges (DS1), we would have obtained sale proceeds/redemption funds before issuing a DS1 discharge document…For Scottish cases we were aware that discharge documents needed to be held by solicitors ahead of redemption funds being received by us. For this reason we relied upon correspondence from solicitors telling us that they knew the figure required for full redemption. Here, a solicitor with whom we had past experience asserted that the whole loan was being repaid and that she had a redemption figure for that; we had no reason not to take her at her word.
…
1.8 …(W)ith hindsight it is now known that we did not provide Jane Steel with a full redemption figure. However there is nothing I have seen on the file indicating that she needed one and the email she sent indicated that she already knew the figure required. I accept that it was not explicitly stated that the release documents should have been held to our order…
1.9 …The email sent by Jane Steel on 22 March was very explicit. Had this email been more ambiguous, further checks might have been undertaken on the file however this was not necessary in light of the email which she sent.
1.10 …It was entirely normal practice on Scottish accounts to release security upon a solicitor agreeing to send us funds…”
Martin Clarke: cross-examination
[27] In cross-examination Mr Clarke accepted that in the Lossiemouth transaction the pursuers had not sent the discharge to the first defender until after they had received the redemption funds. He had authority and responsibility to authorise the granting of discharges both in cases of partial redemption and in cases of full redemption. He had no clear recollection of the procedure for full redemptions at the time but he knew that he had had power to authorise them. He agreed that if he had looked at the customer file when he got the email of 22 March 2007 he would have seen that the request had been for a partial redemption figure for the sale of Unit 1, and that if anyone had had responsibility to look at the file it would have been him; but given the clear terms of the email there had been no need to check the file. If there had been any ambiguity in the email he would have checked the file, but there had been no such ambiguity. On further questioning he conceded that there was a discrepancy between the subject heading of the email and the body of the text; and that while the body of the text was unambiguous, there was ambiguity when the text and the heading were read together. He accepted that he had no clear recollection of what he had thought when he received the email. He did not recall opening the attachments - he would not have expected to do so with such a request. His evidence to the court was how he read the email now. He believed that he would have understood it in the same way at the time he received it. The discharges had been executed on the basis that the whole loan was to be repaid. The requests for letters of non-crystallisation in relation to Units 2 and 4 in September and December 2007 would have flagged up that those units were being sold. At those times - because the loan was still outstanding - he and the pursuers would have thought that the security was still in place. He had proceeded on the basis that there would need to be further requests for the restriction or discharge of the security before either sale could go through.
Christine Stephenson: examination-in-chief
[28] The witness was a Lending Officer in the Loan Review Team at the material times. She gave evidence that when a request for a partial redemption was received a Lending Officer calculated the partial redemption figure and passed it to a manager for approval. The officer had to make sure that an appropriate loan to value ratio was maintained in respect of the loan which would remain outstanding and the value of the remaining security property. Once the figure had been approved it then went on to the post log which was an electronic spreadsheet maintained within the department.
[29] In relation to the sale of Unit 1 Mrs Stephenson stated (in her supplementary statement of 11 August 2014):
“1.2 … (N)o one dealing with this case at any level within Northern Rock would have either instigated or mentioned deeds of restriction as we do not have sufficient legal knowledge to know if these were or were not appropriate. If these were sent in by a solicitor they would have been approved by a senior manager or member of the internal legal team and, if approved, we would then just have sealed or signed them as appropriate and sent them back to the solicitor…”
[30] Mrs Stephenson spoke to discovering in May 2010 that the pursuers did not have any security over Units 2 and 4. Up to that time the pursuers had believed that they still had a security. She had drafted a chronology on 21 May 2010 (JB 118) and the case had then been passed to the pursuers’ legal team in Gosforth.
Christine Stephenson: cross-examination
[31] In cross-examination Mrs Stephenson clarified that a decision schedule was attached to the post log. Every decision was recorded in it. The Administration Team dealt with full redemptions but managers in the Loan Review Team could sign off full redemptions. The procedure was that two signatures were required to sign off a full redemption, a line manager and a more senior manager. When she had prepared the chronology her reading of the email of 22 March 2007 was that it related to Unit 1. She had thought that one of the discharges had been to release Unit 1 from the security and the other was to release Units 2 and 4 “later on”. She had not read the email as indicating that there was a sale of all three units with the whole loan being repaid.
Ross Johnston: examination-in-chief
[32] Mr Johnston was, and remains, an administration support officer within the Commercial Lending Team. In his witness statement he stated:
“2.1 …Once the Loan Monitoring and Review Team have confirmed a Discharge is to be executed it is passed to Admin. Admin then get the Discharge executed and thereafter sealed with the company seal. This is then recorded in the Sealing Book and sent out to the requesting party….None of this is completed without the approval of the Lending Team.
…
3.1 I was passed instructions by Martin Clarke relating to the execution and seal of the Discharge by Jane Steele in March 2007…
3.2 On receipt of the instructions from Martin, which were sent to my colleague Sarah Harrison, I arranged for the Discharges to be signed…
3.3 On receipt of the instructions I prepared a request for sealing dated 23 March 2007. This showed two Discharges and was passed to Tina Randle to be executed…
3.4 Once the documents had been executed I then sealed it …
3.5 Once the Discharges had been signed and sealed I then prepared a standard letter returning the discharge to the Solicitors….
3.7 …My role was purely as Administrative Support…”
Ross Johnston: cross-examination
[33] In cross-examination Mr Johnston indicated that the discharges would have come to him with an authorisation document from someone on the Case Management Team attached to them. He had entered “DS1” in the document description column of the Sealing Book. He was not sure why he had entered that instead of “Discharge” – it had probably just been a lapse in concentration.
