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29 March 2017

“Advice” or “information”? The Supreme Court provides clarification regarding professional negligence claims

Summary

The Supreme Court in BPE Solicitors and another v Hughes-Holland [2017] UKSC 21 has considered the “SAAMCO principle” from the case of South Australia Asset Management Corp v York Montague Ltd [1996] UKHL 10 (SAAMCO). In doing so, the Supreme Court has clarified the distinction between “advice” and “information” cases, where the liability of an adviser to his client differs between the two.

Background and SAAMCO principle

The House of Lords decision in SAAMCO related to a number of actions in respect of the negligent valuation of property. The House of Lords rejected the Court of Appeal’s previous decision that the valuer was liable for the entire loss flowing from the transaction, and held that they were only liable for the difference between their valuation and the true value of the property.

In reaching its decision the court said that the “duty to provide information for the purpose of enabling someone else to decide upon a course of action” differs from the “duty to advise someone as to what course of action he should take”. These two scenarios have since been described as “information” cases and “advice” cases, respectively.

In an “information” case, the court held that the adviser should not be responsible for the entire loss. The SAAMCO principle therefore restricts the losses that can be claimed in the context of inaccurate information. The principle has since been applied in cases including Nykredit Mortgage Bank plc v Edward Erdman Group Ltd [1997] UKHL 53 and Haugesund Kommune v Depfa ACS Bank [2011] EWCA Civ 33.

Facts of the case

The Claimant in the case of BPE Solicitors instructed his solicitors, the Defendant, to draw up a facility letter and charge in respect of a £200,000 loan to a third party (L). He intended L to use the loan to fund the development of a property, but in fact L used it to repay a debt secured on the property. L and the Defendant were aware of this, but it was not accurately reflected in the drafted documents and so the Claimant’s assumption regarding L’s intentions was not corrected. No development took place, and the Claimant subsequently suffered a loss of the entire loan, save for a small proportion which L paid back personally.

The court at first instance decided that the Claimant was entitled to damages representing the entire loss suffered by entering into the transaction, as the loss was foreseeable and there had been no contributory negligence. The Court of Appeal then allowed the Defendant’s appeal, holding that the whole loss was attributable to the Claimant’s misjudgments rather than the Defendant’s negligence. They also held that in any case, if there had been any recoverable loss, it would have been reduced by 75% for contributory negligence. The Claimant then appealed to the Supreme Court.

Supreme Court decision

Lord Sumption in his decision noted that the SAAMCO principle had often been misunderstood. Firstly, the legal responsibility of the adviser must be taken into account, and secondly, it has nothing to do with the causation of loss as usually understood in the law.  Where the contribution of the adviser is to supply material for the client to take into account in making his own decision, the adviser has no legal responsibility for the subsequent decision.

Therefore, assessment of a claimant’s damages should depend on the scope of the defendant’s duty, rather than the gravity of a particular breach or a court’s assessment of the claimant’s reasons why it would not have entered into that transaction.

In other words, the SAAMCO principle involves awarding loss within the scope of the defendant’s duty rather than excluding loss outside it. Lord Sumption commented that this should be thought of as a “restriction on damages” rather than a “cap”, although he also said that in some situations this would amount to the same thing, and would rest on the facts of each case.

In this case, the Defendant’s instructions had been to do no more than draw up the facility agreement and the charge. They had not been asked to advise on the use of the funds, and had therefore not assumed responsibility for the Claimant’s decision to lend money to L. Having decided this point, the court also found that even if the Defendant had been correct, the Claimant would still have lost all his money, as his loan would not have enhanced the value of the property. In the circumstances, the Claimant’s appeal was dismissed.


This article was written by Tian Zheng, Trainee Solicitor. For more information, please contact Tian on +44 (0)20 7427 6471 or tian.zheng@crsblaw.com.

Alternatively, please contact Paul Stone, Partner, on +44 (0)20 7203 5110 or at paul.stone@crsblaw.com.

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