The Supreme Court in BPE Solicitors v. Hughes-Holland  UKSC 21 (also known as Gabriel v. Little) has considered for the first time, and reinforced, the principles set out in the landmark professional negligence case of South Australia Asset Management Corporation v. York Montague Ltd  A.C. 191, a case often misunderstood and misapplied. The Supreme Court found that, although the firm of solicitors had been negligent in failing to identify the correct purpose of the loan, the loss suffered did not flow from their negligence. Instead, the loss flowed from a poor commercial decision to lend money for which the solicitors were not liable.
Mr Richard Gabriel lent £200,000 to his friend, Mr Little (the Loan). Following a conversation with Mr Little, Mr Gabriel had assumed that the purpose of the loan was to redevelop a disused heating tower which Mr Little owned (the Tower).
The Tower was, in fact, owned by High Tech Fabric Maintenance Ltd (High Tech), a company owned and controlled by Mr Little. However, Mr Little used the Loan to purchase the Tower from High Tech for £150,000 through a special purpose vehicle called Whiteshore Associates Limited (Whiteshore), and used the remaining £50,000 to meet High Tech's VAT liability.
Mr Gabriel did not commission a valuation. Instead, he attended the Tower and formed the view that it was worth circa £150,000 and after the redevelopment would be worth circa £400,000.
Mr Gabriel instructed BPE Solicitors (BPE) to draft a loan facility agreement between Mr Gabriel and Whiteshore, and charge for the Loan (the Loan Documents). Rather unconventionally, the instructions came through Mr Little and the solicitor did not seek confirmation or clarification from Mr Gabriel directly. The solicitor used a template loan facility agreement which he had drafted in a previous abortive matter for Mr Gabriel, which stated that the purpose of the Loan was to "assist with the costs of the development of the property". This was in accordance with Mr Gabriel's view of the purpose of the Loan, but not Mr Little's.
Whiteshore defaulted on the Loan and the Tower was only sold for £13,000, all of which was absorbed by the costs of sale, meaning that Mr Gabriel made no recovery from the sale.
Lower courts' decisions
Mr Gabriel issued a claim against various defendants, one of which was BPE. Mr Gabriel sought to recover all of his losses as a result of BPE's breach of duty of care to exercise reasonable care and skill.
The trial judge held that Mr Gabriel would not have made the Loan had his misunderstanding as to the intended purpose been corrected and therefore, but for BPE's breach of duty of care, no loss would have been suffered.
The Court of Appeal held that BPE had negligently failed to correct Mr Gabriel's erroneous understanding of the purpose for the Loan. However, it held that the loss suffered fell outside the scope of BPE's duty of care to Mr Gabriel. BPE's instructions did not extend to advising Mr Gabriel on the Loan and/or the commercial risks of the Loan. Therefore the loss suffered was not caused by BPE's breach of duty of care. Mr Gabriel's damages were therefore reduced to nil.
The appeal was dismissed. The judgment was handed down by Lord Sumption with the remaining four Lord Justices of the Supreme Court agreeing.
The Supreme Court held that, although BPE negligently drew up the loan facility agreement by stating the incorrect purpose for the Loan, BPE's instructions were only to draw up the Loan Documents and it was only liable for losses which flowed directly from its negligence in this regard. Therefore BPE was not liable for all of the losses which flowed as a result of Mr Gabriel's own commercial decision to lend the money.
In coming to his decision, Lord Sumption clarified and reinforced the well-known, yet misunderstood, SAAMCo principle, which arose from the House of Lords' decision in South Australia Asset Management Corporation v. York Montague Ltd  A.C. 191 (SAAMCo). The SAAMCo principle is a general principle of the law of damages in professional negligence cases, especially against valuers and conveyancers.
The SAAMCo case concerned a negligent overvaluation of a property. The damages were limited to the difference between the negligent valuation and the true valuation at the time; the lender claimant was not entitled to recover more than the amount it would have lost had the valuation not been negligent.
In SAAMCo, Lord Hoffman made a distinction between: (1) the duty to provide information to enable clients to decide on a course of action (Adviser of Information); and (2) the duty to advise clients what specific course of action to take (Adviser of Action). The negligent Adviser of Information is only liable for foreseeable financial consequences of the information being wrong, and not for the financial consequences of the advisee deciding to take a specific course of action. This is the case even if the information is paramount to the decision-making process. On the other hand, the negligent Adviser of Action is liable for all losses which flow from the course of action taken; this is on the basis that the adviser is responsible for the action taken.
The SAAMCo principle was approved and applied in Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd (Interest on Damages)  1 W.L.R. 1627. In that case, Lord Hoffman reiterated the two stages in the SAAMCo principle. First, ascertaining the loss which would have been avoided had there been no wrongful act. Second, awarding damages for the proportion of the loss which fell within the scope of the defendant's duty.