Jane Steel: examination-in-chief
[34] Ms Steel indicated that her memory of events was not complete. Nor were the relevant files of Clairmonts and Bell & Scott complete. One possible reason for that was that she suspected that not all papers had been filed as they ought to have been at around the time of the merger. While Mr Munro had been a client since the 1990s the first time she had acted for HCL had been around 2005 - when she had been involved in leasing or selling one of the units at Cadzow Business Park. She was not made privy to HCL’s loan arrangements. Her understanding was that HCL had a loan facility with the pursuers which was secured over many properties. She had been instructed in the sale of Unit 3 and had sent the pursuers Deeds of Restriction, which they had executed. Unit 3 had thereby been removed from the ambit of the security. She did not know what the balance of HCL’s loan was after the sale. Her role was simply to pay back an agreed sum (which Mr Munro advised her of) to the pursuers. In paragraph 32 of her witness statement she stated:
“I have been asked how I viewed my relationship with Northern Rock at the time of the sale of Unit 3. I was certainly not acting for them. As far as I was concerned, I simply wanted them to provide deeds of restriction and to provide a letter of non-crystallisation in return for the amount my client had told me to pay them. Because of that, I had had no contact with them regarding the sale of unit 3 until I contacted them on 26 May 2005, the day before the intended settlement date. I expected that Northern Rock would be checking matters at their end to make sure that they were happy to provide the documents I had requested from them.”
[35] On 17 September 2006 Mr Munro had forwarded the email of that date from Mr Lindsay “so that I would know how much money out of the sale proceeds was to be paid to Northern Rock when Unit 1 was sold.” Missives for the sale of Unit 1 were concluded in October 2006 but settlement was delayed because of the need for a Deed of Conditions and consequent changes to existing leases. The email of 10 February 2007 from Mr Munro indicated that the free proceeds to be paid to the pursuers were £470,000. There must have been a further email from Mr Munro indicating that the sum to be paid was £495,000, but it had not been found. Ms Steele did not actually recollect sending the email of 22 March 2007 but she accepted that she must have done so. She said that she could not remember why she had prepared discharges rather than deeds of restriction. With hindsight she agreed that deeds of restriction should have been prepared. She speculated that the “confusion” may have arisen in October 2006 as a result of an exchange of correspondence with the purchasers’ solicitor (“Brian”). She had sent him the two deeds of restriction which had been executed when Unit 3 was sold (JB 51). When he replied (JB 57) he had (wrongly) described the deeds as “Discharges”. In her email reply (JB 59) she had said that the pursuers security remained in place and that she would get discharges from them for the whole title and let him have drafts. By “whole title” she would have meant
“45. …that I would discharge the standard security over the two titles under which Unit 1 was held. However I cannot remember why I said I would get discharges, rather than deeds of restriction. It might have been Brian’s reference to discharges granted by Northern Rock that led me to prepare discharges, or instruct one of my colleagues to prepare discharges. However, the confusion appears to have arisen at this point and at no point thereafter do I appear to have questioned whether deeds of restriction should have been prepared instead.”
[36] Ms Steel accepted that if she had re-read the email from Mr Lindsay in March 2007 she would have realised that deeds of restriction were appropriate:
“48. …I cannot remember but, looking back, I think it may have been that, when the sale of Unit 1 completed six months later in March 2007, I did not look back on the file and find this email and therefore did not remember what Northern Rock had said about the sale of Units 2 and 4…
66. …Also, I must have been told that the £470,000 redemption figure had changed to £495,000, so I wouldn’t have needed to go back to that email to check what the redemption figure was.”
[37] As to the terms of the email, she explained:
“57. I cannot remember why I said in the email to Northern Rock that “the whole loan is being paid off for the estate and I have a settlement figure for that”. It may be that I had been told by Hamish Munro that the figure that was to be paid to Northern Rock represented the whole loan for the Business Park. Alternatively, I may simply have made a mistake by saying what I did. Perhaps the fact that I was sending discharges to Northern Rock made me think that the whole loan for the Business Park was being paid off. I cannot remember and unfortunately there is nothing on the Bell & Scott file which helps to clarify the position.”
[38] Ms Steel indicated that when the principal signed discharges were sent to her by Martin Clarke she was not requested to hold them as undelivered pending payment being made to the pursuers:
“67. … The letter did not say anything about what I was to do with the discharges. If I was to hold the discharges as undelivered I would have expected the letter to have said that, although by then the money had been paid to them so there would be no reason for them to say that.”
As to her relationship with the pursuers she observed:
“70. …I certainly was not acting for them. At no point in the sale of Unit 1 did I think of myself as advising Northern Rock in any way. I was acting exclusively for Headway Caledonian. As before, I expected that Northern Rock would be checking matters at their end to make sure that they were happy to provide the documents I had requested from them. I received the hard copy discharges, with no conditions attached to them by Northern Rock. I had already paid Northern Rock their money by this point, so I thought I was entitled to register the discharges. Again, if Northern Rock had wanted me to hold the discharges as undelivered I would have expected them to ask that, but there was no reason for them to do so when they had been paid.
71. I have no knowledge of Northern Rock’s internal procedures or whether there would be different individuals with different responsibilities for the process of releasing securities. I sent Northern Rock money and I presumed that someone was able to check that they had received what they wanted.
72. I have been told that Northern Rock say that the formalities of settling Scottish conveyancing transactions, namely that the purchase price will only be released in exchange for a discharge of the security over the property being sold, mean that a discharge has to be delivered by them to the seller’s solicitors before a transaction can settle. However, a purchaser would not need the discharge before paying the purchase price as long as they have an understanding in a letter of obligation that one will be provided. Sometimes the purchaser’s solicitors don’t get the discharge and I register it myself. All they need to be satisfied about is that they are getting a clear title, and I am on the hook because of the letter of obligation….
73. …I did not think Northern Rock were relying on me. I assumed they would carry out their own checks and release discharges only if they were happy that they had been paid what they had asked for. As I have said before, I had no idea what the outstanding loan was between Headway Caledonian and Northern Rock, only the sum my client had told me to pay them…”
Jane Steel: cross-examination
[39] In cross-examination Ms Steel accepted that the final paragraph of Mr Lindsay’s email indicated that at that time the pursuers were expecting the security to remain in place over Units 2 and 4 following the sale of Unit 1. She would have been aware of that possibility on 17 September 2006, but it was not clear to her when the email would have been placed in the file. She could not possibly recall the contents of every email she received. She accepted that Mr Munro did not instruct her that the whole loan was to be repaid - she said she had not known what the outstanding loan had been. She rejected counsel’s suggestion that the repayment figure of £495,000 had come from the Lindsay email: in February 2007 the figure had changed to £470,000 so there must have been a further change after that. She was almost certain that she would not have gone back to the Lindsay email because the figure had changed after that. She said that at the time she wrote the email of 22 March 2007 she clearly thought that the whole loan was being repaid or she would not have said what she did or sent draft discharges to the pursuers. She agreed that at a commission to recover documents on 6 December 2012 she had given evidence that she hadn’t known the whole loan was going to be paid off for Cadzow Business Park (JB 4, p. 17-18).
