SAAMCO revisited - what losses will a negligent professional be liable for?

29 March 2017

In its decision last week in BPE Solicitors and another v Hughes-Holland (in substitution for Gabriel) [2017 UKSC 21, the UK Supreme Court revisited the leading case in this area, SAAMCO. In doing so, it provided clarification which will be welcomed by professional advisers on the extent of their liability for negligence.

The Facts

Mr Gabriel agreed to lend £200,000 to a special purpose vehicle called Whiteshore for a £70,000 return. He believed that this money was to be used to develop a property belonging to a company owned by a Mr Little. In fact, the property was mortgaged and Mr Little's intention was that the loan would be used to pay off the borrowing, leaving no funding for development of the property.

Mr Gabriel instructed BPE Solicitors to produce the loan documentation. In a twist of fate, BPE based the loan documents on a previous loan document, such that the new documents they produced contained statements to the effect that the loan monies were to be used for development of the property. These statements erroneously confirmed Mr Gabriel's belief as to the use of the funds, and the loan documents were executed in this form.

The loan was not repaid by the due date and Mr Gabriel exercised his power of sale of the property. The property sold for just £13,000, which was entirely consumed by the costs of sale. Mr Gabriel brought proceedings against (among others) BPE for negligence in drawing up the loan documents.

High Court decision

At trial, the judge found that Mr Gabriel would not have entered into the scheme if he had known the purpose to which the funds would actually be put. BPE had not proved that the property development was a doomed venture from the outset, and had the loan been used to fund development costs as Mr Gabriel had erroneously believed they would be, then it could potentially have been a viable scheme. Accordingly the judge held that Mr Gabriel could have recovered his money but for BPE's negligence, and so BPE was held liable for substantially all of Mr Gabriel's losses resulting from the transaction.

Court of Appeal decision

BPE appealed the judgment and the Court of Appeal allowed the appeal. They found that the judge had been wrong to suggest it was for BPE to prove the scheme was not viable; the burden of proof was on Mr Gabriel to prove that it was and so to prove his loss. In fact, the evidence before the judge indicated that even if £200,000 had been spent on developing the property, it would not have increased the value of the property sufficiently for Mr Gabriel to recover the loan. The Court of Appeal therefore found that the whole of Mr Gabriel's loss was attributable not to BPE's negligence, but to his own misjudgement of the commercial viability of the scheme, and so reduced his damages to nil. Mr Gabriel was subsequently adjudicated bankrupt. His trustee in bankruptcy appealed to the Supreme Court.

Supreme Court decision

Giving the leading judgment, (with which the other four lords agreed) Lord Sumption first approved the Court of Appeal's factual finding that spending £200,000 on development would not have enhanced the value of the property. He then turned to review the applicable law on the extent of a professional's liability, in particular the decision in South Australia Asset Management Corpn v York Montague Ltd [1996] UKHL 10 ("SAAMCO").

SAAMCO concerned a number of claims for negligent overvaluation of property. These coincided with a fall in the property market, such that lenders no longer had adequate security for their loans. The issue in the case was the extent of the negligent valuer's liability for a lender's loss. In SAAMCO, the court distinguished between cases where a professional is under a duty to provide information only, and those where he is under a duty to provide advice. Where a professional is under a duty to advise the client on a transaction, if he is negligent then he will be responsible for the foreseeable consequences of that advice being wrong. If, however, a professional is only responsible for providing information on which a client will make a decision, then a negligent professional will only be liable for the consequences of the information being wrong, not for all the consequences which may flow from the client taking a course of action in reliance on the information. In property overvaluation cases, the application of this principle often has the effect of restricting a negligent valuer's liability to the difference between his negligent valuation and the true value of the property. This has become known colloquially as the SAAMCO 'cap' (although both Lord Hoffmann in SAAMCO itself and subsequently, and Lord Sumption in BPE have quarrelled with the term).

In BPE, the Supreme Court upheld this approach, while providing some helpful clarification on the distinction between 'advice' and 'information' cases. Lord Sumption clarified that:

  1. an 'advice' case was one where the professional is under a duty to consider and advise the client on all relevant considerations pertaining to the client's decision whether or not to take a particular course of action. In those cases, if the professional is negligent in his advice, he will be liable for all the foreseeable consequences of the client acting upon it.
  2. In an 'information' case on the other hand, the professional is only being asked for some part of the information on which the client will ultimately rely to make a decision, and the client or other professionals may be responsible for completing the picture. In such cases, even if the particular piece of information the professional gives is of critical importance to the decision as a whole, a negligent professional will only be liable for the consequences of that information being wrong; not for all the consequences of the client entering into the transaction in reliance on it, to the extent these are greater.        

Applying SAAMCO to the facts of the case, the Supreme Court found that BPE was not under a duty to advise Mr Gabriel generally on whether or not to lend the money. Mr Gabriel had formed his own view of the commercial viability of the scheme, and had instructed BPE simply to prepare the documentation. While BPE was negligent in confirming Mr Gabriel's erroneous understanding of the transaction through the drafting of the loan documentation, they had not advised him (or been asked to advise him) on whether or not to enter into the transaction. Accordingly they were liable only for the consequences of the information (i.e. that the funds would be used for development of the property) being wrong. The court found that the scheme would not have been viable even if the funds had been used for development, and so Mr Gabriel would have lost his money whether or not BPE's information was correct. There were therefore effectively no consequences flowing from BPE's negligence - Mr Gabriel's entire loss was a result of his commercial misjudgement, and was therefore outside the scope of BPE's duty to him.


This case provides welcome confirmation for professionals that:

  1. they will be liable only for losses which are within the scope of their duty to a client; and
  2. the claimant has the burden of proving that - it is not for the professional to disprove it.

In coming to its decision, the Supreme Court has helpfully indicated that two so-called 'no transaction' cases decided on the SAAMCO principle in lower courts were wrongly decided. In the High Court case of case of Steggles Palmer (decided with seven other cases under the title Bristol and West Building Society v Fancy & Jackson (a firm) [1997] 4 All ER 582) and the Court of Appeal case Portman Building Society v Bevan Ashford (a firm) [2000] PNLR 344, the claimant clients succeeded on their claims for all losses flowing from a transaction where they asserted the information sought from the defendant professionals was so fundamental that they would not have entered into the relevant transactions but for the professional's negligent information. The Supreme Court has provided welcome clarification that the professional's liability is limited by the scope of his duty, not by the gravity of the breach. 

Point to remember

While this decision will be welcome to professional advisers, it does highlight the importance of professionals being clear on the scope of their duty - in particular by making clear to clients what work the professional will (and won't) carry out, and confirming what work is to be carried out by the client and/or other professionals.  

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