The Court of Appeal’s recent decision in Gabriel v Little  addresses the question whether a solicitor provides “advice” or “information” and the scope of duty under SAAMCo. A solicitor providing advice is liable for all the foreseeable loss caused by the advice being wrong but a solicitor providing information is liable only for the foreseeable consequences of the information being wrong. The “information” principle may be tested by asking what loss would have ensued if the information had been correct.
Mr Gabriel lent Mr Little, a property developer, £200,000 on terms that £270,000 was to be repaid in just over a year and was secured on a building that Mr Little would convert to offices. Mr Gabriel believed the advance was to be used for the building work. In fact, Mr Little used it to pay off bank lending secured on the property. The venture was a disaster: the building was only worth £13,000.
Mr Gabriel sued Mr Little alleging deceit – the actual use of the loan had been concealed from him. He alleged that the advance was held on a Quistclose trust and was to be used only for conversion work on the building. The facility letter stated the money was for the “costs of development”. He also sued his solicitors alleging that they knew how the money had been used but had failed to explain it to him, and their drafting of the facility letter was negligent.
At first instance, the judge dismissed the deceit and Quistclose trust claims against Mr Little but held the solicitors liable because they knew how the loan was to be used but had failed to warn Mr Gabriel. Had they done so, Mr Gabriel would not have lent the money. They also negligently drafted the facility letter. The judge treated this as a “no transaction” case – Mr Gabriel would not have made the advance if he was aware of its true purpose – and awarded Mr Gabriel his entire loss.
The Court of Appeal rejected Mr Gabriel’s appeal against the dismissal of his deceit claim against Mr Little on the facts.
However, the Court of Appeal’s treatment of the claim against the solicitors is particularly interesting:
- The solicitors were providing information not advice and so, on SAAMCo principles, they were liable only for the foreseeable consequences of their wrong information (ie, the advance was to be used for development).
- The factual evidence showed that if the information provided by the solicitors had been correct (ie, the loan was to develop the property), Mr Gabriel would still have made the loan and would still have suffered the loss.
- Accordingly, he had suffered no recoverable damage and so the claim against the solicitors failed.
Alternatively, the Court of Appeal would have reduced any award by 75 per cent on account of Mr Gabriel’s contributory negligence when he negotiated the loan. He failed to take steps to protect himself – such as obtaining a valuation, checking the building costs and linking payments to progress on the building work – which were the real cause of his loss.
The decision is helpful for solicitors and their insurers – particularly in the context of lenders’ claims. It rejects the “no transaction” approach and emphasises the operation of the SAAMCo “information” principle. In practice, there will be few cases where a lender can successfully assert that it would not have suffered any loss if the information provided by the solicitor had been correct. While institutional lenders (unlike Mr Gabriel) will no doubt turn to the contractual obligations they impose on law firms, this decision will encourage law firms and their insurers to avoid or reduce what many consider unjust claims where often only a technical breach has occurred. Not only that, the comment that a 75 per cent deduction for contributory negligence is equally good news.
That leaves the controversial decision in Steggles Palmer as one situation where the lender can recover its entire loss. It applies where the solicitor has failed to provide information to the lender that shows the transaction is not viable or tends to reveal actual or potential fraud by the borrowers. The Court of Appeal observed that this is because the solicitor is acting as an adviser not a provider of information. However, the Court of Appeal found on the facts that this case was not a Steggles Palmer situation. Accordingly, the issue whether this situation gives rise to an advisory duty remains open to question.
In summary the “no transaction” principle sees its death knell on the facts of this case but the status of Steggles Palmer remains unclear. But the decision helpfully emphasises that in “information” duty cases, the claimant’s recoverable loss is limited to the foreseeable consequences of the information being wrong. What the claimant would have done if provided with correct information is irrelevant. The point is subtle but has far reaching financial consequences.