Jane Steel: re-examination
[40] In re-examination Ms Steele confirmed that she had no actual recollection of why she had said what she had in the email of 22 March 2007. She had no file entries or records which assisted her. She suspected that around the takeover period not all emails had been printed and placed in the file: file procedure at that time had not been the best.
Kenneth Pattullo
[41] In his witness statement of 31 July 2014 Mr Pattullo explained the position in relation to the outstanding debt due to HCL by Briar Hall:
“8. …An agreement was made for that debt to be repaid at the rate of £4,000 per month. Payments were made until October 2012, at which point Briar Hall became unable to keep to the agreed payment plan. Following discussions with the director of Briar Hall, payments of £1,000 recommenced in August 2013.
9. Payments ceased again in March 2014, with no further funds having been received to date…
10. At a meeting with my staff, the director of Briar Hall provided recent trading figures which demonstrated that the company was unable to meet the previously agreed payments. As such, I believe it is unlikely that any action against Briar Hall would result in a significant figure being recovered for the benefit of the secured creditor.
11. To date, £111,000 has been ingathered in respect of the inter-company loan, with a payment of £50,000 having recently been made to [the pursuers].”
[42] In a supplementary witness statement dated 9 September 2014 Mr Pattullo stated:
“3. …I am in contact with the director of Briar Hall regarding repayment of the outstanding balance of the loan. Following these discussions, I understand that Briar Hall anticipate that their financial position will be clarified in around September 2014. At present, I anticipate that the loan will be repaid in full, however this is dependant on the on-going trading position of Briar Hall.
4. I anticipate that the only distribution from the liquidation of Headway Caledonian will be to Northern Rock (Asset Management) plc (NRAM) as floating chargeholder. I anticipate a return to NRAM of approximately £190,703. Of that amount, £50,000 has already been distributed. However, the ultimate distribution to NRAM will be dependent (sic) upon both the recoverability of the funds from Briar Hall and the ongoing expenses of the litigation, which could increase depending on the time taken by Briar Hall to repay the loan.”
Hamish Munro
[43] In the signed witness statement which had been lodged by the defenders Mr Munro had stated:
“12. …Jane …does not get involved with any form of the debt or finance of the business because it is none of her business …she is purely a conveyancer from my point of view….”
After indicating that he had informed the first defender that £495,000 was to be paid to the pursuers from the proceeds of the sale if Unit 1 he continued:
“25. All I would have said to Jane was “Get a discharge”. I certainly didn’t at any point say “Get me a discharge of the whole thing”, nor would I have referred to a deed of restriction…
27. There would have been no question in my mind that anything other than Unit 1 was coming out of the security…”
Submissions for the pursuers
[44] Mr Clancy submitted that the first defender’s instructions from Mr Munro were as set out in the Lindsay email which he had forwarded to her. It had been clear from that the pursuers were to retain security over Units 2 and 4, and that only Unit 1 was to be released from the security. She had not been instructed to obtain discharges which released all three units from the security. She had not been instructed that the whole loan was being repaid. Had it not been for the statements in the email of 22 March the pursuers would not have executed or delivered the discharges to her. In making the statements the first defender “was acting beyond her client’s instructions”. The statements were made directly to the pursuers and they were unequivocal. No qualification or disclaimer had been attached to them. The persons she made the statements to were not solicitors. There was a degree of urgency inherent in the first defender’s request. As solicitor acting for the borrower the first defender impliedly represented to the pursuers that she had the requisite skill and knowledge to furnish the information which she did. The inaccurate information had not been transmitted by the first defender from HLC to the pursuers. Its provision was not part of the arm’s length dealings by the parties who were on the opposing sides of the security transaction. The pursuers relied on the first defender’s statements that “the whole loan is being paid off for the estate and I have a settlement figure for that.” That reliance had been reasonable. In the whole circumstances, including the fact that she was a solicitor whom the pursuers had dealt with before, the first defender should reasonably have anticipated that the pursuers would place reliance on the accuracy of the information which she provided, and that they would not check it. The duties averred in the primary and secondary case had been incumbent upon the first defender. The threefold test for liability set out in Caparo Industries plc v Dickman [1990] 2 AC 605 was satisfied here. It had been foreseeable that the pursuers would be likely to suffer loss if the first defender’s statements were inaccurate. There was a sufficiently proximate relationship between the first defender and the pursuers. It was just and reasonable to impose liability. The assumption of responsibility test was also satisfied. The test was an objective one. The first defender’s conduct in making the statements, and thereafter in releasing the discharges for registration when she had not received funds sufficient to pay off HCL’s loan, had been negligent. Reference was made to BCCI (Overseas) Ltd v Price Waterhouse (No.2) [1998] PNLR 564, per Neill LJ at p.582; Dean v Allin & Watts [2001] 2 Lloyd’s Rep 249, per Lightman J at paragraphs 35-40, Sedley LJ at paragraphs 47-48, Robert Walker LJ at paragraphs 54-59 and 69; Phelps v London Borough of Hillingdon [2001] 2 AC 619, per Lord Slynn at page 654; Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181, per Lord Bingham at paragraphs 22, p 190F-192F, Lord Hoffman at paragraphs 31-40, Lord Rodger at paragraphs 49-50, Lord Walker at paragraphs 69-73, Lord Mance at paragraphs 82-93, 109; Midland Bank plc v Cameron, Thom, Peterkin & Duncans 1988 SLT 611, per Lord Jauncey at page 616D-F; Frank Houlgate Investment Co Ltd plc v Biggart Baillie LLP 2010 SLT 527, per Lord Drummond Young at paragraphs 13-22; Frank Houlgate Investment Co Ltd plc v Biggart Baillie LLP 2012 SLT 256, per Lord Glennie at paragraphs 23-26; United Central Bakeries Ltd v Spooner Industries Ltd & Anor [2012] CSOH 111, per Lord Hodge at paragraphs 36-40; Royal Bank of Scotland plc v Bannerman Johnstone Maclay 2005 1 SC 437; Hines v King Sturge LLP 2011 SLT 2, per Lord Osborne at paragraph 45.
