Dear Colleagues;

The UK Supreme Court has handed down an interesting decision on the scope of the duty of care in negligence in BPE Solicitors & Anor v Hughes-Holland (in substitution for Gabriel) [2017] UKSC 21 (22 March 2017)  http://www.bailii.org/uk/cases/UKSC/2017/21.html . The case involves a detailed analysis of the SAAMCO principles relating to liability for economic loss caused by careless advice, and where liability stops when the loss which has been suffered is attributable to other factors than the careless advice.

In brief, a solicitor from BPE provided documentation for a loan of 200,000 GBP to be made by Mr Gabriel to a Mr Little. The documents were defective and carelessly prepared. Mr Gabriel thought he was contributing development funds to a property already owned by Mr Little. In fact Mr Little did not own the property and was using the money to purchase the property. A lot more money needed to be spend to develop the property.

After the loan was provided the development for which Mr Gabriel thought he was providing the money failed. But in fact the court held that the development was always doomed to fail as it needed more money than was provided, even if Mr Gabriels 200K had been all used for development.

Lord Sumption for the court said that the SAAMCO principle applied. He said it was not an issue of causation but a question of the “scope” of the duty assumed by the defendant. Where negligent advice is part of a “but for” chain of events which leads to harm, the giver of the advice may still not be liable for the full extent of the damage suffered, if they had not given advice relating to the actual cause of the harm. The principle more precisely is quoted from Lord Hoffmann in para [29]:

 

“It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them. 

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.” 

 

This principle was applied here. BPE had not assumed general responsibility to advise on the transaction overall. They were simply asked to draw up documents for the loan of 200K GBP after Mr Little had already made up his mind that he wanted to lend the money. Even if the transaction they were asked to facilitate: provision of money towards development, rather than purchase: had been done as requested, the overall project would still have failed due to matters which it did not lie within their duty to advise on.

 

[55] On the footing that BPE was not legally responsible for Mr Gabriel’s decision to lend the money, but only for confirming his assumption about one of a number of factors in his assessment of the project, the next question is what if any loss was attributable to that assumption being wrong. The answer is that if it had been right, Mr Gabriel would still have lost his money because the expenditure of £200,000 would not have enhanced the value of the property. The development would have been left incomplete, the loan unpaid and the property substantially worthless when it came to be sold into a depressed market under the chargee’s power of sale. None of the loss which Mr Gabriel suffered was within the scope of BPE’s duty. None of it was loss against which BPE was duty bound to take reasonable care to protect him. It arose from commercial misjudgements which were no concern of theirs. 

 

Other courts have followed the SAAMCO case, of course. In Australia on financial matters see Kenny & Good v MGICA (1999) 199 CLR 413. It may also be that the decision of the High Court of Australia in Wallace v Kam (2013) 250 CLR 375 represents something like this principle in the area of physical injury: there was failure to warn of two particular risks prior to an operation; one of the risks eventuated, but it was found that even if a warning of this risk had been given the operation would have gone ahead. The court held that causation was not established in relation to the harm that was actually suffered and hence there was no liability.

 

Regards

Neil

 

 

 

NEIL FOSTER

Associate Professor

Newcastle Law School

LLB/LLB(Hons) Program Convenor

Faculty of Business and Law

MC177 McMullin Building

 

T: +61 2 49217430

E: neil.foster@newcastle.edu.au

 

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Blog: https://lawandreligionaustralia.blog

 

 

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