The Supreme Court has recently handed down judgment in the case of BPE Solicitors v Hughes-Holland  UKSC 21. The judgment provides a detailed analysis of the application of the SAAMCO principle, which is frequently applied in professional negligence cases. It is essential reading for all involved in professional negligence cases.
In 2007 Mr Gabriel agreed to lend £200,000 to Mr. Little, his friend, who was a builder. The loan was for the development of a disused tower. BPE Solicitors (BPE) were instructed to draw up a charge and facility letter recording the details of the loan. Mr Gabriel had assumed that the loan was to finance the development of that building into offices. This assumption was incorrect as Mr Little had not intended to use the money for this purpose at all. The building was in fact owned by one of Mr Little’s companies, High Tech. However, a bank had a charge over the property as security for a loan of £150,000 which had been made to High Tech. Mr Little used the loan from Mr Gabriel to transfer the property to a special purpose vehicle called Whitshore Associates Ltd for the purpose of carrying out the development work. As a result he was able to discharge the bank’s loan and pay off a number of High Tech’s other debts.
Although BPE were aware of Mr Little’s intentions in relation to the loan, they failed to check the instructions with Mr Gabriel. BPE also included a provision in the facility letter in error. The letter mistakenly said that the loan moneys would “be made available as a contribution to the costs of the development of the property”. It also stated that the purpose of the loan was to “assist with the costs of the development of the property”. This confirmed Mr Gabriel’s mistaken understanding of the purpose of the loan.
Ultimately, the development of the building did not take place. Mr Little was due to repay the loan to Mr Gabriel by 12 March 2009. However, no repayment was ever made. In late 2009, Mr Gabriel took steps to exercise his power of sale under the terms of the loan but he failed to recover anything and suffered a loss.
Accordingly, Mr Gabriel brought a number of claims against different parties, including a claim for professional negligence against BPE.
First instance decision
At first instance, only the claim for professional negligence against the solicitors was successful. The judge held that BPE had failed to explain to Mr Gabriel that the funds would be used to discharge the bank loan and that Mr Little was not contributing anything towards the project. In addition, BPE’s negligent drafting of the loan documentation misled Mr Gabriel into believing the loan was for the development of the building.
The trial judge accepted that BPE would not be liable if it could be shown that, even if the loan moneys had been used for the development of the building, the project was doomed to failure from the start. However, on the evidence, he could not conclude that the venture was doomed from the beginning and accordingly awarded Mr Gabriel the full extent of his losses from BPE.
Court of Appeal decision
The Court of Appeal reversed this decision on the basis that Mr Gabriel had not established that if the £200,000 had been used to develop the building that it would have enhanced the value of the property and that he would have been in a position to recover the loan. The court accordingly reduced the damages to nil because they considered the whole loss was attributable to Mr Gabriel’s misjudgement.
The Supreme Court decision
After bringing the claim against BPE, Mr Gabriel was forced to file for bankruptcy and his trustee in bankruptcy appealed the Court of Appeal’s decision.
Lord Sumption of the Supreme Court considered two main issues in his leading judgment:
The evidence showed that the value of the property would not have been increased by spending £200,000 on its development. This was because the building was in an unattractive location and the ground was contaminated. Completing the development would cost significantly more than £200,000. In addition, Mr Gabriel’s ability to recover his money depended on the reliability of Mr Little’s estimate of the cost of the works. It was apparent that the cost of completing the development had been vastly underestimated by Mr Little. It was therefore likely that even if the development works were completed it would be at a huge loss.
. In SAAMCO, the principle is defined as follows:
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 course of action. He is responsible only for the consequences of the information being wrong…The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken.
Simply put, this means that if a professional has a duty to provide information they are only liable for the consequences of that information being wrong. If the professional has a duty to provide advice they are responsible for the consequences of any decisions made based on that advice.
In addition, in SAAMCO, it was pointed out that the appearance of a “cap” on the damages awarded was a result of the claimant having to satisfy two separate requirements: (1) to prove that he/she has suffered a loss; and (2) to establish that the loss fell within the scope of the duty he/she was owed.
Turning to some of the key points raised in the judgment, Lord Sumption addressed the distinction between “advice” and “information”, which, he said, has given rise to confusion because of “the inadequacy of these labels”. He stressed that even if the material supplied by the defendant is known to be crucial to the claimant’s decision to enter into a transaction, the defendant is only liable for the financial consequences of the information being wrong. He is not liable for the financial consequences of the claimant entering into the transaction in the event that this loss is greater. “Otherwise the defendant would become the underwriter of the financial fortunes of the whole transaction by virtue of having assumed a duty of care in relation to just one element of someone else’s decision”. By way of example, he stated that a conveyancer was generally the supplier of “information”, whereas an investment adviser advising a client whether to buy a particular stock is likely to be providing “advice”. Significantly, Lord Sumption concluded that the decisions in Steggles Palmer which was heard as one of a number of claims under Bristol and West Building Society v Fancy & Jackson  4 All ER 582, and Portman Building Society v Bevan Ashford  PNLR 244, were wrong.
Lord Sumption also clarified the confusion over the SAAMCO “cap”, or the restriction on damages that may be recovered. He stated that this was simply a tool to distinguish between: (i) loss flowing from the fact that as a result of the defendant’s negligence the information was wrong; and (ii) loss flowing from the decision to enter into the transaction. He stated that the SAAMCO principle applies to award losses which fall within the scope of the defendant’s duty, and does not seek to exclude loss which is outside that duty.
Application to the present case
Lord Sumption held that BPE Solicitors had not assumed responsibility for Mr Gabriel’s decision to lend the money to Mr Little because their instructions were simply to draw up the facility agreement and the charge. He commented that due to an oversight in the drafting of the facility agreement, BPE Solicitors unfortunately confirmed an incorrect assumption that had been made by Mr Gabriel. It was therefore necessary to consider what loss was attributable to that assumption being incorrect. Lord Sumption concluded that even if Mr Gabriel’s assumption had been correct, he would still have lost his money because the expenditure of £200,000 would not have increased the value of the property. Accordingly, none of the loss suffered was within the scope of BPE’s duty, and the appeal was dismissed. Mr Gabriel recovered no damages.
The decision of the Supreme Court provides much needed guidance for the application of the SAAMCO principle in professional negligence cases. It has long been an area which has had the potential to confuse.
In particular, it provides clarification on the classification of cases falling into “advice” or “information” transactions and so this judgment is likely to have far reaching implications on future professional negligence cases.