[45] If it was the case that the first defender owed the pursuers a duty of care there was no basis for concluding that the pursuers had knowingly and willingly consented to a lack of reasonable care and the risk of loss (McCaig v Langan 1964 SLT 121, per Lord Kilbrandon at p 124; Sabri-Tabrizi v Lothian Health Board 1998 SC 373). Nor was there any basis for concluding that the loss had been caused through the sole fault of the pursuers. It was accepted that damages for pure economic loss could be reduced on the grounds of a pursuer’s contributory negligence (Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190). In that regard it was important to keep in mind that the chain of events that led to the security being discharged had been initiated by the first defender’s email. That had been the dominant effective cause of the pursuers’ loss. Besides, none of the first defender’s criticisms of the pursuers were well founded. The pursuers had not been negligent in any of the claimed respects.
[46] As a result of the first defender’s negligence the pursuers had lost the security they would otherwise have had. The outstanding balance of the loan was £458,723.99. While Mr Clancy’s initial position was that that should be the starting point for calculating damages, he did not resist Mr Duncan’s suggestion that the five interest debits on the final page of JB 13 should be deducted from that figure. He did resist the proposal that a further £140,703 should be deducted on the strength of Mr Pattullo’s evidence. At the very least there was a big question mark as to whether Briar Hall would make further significant payments to the liquidator. The risk of no further recovery, or limited further recovery, had to be factored in when damages were being assessed. If damages were awarded to the pursuers the case should be put out by order for further submissions on the question of the appropriate award of interest.
Submissions for the defenders
[47] Mr Duncan submitted that whether matters were approached on the basis of the threefold test in Caparo, or on the basis of whether there had been an assumption of responsibility, the conclusion ought to be that the first defender had owed no duty of care to the pursuers. It was clear that a solicitor acting on one side of a conveyancing or security transaction did not usually owe a duty of care to the party on the other side (Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch. 560, per Sir Donald Nicholls V- C. at page 570D; Frank Houlgate Investment Co Ltd plc v Biggart Baillie LLP 2012 SLT 256, per Lord Glennie at paragraph 23). An established exception to the general rule is where there has been an assumption of responsibility by the solicitor such as to create a special relationship between himself and the other party (Frank Houlgate Investment Co Ltd plc v Biggart Baillie, per Lord Glennie at paragraph 24):
“24. … The test of whether there has been an assumption of responsibility is explained in Midland Bank plc v Cameron, Thom, Peterkin & Duncans at p616E-F and Williams v Natural Life Health Foods at [1998] 1 W.L.R., pp.835F-837C. The test is objective. It is necessary to look to what was said or done by the agent in his dealings with the other party. Those statements and actings must be understood in light of the relevant contextual scene. The focus must be on exchanges which cross the line between the agent and the other party, as opposed to the internal arrangements between the agent and his principal. The question is whether the agent expressly or impliedly conveyed to the other party that, albeit he was acting in the transaction as agent, he was assuming personal liability for what he told them. It also has to be shown that the agent reasonably relied upon the agent’s assumption of personal responsibility and that the agent knew or ought to have known that the other party might so rely.”
[48] In order to establish liability of a solicitor to a third party in such circumstances:
“(1) the solicitor must assume responsibility for the advice or information furnished to the third party; (2) the solicitor must let it be known to the third party expressly or impliedly that he claims, by reason of his calling, to have the requisite skill or knowledge to give the advice or furnish the information; (3) the third party must have relied upon that advice or information as matter for which the solicitor had assumed personal responsibility; and (4) the solicitor must have been aware that the third party was likely so to rely.” (Midland Bank plc v Cameron, Thom, Peterkin & Duncans, supra, per Lord Jauncey at page 616E-F).
[49] Here the requirements set out in Midland Bank and in Frank Houlgate Investment Co Ltd were not satisfied. Unlike the scenario in Dean v Allin & Watts, supra, the factual matrix here was not one of a solicitor acting for a joint enterprise between the pursuers and HCL: the pursuers and HCL had been at arm’s length. The pursuers had not produced all the evidence bearing upon the relevant contextual scene. The actual instruction issued to the Admin Department had not been produced, nor had any relevant entries from the computer post log. Even if the first defender had made a mistake, that did not give rise to an assumption of responsibility. So far as the pursuers were concerned, the first defender had ostensible authority to do what she did. She did not convey to the pursuers, expressly or impliedly, that she was assuming personal liability for what she told them. The pursuers did not rely on the information she provided. Mr Clarke was the only witness who spoke to having relied on the email. His evidence on that matter should be rejected as unreliable. It was doubtful whether he had any actual recollection of reading the email. His response to it appeared automatic - he forwarded it to Sarah Harrison to deal with. If he did place reliance on it, such reliance without carrying out any check had not been reasonable. He had accepted that if there had been any ambiguity reading the body of the email and the subject heading together he would have looked at the file. There was such ambiguity. The first defender expected the pursuers would check the correctness of the information before they released discharges. That was a reasonable expectation given that the pursuers were a commercial bank who had the relevant information in their records. The evidence of Mrs Stephenson supported the view that the pursuers’ internal procedures in relation to the authorisation of full redemption had not been followed. The pursuers ought to have checked that a full redemption figure had been authorised and that discharge of the standard security was appropriate. The pursuers’ primary case was not made out. The secondary case was also unsound. The pursuers’ suggestion that in Scotland discharges had to be provided to borrowers’ solicitors prior to receipt of funds by the lenders was not borne out by Ms Steel’s evidence to the contrary (which had not been challenged). It had not even been put to Ms Steel that she had assumed a duty not to release the discharges until the loan was repaid. No expert evidence had been led by the pursuers (i) that there was an ordinary and usual practice that discharges were not released until funds were received, or (ii) that in releasing the discharges when she had the first defender had acted in a way that no reasonably competent solicitor exercising ordinary care would have acted.
