BPE Solicitors v Hughes-Holland  UKSC 21
The Supreme Court decision in BPE Solicitors v Hughes-Holland  UKSC 21 is of particular interest to solicitors and their insurers as it clarifies a principle from South Australia Asset Management Corporation v. York Montague Ltd  A.C. 191 ("SAAMCo") which is often misunderstood.
In SAAMCo, a case concerning a negligent overvaluation of a property, Lord Hoffman made a distinction between (1) the duty to provide information to enable clients to decide on a course of action; and (2) the duty to advise clients what specific course of action to take.
The Supreme Court in BPE Solicitors v Hughes-Holland  UKSC 21 recognised that damages awarded under the SAAMCO principle maybe "mathematically imprecise", however it is "essentially a legal rule which is applied in a robust way without the need for fine tuning or detailed investigation of causation".
Mr. Richard Gabriel ("Mr. G") lent £200,000 under a loan agreement to Whiteshore Ltd ("Whiteshore"), a property company owned by Mr. Little ("Mr. L"). The loan agreement provided for repayment on 12 March 2009 of the full amount plus £70,000 interest. The loan was secured against Whiteshore's intended development property by way of a first legal charge. BPE Solicitors ("BPE") were instructed by Mr. G to draft a loan agreement between Mr. G and Whiteshore. Mr. G believed the loan would be used to assist with the cost of property development. However, Mr. L used the money to pay off another loan. The property was never developed and Whiteshore defaulted on the repayment.
Mr. G enforced his charge to sell the property at £13,000, which meant Mr. G made no recovery. Mr. G brought a claim against BPE, alleging that the loan agreement had been negligently drafted and that BPE had failed to advise Mr. G that the loan would be used to discharge Mr. L's other debts.
Lower Court's Decision
The Court at First Instance held that, although BPE had no duty to advise Mr. G of the commercial risks of the development, they were in breach by failing to advise Mr. G of the intended use of the loan. Had BPE informed Mr. G of the true intended purpose of the loan, he would not have entered into the transaction at all, and no loss would have been suffered.
The Court of Appeal reversed the decision and held that BPE were only liable for the foreseeable consequences of providing the wrong information to Mr. G. BPE was not under a duty to advise on what course of action to take or the commercial risk of entering into the loan agreement. There was no evidence that Mr. G's investment would have resulted in a return or an increase in value in the property. The Court of Appeal reduced the damages to nil.
Supreme Court's Decision
On appeal, the Supreme Court agreed with the Court of Appeal. The judgement was handed down by Lord Sumption with the remaining four Lord Justices of the Supreme Court agreeing, that the loss suffered by Mr. G would have been suffered even if he had been fully aware of the circumstances of the transaction. Although BPE were negligent when they drew up the loan agreement by stating the incorrect purpose for the loan, they were only responsible for failing to resolve Mr. G's misunderstanding about the intended use of the funds. In any case, Mr. G did not suffer any loss which was attributable to that misunderstanding. It was simply a bad deal for Mr. G. BPE were not liable for all of the losses which flowed as a result of Mr. G's own commercial decision to lend money.
• Clarifying the SAAMCo Principle
Lord Sumption held that the SAAMCo principle was a tool to distinguish the (i) loss flowing from the fact that as a result of the professional's negligence the information was wrong; and (ii) loss flowing from the decision to enter into the transaction at all. Lord Sumption clarified the two types of advisors as follows:
(i) Advisor of Action: The advisor is responsible for taking into account all factors which will impact on the decision to take a particular course of action. If a factor is negligently ignored or misjudged, and proves to be paramount to the decision to take that course of action, the advisee is entitled to recover all losses flowing from the course of action. The negligent Advisor of Action is liable for the overall riskiness of the transaction.
(ii) Advisor of Information: The advisor is contributing a limited part of the information for the advisee to make a decision. The process of considering other relevant factors and assessing the overall commercial merits of the transaction are matters for the advisee. The adviser's overall duty does not extend to the decision itself and therefore the negligent adviser is only liable for the financial consequence of that particular information being wrong.
Professionals have often fallen into the general 'failing to advise' category, making them liable for all recoverable loss. Lord Sumption explained that valuers as well as conveyancers are providers of 'information', supplying only a specific part of information upon which a client will base its decision. By contrast, an investment advisor advising on whether to buy or invest in a particular stock is regarded as giving 'advice'. This case establishes that conveyancers are Advisers of Information, not Advisors of Action. As a result, conveyancers should not be liable for all losses, but only for losses which flow as a direct result of that negligent information. This is useful, in particular for valuers and conveyancers, when determining whether certain losses fall outside their duty of care.
This decision provides a useful clarification of the SAAMCo principle and is likely to have an impact upon ongoing and future professional negligence claims in relation to the determination of the issue of what damages are recoverable.
Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.
Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; intellectual property; banking; financial services/corporate regulatory and compliance.
As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.
Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact email@example.com if you have any questions about the article.