In a landmark decision, BPE Solicitors & anr v Hughes-Holland (in substitution for Gabriel)  UKSC 21, the Supreme Court provided guidance on the application and effect of the well-known, but often misunderstood, ‘SAAMCO principle’. In particular, the Court reiterated the distinction between ‘information’ and ‘advice’ cases; overturned a previous line of authority seen as creating an exception to the ‘SAAMCO principle’ in circumstances where fraud or dishonesty would have been revealed had the information provided by a professional advisor been correct; and confirmed that it is for the claimant to establish that the losses claimed fell within the scope of an advisor’s duty.
In 2007 Mr Gabriel agreed to lend GBP 200,000 to a friend, Mr Little, a builder and property developer, in the belief that Mr Little would use the funds to develop a property owned by one of Mr Little’s companies (High Tech). Mr Little actually intended to use the majority of the loan to fund the purchase of the building by another company he had an interest in (Whiteshore) and the balance to discharge High Tech’s VAT liability. Mr Gabriel retained BPE Solicitors (BPE) and instructed them to prepare the loan documentation. Whilst drawing up the documents, BPE were informed by Mr Little of the true purpose of the loan. However, BPE failed to inform Mr Gabriel. BPE compounded its failure by including statements in the loan documentation suggesting the loan would, in fact, be used to develop the property. The loan agreement was signed and Mr Gabriel provided the funds. Whiteshore purchased the building from High Tech, however, no development took place and Mr Gabriel’s loan was never repaid. Mr Gabriel enforced his charge over the property, but failed to recover any funds following the ensuing sale. Mr Gabriel subsequently sued Mr Little, High Tech and Whiteshore for fraud and negligent misrepresentation and BPE for dishonest assistance in a breach of an implied trust and for negligence.
At first instance Mr Gabriel succeeded only in his claim for negligence against BPE. The trial judge found BPE acted negligently in failing to inform Mr Gabriel of Mr Little’s true intentions and had compounded this error by including the misleading statements in the loan documentation. The trial judge accepted that BPE were only liable for the consequences of the information they provided being wrong, but awarded Mr Gabriel his full losses on the basis that he would not have completed the transaction if he had known the truth. BPE appealed and the Court of Appeal upheld the appeal on the basis that there was no evidence that Mr Gabriel would have recovered the loan monies if they had in fact been applied to the development of the property. The burden was on Mr Gabriel to demonstrate as such and he had failed to discharge that burden. The loss arose from the commercial risk inherent in the transaction and for which Mr Gabriel, and not BPE, had to bear responsibility. The trustee of the now-bankrupt Mr Gabriel appealed to the Supreme Court. In dismissing the appeal, the Supreme Court provided clarification on the application and effect of the principles set out in South Australia Asset Management Corpn v York Montague Ltd  AC 191 (SAAMCO). Four key points arise from the Supreme Court’s decision.
Nature of the SAAMCO principle
Lord Sumption, delivering the sole judgment of the Court, clarified that the SAAMCO principle is not a matter of causation. Rather, it is a general principle of the law of damages and a method by which a defendant’s liability for loss can be restricted, which is based on a “developed judicial instinct about the nature or extent of the duty which the wrongdoer has broken”. One must ascertain whether any loss claimed for “flowed from … the particular feature of the defendant’s conduct which made it wrongful” and this requires an analysis of the scope of a professional’s obligation to protect his client from risk.
‘Information’ cases distinguished from ‘Advice’ cases
In the SAAMCO case, Lord Hoffmann had drawn a distinction between ‘information’ and ‘advice’ cases. However, Lord Sumption explained these labels had become the source of some confusion, largely because of “descriptive inadequacy”. His Lordship emphatically restated the distinction as follows:
− ‘advice’ cases are those where the professional is under a duty to consider “all relevant matters and not only specific factors in the decision” and must protect his client against the “full range of risks”. In such cases, the professional is responsible for guiding the entire decision-making process and the decision to enter into the transaction itself. Should the professional prove negligent, they will be responsible for all foreseeable losses flowing from the transaction; and
− ‘information’ cases are those in which a professional has provided a “limited part of the material on which his client will rely”, but the responsibility for identifying other relevant factors and assessing the overarching commercial merits of the transaction remains with the client. In such cases, the professional will be liable only for the consequences of the information they have provided being incorrect, even if that information was “critical to the decision to enter into the transaction”.
Steggles Palmer and Portman Building Society overturned
The cases of Steggles Palmer (a conjoined decision reported under the title Bristol and West Building Society v Fancy & Jackson (a firm)  4 All ER 582) and Portman Building Society v Bevan Ashford  P.N.L.R. 344 have previously been seen as creating an exception to the SAAMCO principle, whereby an advisor (often a conveyancer) would be liable for the entire loss arising from a transaction if the incorrect information provided would have revealed dishonesty or fraud if it had been correct. Lord Sumption held that these cases were incorrectly decided. His Lordship held that there is no basis for conducting an assessment of a claimant’s damages dependent not upon the scope of the defendant’s duty but on the gravity of the particular breach and an assessment of the claimant’s reasoning as to why it would not have proceeded with the transaction.
Burden of proof on the claimant
Finally, Lord Sumption explained that it is for the claimant to prove that any losses suffered fell within the scope of the defendant’s duty and that those losses would not have been suffered had the defendant not breached the duty owed to the claimant.
The case has provided welcome clarification with respect to the operation of the principles set out in SAAMCO and restates the distinction between ‘advice’ and ‘information’ cases. It is now clear that only those professionals who are engaged by a client to assess all factors relevant to a transaction and, ultimately, to make the decision as to whether to enter into the transaction or not on the client’s behalf may be liable for all foreseeable losses flowing from a transaction. Those professionals who provide discrete pieces of information (whether or not that information is, in practical terms, ‘advice’) on a particular part of a transaction will only be liable for the financial consequences of that specific information being incorrect and are not expected to become "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”.
Steggles Palmer and Portman Building Society have been consistently relied upon by claimants who have lent money in seeking their full losses suffered as a result of a transaction on the basis that a defendant solicitor failed to provide information that would have identified fraud or dishonesty on the part of the borrower. Such reliance will no longer be possible. Instead, it will be for lenders to demonstrate that any losses they have suffered were a result of the specific information provided by a defendant solicitor being incorrect.
Finally, professionals and their insurers will welcome the Court’s clarification that the burden of proving that any loss fell within the scope of a professional’s duty, and that such loss would not have been suffered had that duty been properly discharged, rests with a claimant. In effect, claimants will have to prove a negative, namely that they would not have suffered loss had the information provided by the professional been correct. Such a burden is significant, particularly in circumstances where the answer to the theoretical question of what would have happened had the professional not breached their duty is not easily arrived at.