[50] Even if, contrary to the defenders’ submissions, the first defender owed a duty of care to the pursuers and the pursuers reasonably relied on the statements made in the first defender’s email, the pursuers knowingly and willingly assumed the risk of the discharges being provided to the purchaser without the whole loan funds being repaid. The pursuers were aware on 27 March 2010 that only £495,000 had been remitted to them. On the same day the discharges were posted by them to the first defender. While it was not possible to say on the evidence that the funds were received before the discharges were posted, they were received before the discharges were delivered to the first defender. The obvious step which ought to have been taken then was to contact the first defender immediately, clarify that the £495,000 was all that was being remitted, and ask her to return the discharges or hold them as undelivered unless and until the balance of the loan was repaid. On this hypothesis the pursuers had knowledge of the risk at that time. They were both sciens and volens. It was not open to the pursuers to elide a plea of volenti non fit injuria by saying that while some of their personnel would have been aware of the funds remitted at the time, and some would have been aware of the amount of the loan outstanding, none of the relevant actors had been in possession of both pieces of information. The pursuers were a corporation. As such, the knowledge of its employees and knowledge in its records ought to be attributed to it. On this matter some assistance might be obtained by way of analogy from Transco plc v HMA (No. 2) 2004 JC 29, per Lord Hamilton at paragraphs 33, 48, 62 and 63. In any case, any loss the pursuers had suffered had been caused through their sole fault - in the sense that there had been contributory negligence of 100%. At best, Mr Clarke had given only cursory consideration to the first defender’s email before authorising the discharges. He had not opened the attachments. Notwithstanding the ambiguity between the subject matter of the email and its contents, and the vagueness of the information provided, he had not sought any clarification or carried out or instructed any check on the accuracy of the statements made. No steps had been taken to clarify the position or prevent the discharges being released by the first defender when the payment of £495,000 was received. Moreover, it had been clear thereafter that the loan had not been repaid yet no steps were taken to protect the pursuers’ interests. In September 2007 they were alerted to the fact that Unit 4 was being sold. They took no action to protect their interests - they provided HCL with a letter of non-crystallisation of the floating charge. In December 2007 they were aware that Unit 2 was being sold. They took no action to protect their interests. They provided a further letter of non-crystallisation. If their loss was not caused through their sole fault, their negligence was of a high order.
[51] If an award of damages did fall to be made the pursuers’ loss was the difference between the recovery they would have made had deeds of restriction been granted and the recovery which they had in fact made, or would make. The pursuers’ starting point of £458,723.99 was erroneous because it included loan interest accrued after the date when the loan is likely to have been repaid had the security remained in place. The likely date of repayment had not been explored in the evidence, but the defenders would be content that the court use £458,723.99 minus the five interest debits on the final page of JB 13 as its starting point (Mr Clancy agreed that would appropriate). The five debits total £18,561.31 resulting in a starting point of £440,162.68. Some further adjustment was required to take account of Mr Pattullo’s evidence. Mr Pattullo anticipated that further payments would be made by Briar Hall enabling an additional distribution of £140,703 to be made to the pursuers. Mr Pattullo was an officer of the court and his view should be respected. Mr Duncan accepted that there was an element of uncertainty. He suggested that the appropriate approach would be for the court to make some adjustment to reflect that uncertainty. He agreed with Mr Clancy’s proposal that if an award of damages was to be made the matter should be put out by order to hear submissions on the question of interest.
Decision and reasons
The first defender’s evidence
[52] The information which the first defender provided in the critical email was inaccurate in more than one respect.
[53] While she had had more than one letter of non-crystallisation before, both letters had been in respect of Unit 3. It had been incorrect to say “I have had a few letters on this one previously for various other units which have been sold.” However, it was not suggested that that misstatement had been material, or that it had been causative of any of the loss which the pursuers claim to have sustained.
[54] The critical misstatements were “the whole loan is being paid off for the estate and I have a settlement figure for that.” I am satisfied on the evidence that the first defender had no basis for making those statements. I accept her evidence in cross-examination that Mr Munro did not tell her that the whole loan was being paid off. That concession is supported by paragraphs 25 and 27 of Mr Munro’s witness statement - which I also accept. There is no credible and reliable evidence from which it could properly be concluded that the first defender had been instructed by HCL that the whole loan was being paid off, or that she had a statement setting out the repayment required for full redemption.
[55] It is clear to me that the first defender had no actual recollection of composing and sending the email. She accepted that the information she provided was incorrect. While she ventured a possible explanation for her having fallen into error, she recognised that it was speculative. I approach matters on the footing that at the time she wrote the email she was labouring under the misconception that the loan was being repaid in full and that discharges were therefore appropriate. The pursuers do not suggest that she acted in bad faith. Their case is that she was guilty of a lack of care.
[56] Given that the first defender has no recollection of having actually written and sent the critical email, she can have no recollection of her state of mind at that time. However, subject to one qualification, I do accept her evidence that in relation to the earlier transactions (and the parts of the Unit 1 transaction which she does recall) that she expected the pursuers to check matters before they complied with any request which she made. The qualification is that at the time of the Unit 1 transaction she knew or ought to have known that it was likely that the pursuers would not instruct solicitors to deal with her. She knew that she was writing to the pursuers CMT team, not to solicitors; and that solicitors had not been instructed to deal with her in the two previous transactions.
[57] I accept the first defender’s evidence (which was not challenged in cross-examination) that it was not correct to say that in Scotland lenders required to deliver discharges (or deeds of restriction) before settlement of a sale (or part sale) of the security subjects. Here, settlement was effected before that had occurred. The defenders provided a letter of obligation to the purchasers’ solicitors that they would deliver discharges within seven days.
