Legal notes: Does the SAAMCO cap still fit?

The Supreme Court has significantly simplified the approach introduced by one of the most important decisions regarding claims against property professionals. Stuart Pemble shares the good news Key points The Supreme Court has provided helpful simplification of the SAAMCO principle Although no longer to be thought of as a cap on liability, it should still help most conveyancers and property valuers I suspect that few, if any, cases have graced the pages of Legal Notes as frequently as the decision of the House Of Lords in South Australian Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93 and the various subsequent judicial attempts to clarify the principle it established – known as the SAAMCO cap – the complexities of which have sometimes eclipsed its importance. However, Lord Sumption, when giving the unanimous judgment of the Supreme Court in BPE Solicitors and another v Hughes-Holland [2017] UKSC 21; [2017] PLSCS 70, has brought welcome clarity and simplicity to what remains a key legal principle. The SAAMCO principle At the heart of all SAAMCO cases is the question of the damages recoverable where “(i) but for the negligence of a professional adviser his client would not have embarked on some course of action, but (ii) part or all of the loss which he suffered by doing so arose from risks which it was no part of the adviser’s duty to protect his client against”. In SAAMCO, Lord Hoffmann made it clear that the professional was not liable for all of the client’s loss: “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 only responsible for the consequences of that information being wrong.” In the SAAMCO decision itself (as well as a number of the other key judgments since), the question arose in relation to negligent property over-valuation, often where the valuation occurred before a general market fall in property values. The SAAMCO cap differentiated between the loss suffered as a result of that fall in property values (which would have happened even if the advice had been correct) and that element of loss arising from the over-valuation. Only this second (and lesser) category of loss is recoverable. The facts of BPE This was a claim against a firm of solicitors which had drawn up a facility letter and a charge over a property. The claimant had lent £200,000 to a (former) friend – Mr Little – on the basis that the money would be used to fund the development of a disused heating tower at an airfield in Gloucestershire. However, Little did not own the tower. That was owned by a company which he controlled, High Tech, with a bank loan of £150,000 secured by a mortgage on the tower. Little used the loan to enable another company to buy the land. High Tech used it to pay off the loan and a VAT liability. No work was ever carried out, and the claimant lost all of his money (apart from a small amount repaid by Little). The defendant, BPE, acted for the claimant in documenting the loan. It did not seek the claimant’s instructions in relation to Little’s actual plans and the documents drafted (based on a previous – but abortive – transaction between the claimant and Little) mistakenly stated that the loan would be used to meet Little’s development costs. The claimant was unsuccessful in various claims brought against all of the other parties except, at first instance, the defendant solicitors, who were held to be liable for the claimant’s entire loss. The judge accepted that, had the loan been used for the development and not to meet High Tech’s liabilities, the development was sufficiently viable to have repaid the loan. That decision was overturned by the Court of Appeal, which held that there was no evidence to suggest that the development of the heating tower would have been successful. Applying the SAAMCO approach, the entire loss was caused by the claimant’s decision to invest in a bad property development project and not any failure by the solicitors. The claimant appealed to the Supreme Court. The Supreme Court’s decision Lord Sumption rejected the appeal. Part of his reasoning was based on the fact that there was no evidence that the property would have been enhanced by spending the £200,000 on its development. It was in an unattractive location and needed significantly more than the amount of the loan to enhance its value. He also revisited the question of what he called the SAAMCO principle, stressing that the term “cap” was a misnomer. In cases involving erroneous information, the principle excludes the loss that would have been suffered even if the erroneous information had been true. As such, it “is simply a tool for giving effect to the distinction 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 at all”. Because BPE had not assumed responsibility for the decision to lend money to Mr Little, it escaped liability for loss which arose from the claimant’s “commercial misjudgements”. Helpful guidance Lord Sumption also dealt with the established difference between those cases where a professional adviser is providing advice as to whether or not its client should enter into the transaction (“advice” cases) and those, as in BPE, where the defendant contributes some of the information on which the client will rely (“information” cases). The SAAMCO principle applies much-needed protection to claims in information cases (but not in advice cases) to avoid the defendant becoming “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”. Property professionals can take comfort from Lord Sumption’s suggestion that, although each case rests on its own facts, conveyancers and valuers will normally be treated as supplying information only. Stuart Pemble is a partner at Mills & Reeve LLP