The Supreme Court provides clarity on SAAMCO principles

The Supreme Court has recently dismissed the claimant’s appeal and reduced the damages awarded to him against BPE, his solicitors, to zero. The key features of the decision are:

  • The SAAMCO principle applies to the law of damages, is not based on causation and distinguishes between ‘advice’ cases and ‘information’ cases
  • A professional will only liable for the consequences of the information being wrong, even in a case where the information is critical to the transaction and/ or the decision to proceed
  • The claimant must prove that the loss claimed fell within the scope of the professional’s duty, and would not have been suffered even if the information had been correct
  • The decisions in Steggles Palmer and Portman Building Society were incorrect.

The facts

Mr Gabriel (“G”) agreed to lend £200,000 to an SPV controlled by his friend Mr Little (“L”), for the development of a property. G did not obtain a valuation or any of the usual searches. BPE Solicitors were engaged to prepare the loan documentation only. BPE became aware that L would not be using the loan to develop the property, but for its acquisition. BPE failed to inform G of this and continued to refer to the use of the loan for the development in communications with G. The transaction fell through and G subsequently pursued BPE, amongst others, for his loss.

The Court of Appeal reversed the trial judge’s decision, awarding G his full loss, and held that the loss was a result of G’s misjudgements. G appeal to the Supreme Court was dismissed.

The decision

The Supreme Court held that BPE was responsible for preparing the loan documents and that they did not assume responsibility for G’s decision to provide the loan.

In preparing the documents, BPE negligently/ incorrectly confirmed G’s assumption as to the purpose of the loan. The Supreme Court considered what loss, if any, could be attributed to this. It was held that had the purpose of the loan been understood correctly by G; he would still have lost his money since the value of the property would not have been increased through developments to the tune of £200,000.

The loss suffered by G did not, therefore, fall within the scope of BPE’s duty. It was a result of commercial misjudgements in which BPE was not involved.

Lord Sumption helpfully clarified that in accordance with the SAAMCO principles, where the defendant’s role is limited to supplying information which is then considered by the client amongst other elements when assessing the risk, the defendant is not legally responsible for the client’s decision to proceed i.e. ‘advice’ versus ‘information’.

Where a professional provides guidance to a client on whether or not to enter into a transaction, they assume a duty of ‘advice’ and can be held liable for the full loss suffered. Lord Sumption gave the example of investment advisers as professionals who may fall into the advice category.

Where a professional is under a duty to provide information to assist a client in their decision to enter into a transaction, that professional is not responsible for the client’s decision, and their liability will be capped to the financial consequences of the information being wrong.

The decisions in Steggles Palmer and Portman Building Society were incorrect. These cases found that where professionals negligently failed to provide information to clients that would have revealed a dishonesty/fraud, the solicitor was responsible for the decision to enter into the transaction i.e. assessing damages on the basis of the ‘no transaction’ rule. It was held that it is wrong to base the assessment of damages on the gravity of the breach and the quality of the claimant’s reasoning as to why it would not have proceeded, the correct assessment of loss is dependent on the scope of duty.