[58] I turn to Mr Clarke’s evidence. The consideration which he gave to the critical email was not lengthy - he forwarded it a minute after its receipt. I was not satisfied that he had any actual recollection of dealing with the email. Looking at the email now he believes that when he received it he did not notice that the subject heading referred to Unit 1. He did not open the attachments to see the terms of the discharges. Notwithstanding my conclusion that he has no actual recollection of his state of mind when he read the email, I think it may reasonably be inferred from the evidence as a whole that he did indeed read it, and that it caused him to authorise the issue of a letter of non-crystallisation and the execution and release of the discharges.
[59] I am unable to accept Mr Clarke’s evidence that the nature of the Scottish conveyancing procedure meant that the pursuers had no choice but to issue discharges before receipt of redemption funds. The Lossiemouth transaction provides an example of that not being the case: and I accept the first defender’s evidence that transactions often complete on the basis of the purchaser’s solicitors undertaking a personal obligation to the seller’s solicitors that a discharge of a security will be provided in early course.
[60] I found Mrs Stephenson and Mr Johnston to be generally credible and reliable witnesses who did their best to assist the court. However I did not derive any real assistance from Mrs Stephenson’s evidence as to her interpretation of the first defender’s email, or from her chronology of events. Her understanding of the terms and effect of the discharges was plainly erroneous.
Duty of care?
[61] Did the first defender owe the suggested duties of care to the pursuers? If she did it is common ground - at least in relation to the primary case - that the first defender was in breach of duty.
[62] In Customs and Excise Commissioners v Barclays Bank plc, supra Lord Bingham observed:
“4. The parties were agreed that the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship was one of sufficient proximity; and whether in all the circumstances it is fair just and reasonable to impose a duty of care on the defendant towards the claimant…Third is the incremental test …”(emphasis added).
The first and second tests were those principally relied upon by Mr Clancy, but he also suggested that the present case was analogous to Dean v Allin & Watts, supra.
[63] It is well established that the assumption of responsibility test is to be applied objectively and is not answered by consideration of what a defender thought or intended (Phelps v London Borough of Hillingdon, supra, per Lord Slynn at page 654; Customs and Excise Commissioners v Barclays Bank plc, supra, per Lord Bingham at paragraph 5 and the authorities there discussed, per Lord Hoffman at paragraphs 35 (page 199C-D) and 36 (page 199F), per Lord Walker at paragraph 73 (page 210D), per Lord Mance at paragraph 86, 88-89; Frank Houlgate Investment Co Ltd plc v Biggart Baillie LLP, per Lord Glennie at paragraph 24). Accordingly, the first defender’s view as to whether or not she was assuming responsibility towards the pursuers is not determinative.
[64] A solicitor acting on one side of a conveyancing or security transaction does not usually owe a duty of care to the party on the other side (Gran Gelato Ltd v Richcliff (Group) Ltd, supra, per Sir Donald Nicholls V.- C. at page 570D; White v Jones [1995] 2 AC 207, per Sir Donald Nicholls V.- C. at page 223A-B, per Lord Goff at page 256D; McCullagh v Lane Fox & Partners Ltd [1996] P.N.L.R. 205, per Hobhouse LJ page 233F-234B; Frank Houlgate Investment Co Ltd plc v Biggart Baillie LLP, per Lord Glennie at paragraph 23). However, in exceptional cases the law may impose such a duty. Whether it does or not falls to be determined having regard to the three tests referred to by Lord Bingham, bearing in mind that a cautious approach is required when deciding whether a solicitor acting on one side of such a transaction owes a duty of care to the party on the other side. The cases concerning claims by third parties against solicitors provide an indication of considerations relevant to the application of the three tests in such cases.
[65] Dean v Allin & Watts, supra is an example of an exceptional case where a duty of care was imposed. There the unrepresented lender and the borrower had a common interest that the lender obtained a good security, and the first defendant, the borrower’s solicitor, had assumed responsibility to the borrower and was acting on behalf of both borrower and lender to advance their common interest. The present case appears to me to involve a very different scenario. The misstatements in the email did not involve the advancement of the common interest of HCL and the pursuers at HCL’s behest. Dean v Allin & Watts is clearly distinguishable. The imposition of a duty of care in the present case would not be a mere incremental extension of the reasoning in that case.
[66] In a case where information is provided by a solicitor (or other agent) to a third party it is useful to ask whether the solicitor assumed responsibility to the third party for the information or was only transmitting information from and on behalf of his principal (Customs and Excise Commissioners v Barclays Bank plc, supra, per Lord Hoffman at paragraph 35 (page 199B-D)). In the normal case a solicitor owes no duty of care to a third party that information which he simply transmits from his client is accurate. That principle does not assist the defenders in the present case. The misstatements did not emanate from HCL. Their source was the first defender.
[67] The whole loan was not being paid off for the estate. The first defender did not have a settlement figure for full redemption. She did not even know what the outstanding loan was. She provided draft discharges which would have been in appropriate terms if her statement that the whole loan was being paid off had been correct; but which were inappropriate given the true situation. It may reasonably be inferred from the terms of the misstatements, and from their context, that their purpose was to explain to the pursuers why it was that discharges were appropriate. Had no such explanation been provided the obvious question in the circumstances would have been “Why is the security being discharged rather than restricted?”
[68] There is no doubt that the party who benefited from the misstatements was HCL. Had the first defender been acting within the scope of her authority when she made the misstatements the pursuers would have had a remedy against HCL for its agent’s negligent misrepresentation (reduction of the discharges, or damages for negligent misrepresentation inducing the discharges (Law Reform (Miscellaneous Provisions)(Scotland) Act 1985, s.10)). The possibility of a remedy against HCL having been available to the pursuers was only briefly touched upon during submissions. HCL is now insolvent, but if at an earlier stage the pursuers had a remedy worth pursuing against it that would be a factor tending against imposing a duty of care on the first defender. The first defender did not have actual authority from HCL to communicate the information. Mr Duncan suggested that she had ostensible authority. However, the defenders did not aver that the first defender had either implied or apparent (ostensible) authority to make the critical statements; and whether she did was not explored at proof. There was no evidence that doing what the first defender did was within the usual authority of a solicitor who had been instructed for a borrower to obtain the release from a standard security of a property which was being sold; and I was not referred to any textbook or precedent which supported the proposition that it fell within a solicitor’s usual (or implied actual) authority (as to which see Jackson & Powell, Professional Liability (7th ed.), paragraph 11-155; Bowstead & Reynolds on Agency (19th ed.), paragraph 3-029; Macgregor, The Law of Agency in Scotland, Chapters 5 and 11, and in particular 5-01 to 5-14, 5-17 to 5-20; and Gloag & Henderson, Law of Scotland (13th ed.), paragraph 18.21). Such evidence as was led did not support a finding that the first defender had apparent authority to do what she did. In her two previous dealings for HCL with the pursuers she had dealt with deeds of restriction and a discharge. There had been no prior instance of her being held out by HCL as having its authority to reach agreement with the pursuers as to loan redemption. On the contrary, on each of the two prior occasions agreement in relation to redemption had been reached between HCL and the pursuers, and the first defender had merely been concerned with carrying out the conveyancing associated with a restriction of the standard security (the sale of Unit 3) and the discharge of a standard security over the Lossiemouth subjects.
