In South Australia Asset Management Corp v York Montague Ltd  UKHL 10 (SAAMCO), the House of Lords articulated the principle that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that action but only for the consequences of the information being wrong.
On 23 March 2017, in BPE Solicitors v Hughes-Holland  UKSC 21, the Supreme Court clarified the application of the SAAMCO principle in claims against solicitors and other professionals. In doing so, it determined definitively the issue of what damages are recoverable in a case where (i) but for the negligence of a professional adviser the client would not have embarked on some course of action but (ii) part or all of the loss which it suffered by doing so arose from risks which it was no part of the adviser’s duty to protect the client against.
The claimant, Mr Gabriel, agreed to loan £200,000 to a property company owned by his friend, Mr Little. Mr Gabriel claimed that Mr Little fraudulently induced him to make the loan by telling him that the money would be used to develop a property, against which the loan would be secured. Mr Gabriel instructed the defendant solicitors, BPE, to draft the loan agreement. Mr Little actually used the money to pay off another loan. The property was never developed and Mr Gabriel’s loan was not repaid. Mr Gabriel brought a claim against BPE, alleging that the loan agreement had been negligently drafted and that BPE had failed to advise that the loan would be used to discharge Mr Little’s other debts.
The trial judge accepted Mr Gabriel’s argument that he was entitled to damages representing the entire loss which he had suffered by entering into the transaction, on the ground that he would not have done so had he not been misled about the proposed misuse of the loan moneys.
The Court of Appeal reversed this decision, holding that BPE only owed Mr Gabriel a duty to provide information and not to advise on what course of action to take or as to the commercial risks of entering into the loan agreement. It reduced the damages award to nil.
The Supreme Court decision
The Supreme Court unanimously dismissed Mr Gabriel’s appeal. Lord Sumption, giving the sole judgment, held that the loss suffered by Mr Gabriel would have been suffered even if he had been fully aware of the circumstances of the transaction. This was because the solicitor did not advise Mr Gabriel about the decision to lend money, but only about the terms of the loan agreement. The evidence showed that the value of the property would not have been enhanced by the expenditure of £200,000 on its development and so the loan was always going to have been lost.
- An ‘advice’ case is where it is left to the professional to consider what matters should be taken into account in deciding whether to enter into the transaction. In ‘advice’ cases the professional’s duty is to consider all relevant matters and not only specific factors in the decision. If one of those matters is negligently ignored or misjudged, and this proves to be critical to the decision, the client will in principle be entitled to recover all loss flowing from the transaction against which the professional should have protected the client.
- An ‘information’ case is where the professional contributes a limited part of the material on which the client will rely in deciding whether to enter into a prospective transaction, but the process of identifying the other relevant considerations and the overall assessment of the commercial merits of the transaction are exclusive matters for the client (or possibly his other advisers). In this type of case, the professional’s legal responsibility does not extend to the decision itself. It follows that even if the information which the professional supplied is known to be critical to the decision to enter into the transaction, liability is only for the financial consequences of it being wrong and not for the financial consequences of the client entering into the transaction insofar as these are greater.
- The fact that the information contributed by the professional is known to be critical to the client’s decision to enter into the transaction does not itself turn it into an ‘advice’ case. Otherwise all ‘no transaction’ cases would give rise to liability for the entire foreseeable loss flowing from the transaction, which, as Lord Sumption noted, was the very proposition rejected in SAAMCO (which made clear that analysis as to ‘no transaction’ and ‘successful transaction’ cases was unhelpful).
On that basis, Lord Sumption held, the decisions in Bristol and West Building Society v Steggles Palmer  4 All ER 582 and Portman Building Society v Bevan Ashford (a firm)  PNLR 344 had been wrongly decided. Those cases involved lender claims against solicitors and were authority for the proposition that there was an exception to the SAAMCO principle in cases where the defendant professional failed to provide information which showed that the transaction was fraudulent or not viable or otherwise fundamental to the decision to proceed.
In SAAMCO, the House of Lords limited the damages to the difference between the valuation of a property and its true value, on the ground that the recoverable loss could not exceed what the lender would have lost if the valuation had been correct. This exclusion for loss which would still have been suffered even if the erroneous information had been true has commonly been referred to as the ‘SAAMCO cap’ (but Lord Sumption calls it a ‘restriction’). Lord Sumption held that this was simply a tool for giving effect to the distinction between (i) loss flowing from the fact that as a result of the professional’s negligence the information was wrong and (ii) loss flowing from the decision to enter into the transaction at all.
In relation to cases involving allegedly negligent valuations, Lord Sumption acknowledged that as a tool for relating the recoverable damages to the scope of the duty the SAAMCO cap may be mathematically imprecise, because where the loss arises from a variety of commercial factors it is difficult, if not impossible, to quantify and strip out the financial impact of each one of them. As he noted, however, mathematical precision is not always attainable in the law of damages.
Lord Sumption also confirmed that the Court of Appeal had been correct in the present case in treating the burden of proving facts which engaged the SAAMCO principle as resting on the claimant.
This decision provides welcome restatement of the principle laid down in SAAMCO. Lord Sumption’s exposition of the distinction between the provision of ‘advice’ and the provision of ‘information’, and the differing consequences of breach of duty in each case, is particularly helpful.
While this case concerned a claim in negligence against a solicitor, the decision will have application to a wide range of professional advisers.
As Lord Sumption notes, much the most fertile area of development since the SAAMCO decision has been a body of case law concerning the liability of conveyancing solicitors for negligence in reporting on title or related matters to a prospective mortgage lender. The ‘overruling’ of the decisions inBristol and West and Portman Building Society makes it clear that the basis for the measure of damages remains the scope of the professional’s duty, not the gravity of the particular breach and the court’s assessment of the objective quality of the reasons as to why the claimant had not entered into the transaction in question.
Every case will turn on its facts but professionals and their insurers may think that they often provide information, and that the courts will review their conduct on that basis.