Further to my colleague Matthew’s professional negligence blog, the Supreme Court has provided very helpful guidance in circumstances in which Solicitors should be responsible for misrepresentations to parties who are not their clients. These situations are most likely to arise where one party to a transaction and/or litigation is represented and one party is not. Given the recent funding reforms in respect of Civil Litigation, it is quite possible that these scenarios will arise more frequently in the future and it is therefore helpful at times to have some guidance from the Supreme Court.

 

The facts of the present case:

The Claimant in the present case was a well-known lender who had lent money to a Company to purchase a small industrial estate made up of four units. Initially, a charge had been secured against all four units in respect of the lending. As time went on, the Claimant sold one Unit, the lender consented to the charge only being secured on the remaining three units, subject to a significant reduction in the loan.  This proceeded without a hitch. A few months later, a sale was agreed for a second unit. Again, the lender agreed to their charge only remaining on the 2 units again subject to a significant repayment. On the eve of the sale of the second unit, the Solicitor acting for the Company emailed the lender requesting that they sign a Deed of Discharge for the entire loan and incorrectly stated that the entire loan would be repaid on the sale of the second unit.   Despite this not being consistent with what had been previously agreed by the lender, the lenders signed the Deeds of Discharge. Accordingly, the sale proceeded and the lenders charge over all of the industrial units was discharged. The Limited Company continued to make payments on the interest of the loan but subsequently went into liquidation and when the lender came to try and enforce their security over the remaining two industrial units, it was discovered that there was no security.

 

The question the Court had to answer was did the Solicitor acting for the Company owe a duty to the lender in respect of the false information which they had provided, particularly given that the lender was not represented.

In a Judgment which the other four Judges agreed, Lord Wilson set out the circumstances in which a Solicitor might be liable to a third party. The first part of the Judgment was a whistle-stop tour of the ‘greatest hits of Tort Law’ reviewing the leading cases of Hedley Byrne v Heller, Caparo v Dickman, Wyre Forest District Council and Spring v Guardian assurance. He then ran through some more specific authorities not from the UK but also from other Common Law jurisdictions.

The summary of the Law in general can be summed up to say a professional can be found to be negligent for a misstatement, despite having no contractual responsibility where the third party has relied upon the negligent misstatement and that reliance was reasonably foreseeable.

In respect of Solicitors, dealing with other parties, Lord Wilson observed that in the normal course of dealings, there is a presumption that the party on the other side of the transaction or litigation would not rely on the other side’s Solicitor’s representations. Accordingly therefore, for a Solicitor to be liable to a non-client for representations, they must have stepped outside their normal role in such so to have assumed some special responsibility.

In the present case, Lord Wilson found that there had been no such assumption of responsibility. The lender had chosen not to instruct their own Solicitors. However, the lenders employees had signed documentation which they either knew, or very easily could have discovered were entirely at odds with the arrangements which had been made. In those circumstances, it was not appropriate for them to have relied upon the word of the Solicitor on the other side of the transaction and nor should the Solicitor be liable for their alliance.

This is a sensible and common sense decision. It will be interesting to see how this Law develops, particularly with regard to duties of Solicitors to litigants in person on the other side as it is likely that the Court are going to be more sympathetic to individuals than they are to significant corporate lenders but for the moment, we have some quite clear guidance.

 

This is a technical area of law but if you think you have suffered a loss as a result of negligence by a solicitor not obviously instructed by you or acting for you here at Jordans Solicitors we have the expertise to consider whether you may be entitled to compensation. Call us today on 01924 457171 or click here for a call back.


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