[69] In the course of submissions I raised the question whether the first defender’s lack of actual authority resulted in her being in breach of her implied warranty that she had such authority. (An agent impliedly warrants that he has actual authority, not that he has actual or apparent authority (Bowstead & Reynolds on Agency, supra, paragraph 9-071; cf. Gloag & Henderson, supra, paragraph 18-26)). No case of breach of warranty of authority had been pled. Mr Duncan submitted that it was clear from Cheshire Mortgage Corp Ltd v Grandison 2013 SC 160 (and from the decisions of both Lord Drummond Young and Lord Glennie in the Houlgate case) that an agent’s warranty of his authority was limited, and that the scope of the warranty was not wide enough to extend to the present circumstances. I understood Mr Clancy to agree with that. I confess to reservations about accepting that agreed position. In Cheshire the court made clear that the implied warranty of authority of an agent is limited to warranting that he has the authority of his principal to transact on his behalf. The warranty does not extend to warranting his principal’s identity, title, solvency or other attributes: but it does cover the scenario where the agent transacts without his principal’s authority because in transacting as he does he exceeds the scope of his authority. In Cheshire the court (at paragraphs 28 - 32) expressly approved the decision and reasoning in Excel Securities plc v Masood [2010] Lloyd’s Rep. P.N. 165, including the following observations of Judge Hegarty QC:
“59. The essential legal principles applicable to such a claim are not in doubt. An agent acting on behalf of an identified principal will not normally incur any personal, contractual liability so long as he acts within the scope of his authority. Anyone contracting with such an agent must look to the principal for any redress to which he is entitled as matter of contract. However, it is now well established that, in such circumstances, the agent will normally be regarded as giving an implied warranty as to his authority. If, therefore, he never had authority to act on behalf of the principal or if his authority has terminated or if he exceeds the scope of his authority, he will be in breach of the implied warranty and will be liable in damages to any person to whom the warranty was given. In the common case, where the principal refuses to accept liability, the right of action against the agent for breach of his warranty will be an effective substitute for the loss of any right of action against the principal.
…
90. The fundamental reason why a person, purporting to act as agent for another would normally be deemed to have warranted his authority so to act is to ensure that any person dealing with the supposed agent is protected against the risk that he does not have the authority which he claims. The supposed agent will normally know whether he has the authority which he claims, or the ability to determine whether he has such authority; whereas any party dealing with him will not. So it is only right that the risk of lack of authority should be borne by the agent by way of an implied warranty. That risk normally manifests itself in the fact that, if the agent does not, in truth, have the authority which he claims, the other party will be deprived of any effective redress against the assumed principal. In such circumstances, the warranty of authority will give equivalent redress against the agent....(T)he core problem sought to be addressed by the imposition of a warranty of authority is whether the person acting as agent did or did not have authority so to act.
…
102. …The risk that the law has sought to address by the implication of a warranty of authority is that the agent may not have the authority which he claims; and the justification for such an allocation of risk is that the agent is in much the better position to know or ascertain whether he has the requisite authority…” (emphasis added)
In doing what she did the first defender exceeded the scope of her authority from HCL. Had it been open to me to reach a view on the matter I would have inclined to the conclusion that she was in breach of the implied warranty of authority which she gave.
[70] The possibility of these other remedies having been available to the pursuers did not feature prominently in submissions, and was not fully debated. However, for argument’s sake I am prepared to assume in the pursuers’ favour that they had no direct remedy against HCL. Given the parties’ common position that the misstatements did not result in the first defender being in breach of her warranty of authority, I shall proceed on the basis that there was not such a breach and that accordingly the pursuers had no remedy against the first defender for such a breach - notwithstanding my reservations.
[71] Other factors which I bear in mind are (i) the fact that in the circumstances of this case the duties of care desiderated by the pursuers would not be inconsistent with the first defender’s duty to HCL; and (ii) the lack of any risk of indeterminacy of resulting liability.
[72] However, in my opinion the crucial considerations in the present case are (i) whether it was reasonable in the circumstances for the pursuers to rely upon the misstatements without checking them by seeking clarification from the first defender and/or looking at their file; and (ii) whether it ought to have been foreseeable by the first defender that the pursuers might reasonably rely upon the misstatements without checking them, and thereby suffer loss. To some extent these considerations are two sides of the same coin.
[73] In favour of the view that there was the requisite foreseeability and reasonable reliance are that the email (i) contained no disclaimer; (ii) had a degree of urgency in its tone; (iii) was communicated directly to the pursuers, rather than to professional advisers; and (iv) that it came from a solicitor - a trustworthy source.
[74] On the other hand, the pursuers were in no sense vulnerable or dependant - they were a commercial bank. They had the ability to obtain legal advice - internal or external - if they required it. But in truth the critical information was factual and concerned matters that could have been checked very easily and very quickly by the pursuers.
[75] Mr Clancy’s position was that the matter fell to be tested by considering Mr Clarke’s actual state of knowledge at the time he made his decision. At the material time he did not recollect - nor could he be expected to recollect - the history of the particular case. In particular, it was not appropriate for him to be fixed with the knowledge which the pursuers had in their records and files.
