Solicitors and other professionals obviously owe their clients a duty to use all reasonable care and skill in advising them – but what happens if they make a mistake that causes economic loss to an opposing third party who is not their client? The Supreme Court tackled that issue in a decision that will be required reading for all professionals.
The case concerned a solicitor whose corporate client owned a business park that had been used as security for substantial loans. The lender also held a floating charge in respect of all the client's assets. When one of the park's units was sold, it was envisaged that the lender's floating charge and security in respect of two other units would be maintained.
However, the solicitor sent the lender an email that mistakenly stated that the client's whole indebtedness was to be paid off and the entire security discharged. The lender did not query that statement or make any attempt to check its accuracy before discharging the entire security, including the floating charge. The mistake went unnoticed until the client went into liquidation and the lender suffered substantial loss.
The solicitor could not explain how she had come to make the error and the lender launched proceedings against her and her firm, alleging professional negligence. The claim, which was decided in Scotland, was dismissed by a Lord Ordinary. However, that decision was subsequently reversed by the Inner House and the lender was awarded £369,811 in damages.
In upholding the solicitor's and the firm's appeal against the latter ruling, the Court noted that it was presumed to be inappropriate for a solicitor to assume a duty towards a third party who is in opposition to his or her client. Such a duty could only be imposed if the solicitor concerned could reasonably be expected to foresee that his or her statements would be relied upon by the opponent.
Any prudent lender, taking basic precautions, would have checked the accuracy of the solicitor's statement. In implementing a transaction with critical implications for its security, the lender had not acted reasonably in proceeding upon no more than a description of the agreement's terms put forward by the borrower's legal representative.
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