Lord Sumption recognised that damages awarded under the SAAMCo principle may not be "mathematically precise", but the SAAMCo principle is "essentially a legal rule which is applied in a robust way without the need for fine tuning or a detailed investigation of causation".
Despite being imperative to the question of damages in professional negligence cases, over the last two decades, the SAAMCo principle has been misunderstood and misinterpreted. Lord Sumption considered that two fundamental features of the SAAMCo principle have been disregarded. The first is that the Adviser of Information has no legal responsibility for the decision to take a particular course of action; it is only responsible for providing information to enable the advisee to make a decision. The second is that the SAAMCo principle is separate from the "causation of loss"; it is a calculation of damages.
The Supreme Court held that the purpose of the SAAMCo principle is that it "excludes loss that would still have been suffered even if the erroneous information had been true, that 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".
To help rationalise the SAAMCo principle, Lord Sumption commented on the two categories as follows:
- Adviser of Action: The adviser 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 Adviser of Action is liable for the overall riskiness of the transaction.
- Adviser of Information: The adviser 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.
In addition to professional negligence cases against negligent valuers, the SAAMCo principle is paramount to determining damages in professional negligence cases against solicitors.
Lord Sumption found that the trial judge had erroneously found BPE liable for Mr Gabriel's whole loss by applying Bristol & West Building Society v. Fancy & Jackson  4 All ER 582 (Bristol & West), which Lord Sumption found was incorrectly decided because it failed to correctly apply the SAAMCo principle.
In Bristol & West, the Court of Appeal held the conveyancer was liable for the whole loss arising out of the lender's decision to lend money to its customer to purchase a property. Lord Sumption categorised the conveyancers as Advisers of Information, who provide information to lender clients in accordance with standard practice. The lender uses this information together with the details of the amount of the valuation, the amount of the loan, and considerations as to the borrower's ability to repay the loan, in order to decide whether to advance the moneys. The conveyancers do not assume responsibility for identifying to the lender all relevant factors to make the decision and do not advise the lender whether to make the loan. Lord Sumption stated that in this case the conveyancer was an Adviser of Information and not an Adviser of Action, and therefore the conveyancer should not have been liable for the whole loss.
The Supreme Court upheld the Court of Appeal's finding that the burden of proof rests with the claimant to prove the facts which engaged the SAAMCo principle. In other words, the claimant must prove the losses suffered fell within the scope of the defendant's duty of care, and that, had the defendant not breached that duty of care, the loss would not have been suffered (even if the information provided was correct).
Prior to making the Loan, Mr Gabriel did not obtain a valuation of the Tower to ascertain its value either at the time of the Loan or after the redevelopment. In reliance of the evidence before it, the Court of Appeal held that, even if the Loan had been used to redevelop the Tower, the value of the Tower would not have increased.
Lord Sumption held that BPE had not assumed responsibility for Mr Gabriel's decision to make the Loan; BPE's clear instructions were to draw up the Loan Documents. BPE had negligently confirmed in the loan facility agreement that the intended purpose of the Loan was the redevelopment of the Tower. BPE was merely responsible for assuming Mr Gabriel's intended purpose was correct.
The next question considered was what, if any, loss was attributed to BPE's incorrect assumption. As stated above, Lord Sumption held that, even if the Loan was used to redevelop the Tower, the evidence showed that Mr Gabriel would have made the same loss as the value of the Tower would not have increased. Therefore, Mr Gabriel suffered loss as a result of a poor commercial decision to lend Mr Little's company £200,000. This was a decision taken by Mr Gabriel himself and fell outside BPE's scope of duty of care.
Almost 20 years after the SAAMCo decision, we have a welcome review and confirmation that Lord Hoffman's judgment remains good law for the purposes of ascertaining damages in professional negligence cases. However, the Supreme Court's judgment will have wide implications for professionals.
Although there are often difficulties in the mathematical calculation of the damages, as acknowledged by Lord Sumption, the SAAMCo principle nevertheless remains the key determinator of the quantum of damages in negligence cases against all types of professionals in commercial transactions.
The Supreme Court has provided useful reinforcement of the established SAAMCo principle in professional negligence cases. It reiterated the two categories of advisers and the reasoning for the distinction and the fact that Advisers of Information are only liable for losses which flow from their negligence. If the loss would have been suffered even if there had been no negligence, the professional adviser will not be liable, as was the case here.
Importantly the case establishes that conveyancers are Advisers of Information, not Advisers of Action, as incorrectly held in Bristol & West. As a result, conveyancers are liable, not for all losses, but only for losses which flow as a direct result of that negligent information. Solicitors will welcome this decision, which expands their ability to argue that certain losses fall outside their duty of care.