[76] Had I accepted Mr Clarke’s evidence as to his state of mind at the material time that evidence would have been relevant to the question whether there was reliance by him. But it would only have been one of a number of factors which required to be considered in determining (i) whether the pursuers’ reliance was reasonable, and (ii) whether it ought to have been foreseeable by the first defender that the pursuers would reasonably rely on her statements without checking the accuracy of their contents. Just as question (ii) does not fall to be determined on the basis of the first defender’s subjective view, Mr Clarke’s state of mind at the material time would not have been determinative of question (i). In relation to each question an objective consideration of the evidence is appropriate.
[77] In my opinion the following are some of the salient matters. The erroneous information in the email conflicted with what had previously been understood and arranged between HCL and the pursuers. Mr Clarke and other staff of the pursuers had been informed in September 2006 of the proposed sale of Unit 1 at a price of £560,000. The loan outstanding at that time was £1,221,850. The pursuers had agreed with HCL that they would require £495,000 of the outstanding loan to be repaid. The loan balance after that repayment would have been £726,850. Mr Clarke had authorised the partial redemption figure. For sufficient funds to pay off the whole loan to be generated from a sale of the security subjects at least a further unit in addition to Unit 1 would have had to have been sold. There was no suggestion in the critical email that more than Unit 1 was being sold. On the contrary, it was fairly clear from the subject heading and from the first line of the body of the message that the sale was only of Unit 1. Of course, the additional funds required to pay off the whole loan could have come from another source; but in that event the pursuers and HCL would still have required to issue a full redemption certificate with the appropriate figure; and if, as the email suggested, it had been issued, it would have been in the pursuers’ file. As indeed Mr Clarke ultimately accepted, in some respects the email was vague and ambiguous. There was tension between the subject heading and the body of the email. The email did not state what the settlement figure was, or by whom the first defender had been provided with it. It cried out for clarification.
[78] In the whole circumstances I have no real difficulty in concluding that it was not reasonable for a bank in the position of the pursuers to rely on the misstatement information without checking its accuracy; and that a solicitor in the position of the first defender would not foresee that such a bank would reasonably rely on that information without carrying out such a check. Any prudent bank taking the most basic precautions would have checked the information provided by seeking clarification from the first defender and/or looking at their file. It follows that whether the test applied is the threefold one in Caparo, or the assumption of responsibility test, the pursuers’ primary case fails. It also follows, given that the pursuers’ reliance was unreasonable and that that reliance and the resulting loss were unforeseeable, that the claim fails to satisfy the criteria discussed in Midland Bank plc v Cameron, Thom, Peterkin & Duncans and Frank Houlgate Investment Co Ltd plc v Biggart Baillie LLP. The pursuers’ secondary case suffers the same fate for the same reasons (as well as for the additional reason that the factual foundation for it (averred in the germane parts of articles 5 and 8 of condescendence) has not been established).
[79] That is sufficient to dispose of the action, but it is appropriate that I provide a brief indication of my views on some of the other submissions.
Volenti, sole fault and contributory negligence
[80] Had I otherwise been satisfied that the first defender did owe a duty of care to the pursuers I would not have upheld the defenders’ plea of volenti. On that hypothesis, and on the basis of the evidence I heard, the pursuers did not knowingly and willingly consent to the first defender’s lack of reasonable care or to the consequent risk of loss.
[81] If, contrary to my view, the hypothesis is that the pursuers’ reliance on the misstatements was reasonable, I would not have found them to have been at fault because they did not check the information provided before acting upon it (see e.g. J.E.B. Fasteners Ltd v Marks Bloom & Co. [1981] 3 All E.R. 289, per Woolf J at page 297; Gran Gelato Ltd v Richcliff (Group) Ltd, supra, at pages 574B-575B). Similarly I would not have held them to have been negligent in failing to appreciate the true position in the short period between their receipt of the £495,000 on 27 March 2007 and the first defender releasing the discharges to the purchaser on 29 March 2007.
[82] The issue of whether at the material times the pursuers had any grounds for refusing to issue letters of non-crystallisation (or for calling up the standard security) was not foreshadowed in the pleadings or explored during the proof. In these circumstances it is not possible to conclude that the pursuers’ acts or omissions at those times were negligent. In any event, once the discharges were registered the pursuers had suffered the loss of their security. The issuing of the letters of non-crystallisation when Units 2 and 4 were sold did not contribute to that. Of course if the pursuers had had good grounds for refusing to issue letters of non-crystallisation (or for calling up the standard security) then the defenders could have sought to prove that the pursuers had failed to take reasonable steps to mitigate their loss: but the defenders have neither pled nor established any such a case.
Damages
[83] Had I found in favour of the pursuers I would have assessed damages by taking £440,162.80 as my starting point. On the face of the evidence it appears that the pursuers still have some prospect of further recovery from the liquidation of HCL, but the material upon which I have been asked to form a view as to the likelihood, and extent, of any such recovery is rather unsatisfactory. In his witness statement of 31 July 2014 Mr Pattullo spoke to Briar Hall having failed to keep up previous repayment plans, and he expressed his belief that it was unlikely that any action against Briar Hall would result in a significant figure being recovered. Yet in his supplementary witness statement dated 9 September 2014 (following further discussion with Briar Hall) Mr Pattullo anticipated that the loan would be repaid in full: but he qualified that by stressing that repayment was dependent on the on-going trading position of Briar Hall. The trading position of Briar Hall, and the apparent tension between Mr Pattullo’s earlier and revised views, could have been explored if Mr Pattullo and Mr Munro had given evidence. That would have been likely to have been of assistance to me. Nonetheless, I require to assess damages once and for all on the material put before me. I approach matters on the basis that there is a very real prospect that not all of the further sum potentially payable to the pursuers from the liquidation will be paid. Wielding a broad axe I would have assumed further recovery of £70,351.50. It follows that damages would have been assessed at £369,811.18. I would have put the matter out by order for parties to address me on the question of interest.
Disposal
[84] I shall sustain the defenders’ second, third and fourth pleas-in-law, repel the pursuers’ pleas-in-law, and pronounce decree of absolvitor. I reserve meantime all questions of expenses.