BPE Solicitors & Anor v Hughes-Holland (in substitution for Gabriel) [2017] UKSC 21

Mr Gabriel lent £200,000 to a friend for a property development, believing the funds would finance construction. His solicitors negligently failed to correct documentation suggesting this, when in fact the money was to repay the borrower's bank debt. The Supreme Court clarified the SAAMCO principle, holding the solicitors not liable as the loss arose from commercial misjudgements outside the scope of their duty.

Facts

Mr Gabriel, a semi-retired businessman, agreed in November 2007 to lend £200,000 to his friend Mr Little, a builder, in connection with the development of a disused heating tower (Building 428) at Kemble Airfield. Mr Gabriel believed the loan would fund the development costs. In fact, Mr Little intended to use the money to enable his company, Whiteshore Associates Ltd, to purchase the property from another of his companies (High Tech), with most of the proceeds going to discharge High Tech’s bank debt, leaving nothing for development.

Mr Gabriel instructed Mr Spencer, an assistant solicitor at BPE Solicitors, to draw up a facility letter and charge. Mr Spencer used as a template a facility letter from an earlier abortive transaction, which contained statements that the loan moneys would be used to fund the development. He negligently failed to remove these statements, which inadvertently confirmed Mr Gabriel’s mistaken understanding of the transaction.

The development never proceeded, the property was eventually sold at auction for £13,000 (absorbed by sale costs), and Mr Gabriel lost virtually his entire investment. The trial judge found that, even had the £200,000 been spent on development as Mr Gabriel believed, development costs would have far exceeded that figure, leaving the project incomplete and the property substantially worthless.

Issues

The principal issue was: where a professional adviser’s negligence causes a client to enter a transaction that the client would not otherwise have entered into, to what extent is the adviser liable for losses arising from risks that were no part of the adviser’s duty to protect the client against? More specifically, did the SAAMCO principle limit BPE’s liability such that Mr Gabriel could recover nothing, given that the loss flowed from commercial misjudgements rather than from the misinformation negligently confirmed by BPE?

A subsidiary issue concerned the burden of proof: which party must prove whether loss falls within the scope of the defendant’s duty?

Arguments

Appellant (Trustee in Bankruptcy)

Mr Halpern QC argued that the Court of Appeal was not entitled to substitute its own assessment of the viability of the development project for that of the judge. Further, he contended that Mr Gabriel was legally entitled to the whole loss flowing from a transaction he would not have entered but for Mr Spencer’s negligence. He relied on the conveyancing line of authority (notably Steggles Palmer and Portman Building Society v Bevan Ashford) for the proposition that where a defendant ought to have reported a fact fundamental to the claimant’s decision, the entire loss flowing from the transaction is recoverable.

Respondents (BPE Solicitors)

Mr Stewart QC submitted that Mr Gabriel’s loss arose from Mr Little’s over-optimistic assessment of development costs and Mr Gabriel’s own commercial misjudgements regarding the property’s value before and after development – matters for which Mr Spencer had no responsibility. BPE’s retainer was limited to drawing up the facility letter and charge. The development was never viable: £200,000 would not have completed development, so Mr Gabriel would have suffered the same loss even had the transaction proceeded as he believed.

Judgment

The Supreme Court (Lord Sumption giving the leading judgment) dismissed the appeal. The Court held that, on the evidence, the development project was not viable – the costs would have been far in excess of £200,000, and the expenditure would not have enhanced the property’s value sufficiently to enable Mr Gabriel to recover his loan.

The SAAMCO principle

Lord Sumption undertook an extensive review of South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 and the subsequent authorities. He emphasised Lord Hoffmann’s distinction between two categories: (i) cases where the professional provides information on which the client decides upon a course of action; and (ii) cases where the professional advises on what course of action to take. In the former, the defendant is responsible only for the consequences of the information being wrong; in the latter, for all foreseeable consequences of the course of action taken.

Lord Sumption stressed that the SAAMCO principle has nothing to do with causation as ordinarily understood, but with the scope of the defendant’s duty. The so-called “SAAMCO cap” is not really a cap, but rather a tool for distinguishing loss flowing from the information being wrong from loss flowing from the decision to enter the transaction.

Conveyancing cases reconsidered

Lord Sumption took the opportunity to disapprove of Chadwick J’s decision in Bristol and West Building Society v Steggles Palmer and the Court of Appeal’s decision in Portman Building Society v Bevan Ashford, insofar as those authorities held that where a solicitor’s negligence concerned a fact “fundamental” to the lender’s decision, the entire loss flowing from the transaction was recoverable. These decisions impermissibly reverted to the discredited distinction between “no transaction” and “successful transaction” cases that had been rejected in SAAMCO itself.

Burden of proof

The Court held that the legal burden of proving loss falls on the claimant, including establishing that the loss fell within the scope of the duty owed.

Application

BPE did not assume responsibility for Mr Gabriel’s decision to lend. Their instructions were limited to drawing up the facility agreement and charge. Mr Spencer knew nothing of the development’s nature, likely cost, or Mr Little’s financial capacity. This was an “information” case. Even if BPE’s implicit confirmation of Mr Gabriel’s assumption had been correct, Mr Gabriel would still have lost his money because £200,000 was insufficient to complete the development. None of the loss was within the scope of BPE’s duty.

Implications

This decision provides important clarification of the SAAMCO principle and its application beyond the valuer cases in which it originated. Key practical implications include:

First, the decision firmly re-establishes that the distinction between “no transaction” and “successful transaction” cases is irrelevant: the mere fact that a claimant would not have entered into the transaction but for the defendant’s negligence does not entitle them to recover all losses flowing from the transaction.

Second, it clarifies that most conveyancing solicitors and valuers fall within the “information” category, not the “advice” category. They contribute a discrete piece of material to the client’s overall decision but do not assume responsibility for the decision itself or for assessing the overall commercial merits of the transaction.

Third, the decision disapproves of Steggles Palmer and Portman v Bevan Ashford, removing what had been an apparent qualification to SAAMCO in conveyancing cases involving fraud or transaction viability. Lord Sumption explained that in such cases the lender remains responsible for its own decision to lend.

Fourth, the burden of proving that loss falls within the scope of the defendant’s duty rests on the claimant, which has significant practical implications for the pleading and proof of professional negligence claims.

The judgment is important to professional negligence practitioners, lenders, conveyancers, valuers, and other professional advisers. It restores doctrinal coherence to the law and limits the exposure of professionals to losses arising from commercial risks they did not undertake to assess. The decision does not, however, alter the principle that a professional who undertakes to advise on the merits of a transaction as a whole (the “advice” category) may be liable for all foreseeable losses flowing from it.

Verdict: Appeal dismissed. The Supreme Court upheld the Court of Appeal’s decision that Mr Gabriel (now represented by his trustee in bankruptcy) was entitled to no damages from BPE Solicitors. The solicitors’ negligence fell within the “information” category under the SAAMCO principle, and the loss suffered arose from commercial risks outside the scope of their duty. As no recoverable loss arose, no question of contributory negligence arose.

Source: BPE Solicitors & Anor v Hughes-Holland (in substitution for Gabriel) [2017] UKSC 21