29/03/2017
The Supreme Court has ruled that a solicitor’s firm was not responsible for the entire costs of a client's failed property transaction. The ruling will be welcome to professionals resisting liability for the consequences of their clients’ commercial misjudgements.
Background
Richard Gabriel had lent £200,000 in the expectation that the money would be used to finance the development of office space on land occupied by a disused heating tower (Building 428). The builder in fact used the money to discharge a bank loan that his operating company owed in respect of Building 428, leaving nothing to fund the development. BPE negligently drafted a facility letter which contained statements that the money would be used to fund the development. Mr Gabriel sued BPE in negligence. The court at first instance held that BPE should have explained to him that the funds would be applied for the builder’s benefit and that they had negligently misled him through the statements in the facility letter. The resulting award of damages was overturned in the Court of Appeal. The Supreme Court upheld the Court of Appeal decision in response to an appeal by Mr Gabriel’s trustee in bankruptcy.
Ruling
The Supreme Court ruled that the value of the property would not, in any event, have been enhanced by the expenditure of £200,000 on its development. It held that, as a matter of legal duty, BPE had assumed no responsibility for Mr Gabriel’s decision to lend the monies. In drafting the facility letter they were responsible only for confirming one of his assumptions about one of a number of factors in his assessment of the project, i.e. that the money would be spent on developing the site. No loss was attributable to that assumption being wrong because the expenditure of £200,000 would not have enhanced the value of the property. None of the loss suffered was within the scope of BPE’s duty or loss from which BPE was duty bound to protect him. The loss arose from commercial misjudgement which was no concern of BPE’s.
SAAMCO principle
The case affirms the legal principle that a professional is not liable for all or part of a loss — that arises from risks — which it is not part of his duty to protect his client against. This is often referred to as the ‘SAAMCO principle’, after the case of South Australia Asset Management Corpn v York Montague [1996].
The principle is particularly important where a professional adviser is negligent and the client contends that it would not have embarked on a particular course of action, such as an unsuccessful commercial transaction but for that negligence.
The BPE judgment:
Comment
Professionals will broadly welcome any support for the proposition that they should not be liable for the consequences of their client’s commercial misjudgements. Nevertheless, the application of the SAAMCO principle will continue to pose difficulties. It will always turn on the scope of the professional’s duties, which is fact sensitive.
Where a professional’s duty extends to considering all matters relevant to whether a client enters into a transaction, he is less likely to be able to resist liability for all losses that flow to the client where he is negligent. Furthermore, the identification of what loss was within the scope of a professional’s duty may raise difficult analytical issues and may even not reduce the amount in damages to which the professional is exposed.
