Supreme Court rules on SAAMCO and solicitors’ negligence

27th March 2017

The Supreme Court has clarified the application of the SAAMCO principle for limiting liability to solicitors’ negligence cases. Walker Morris’ professional negligence specialist explains BPE Solicitors v Hughes-Holland [1] – a case which provides essential authority for solicitors and all those involved in professional negligence claims.

SAAMCO principle (or ‘cap’)

In the leading case of South Australia Asset Management Corporation v York Montague [2], the House of Lords held (in short) that surveyors who provide negligent overvaluations are only liable for loss caused by the negligent valuation itself, and not for loss caused by any extraneous factor(s). That proposition has become known as the SAAMCO principle or ‘cap’, and is frequently relied upon to limit liability in surveyors’ negligence cases.

In the recent BPE Solicitors v Hughes-Holland litigation, the applicability of the SAAMCO cap to solicitors negligence cases has been considered, and confirmed, by the Supreme Court.

The case – A comedy of errors

The claimant had agreed to lend £200,000 to a friend on the mistaken assumption that the friend would use the money to redevelop a property for a profit. (The claimant and his friend had considered a similar scheme for another property previously, although that loan/scheme had never proceeded.)  The claimant instructed his solicitors, BPE, to draw up an agreement and charge to secure the loan monies.  BPE did so and, by an unhappy accident, the instructed solicitor used, as a template, the facility letter and charge that had been drafted for the earlier, abortive transaction.  He therefore negligently included terms that the loan was to be used to fund the development, when in fact that was never the case.  In what almost amounts to a comedy of errors, the solicitor’s mistake was not picked up because the documentation effectively mirrored the claimant’s own erroneous assumption.

Inevitably, the property was not redeveloped (instead, the friend used the loan to pay off other debts) and the claimant’s money was lost. In addition, the evidence suggested that, even if the £200,000 had been spent on redeveloping the property, that would not have been sufficient to complete the project and to sell the property for a profit in what was a depressed market.

The question for the Supreme Court was what damages are recoverable in a case where, but for the professional’s negligence the claimant would not have embarked upon the particular course of action, yet part or all of the loss suffered arose from risks against which it was not the professional’s duty to protect?

To answer this question, the Supreme Court considered the correct operation of – and applied – the SAAMCO principle.

Key takeaways

• Explaining the historical legal context from which the SAAMCO principle/cap derives, the Supreme Court confirmed that, fundamentally, the law is concerned with assigning responsibility for the consequences of a breach of duty, but that a defendant is not necessarily responsible in law for everything that follows from his wrongful act. The concept of legal causation is just one effective limit on a defendant’s liability, but it is not exhaustive. Ultimately, such limitations depend upon “a developed judicial instinct about the nature or extent of the duty which the wrongdoer has broken” [3].
• The SAAMCO restriction on damages is a leading incarnation of that developed judicial instinct, and it can apply to solicitors’ (or, by implication, to other professionals’) negligence, as well as to surveyors’ cases.
• The Supreme Court went on to explain that, when analysed and applied in full, the SAAMCO principle distinguishes between cases where a professional is under a duty to provide information to enable someone to decide upon a course or action; and where a professional is under a duty to advise someone as to what course of action to take. A negligent adviser would be liable for all foreseeable loss consequent upon the advised course of action; whereas a negligent information provider would be liable only for the foreseeable consequences of that information being wrong.
• The correct approach is therefore to ascertain both (i) the type of case (that is, whether it is an advice or an information case), and therefore the scope of the professional’s duty; and (ii) the level of loss (if any) that is attributable to the breach of that duty.
• Applying that approach in the instant case:
  • The Supreme Court held that BPE’s duty was not to advise the claimant to lend money to his friend. The solicitors were instructed to prepare documentation only, nothing more. The claimant made the decision to lend of his own volition. BPE would therefore be liable for losses flowing from the mistake in the loan documentation, but not for the claimant’s own commercial misjudgment.
  • To ascertain losses flowing from the mistake in the loan documentation, a comparison should be made with the hypothetical position if the loan documentation had been correct (that is, if terms that the monies were to be used to fund the property development had not been included). On the facts, the negligent inclusion of those terms made no difference to the overall loss suffered. The claimant would still have lost his money because the evidence showed that, even if the £200,000 had been spent on redevelopment, the property was substantially worthless due to existing debts and the state of the market.

WM Comment

This case is hugely valuable to solicitors and other professionals in that it authoritatively confirms the underlying principles behind the SAAMCO limitation on liability; how the SAAMCO ‘cap’ actually operates in practice; and that the cap is available to limit liability in professional negligence claims other than just surveyors’ cases.

The judgment is quite lengthy and legalistic in parts, but it is essential reading for all those conducting or concerned with professional negligence cases. In particular, it is likely to be a welcome defensive weapon for any professionals facing claims and for professional indemnity insurers.

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[1] [2017] UKSC 21
[2] [1996] UKHL 10
[3] BPE para. 20