Benjamin Franklin tends to get the credit for suggesting that nothing is certain in life apart from death and taxes. Had the great man been alive today, I am sure he would agree with my assertion that there is a third certainty – disputes about the SAAMCO principle (formerly known as the SAAMCO cap), a legal concept that combines being attractively simple in theory with being devilishly complicated in practice.
Key point
■ Is a recent decision the last example of an appellate court having to consider the SAAMCO principle, or will the courts continue to struggle to apply it in practice?
The source of all of this legal angst is Lord Hoffmann’s leading judgment in South Australian Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93 (SAAMCO). The House of Lords grappled with the question of the correct measure of damages where: (i) a professional gives a client negligent advice; but (ii) all or part of the loss suffered by the client was nothing to do with that advice. In SAAMCO itself (and in a number of the other key judgments since), a surveyor had negligently over-valued a property. That property had subsequently fallen in value. Should the surveyor be responsible for the entire loss suffered by the client (including that loss attributable to the fall in market value) or simply to the element of over-valuation? Lord Hoffmann stressed that cause of action only related to the over-valuation:
“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.”
Lord Hoffmann also distinguished between situations where the professional was providing advice as to whether or not its client should enter into the transaction (“advice” cases) and those where the defendant contributes some of the information on which the client will rely when deciding whether or not to enter into the transaction (“information” cases).
A new era
While the idea that the defendant should only be responsible for the actual consequences of the advice being wrong seemed simple in practice, there was, until last year, a steady stream of cases on the point, all of which showed that the principle was far more difficult to apply in legal practice. However, the decision of the Supreme Court in BPE Solicitors and another v Hughes-Holland [2017] UKSC 21; [2017] EGLR 23 suggested that things might be getting easier. In that case (see Does the SAAMCO cap still fit?), Lord Sumption stressed two key points:
■ SAAMCO was relevant to information cases and not advice cases. It avoids the professional who has provided incorrect information from becoming “the underwriter of the financial fortunes of the whole transaction by virtue of having assumed a duty of care in relation to just one element of someone else’s decision”.
■ Referring to the SAAMCO principle as a cap was wrong. The principle underlying the case was “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”.
The latest case
These issues were once again considered by the Court of Appeal in Lloyds Bank plc v McBains Cooper Consulting Ltd [2018] EWCA Civ 452, in part because the first instance decision of Stuart-Smith J was handed down before Lord Sumption’s clarification of the correct legal approach to SAAMCO in BPE.
The case centred on the correct measure of damages to which the bank was entitled as a result of the negligent performance by the appellant (MCCL) as monitoring surveyor on a project to turn a disused bingo hall in Willesden into a church. Stuart-Smith J held that MCCL had breached its duty of care to the bank in two ways: (i) it failed to tell the bank that the cost of completing the project was greater than the amount of loan facility; and (ii) it negligently recommended payment from the facility for the construction of an extra floor in the development which was outside the scope of the building contract (and, therefore, the facility). The judge reduced the damages payable to the bank by one third for its contributory negligence.
The bank had failed to follow what Longmore LJ described as “elementary banking principles”, not least because it knew all along that the cost of the development (even without the construction of an extra floor) would exceed the amount of the loan. The damages awarded to MCCL were £415,439 and included all sums paid by the bank after a certain date, as well as the cost of the extra floor.
MCCL was partly successful on appeal. Longmore LJ held that the bank was only entitled to damages for the cost of the extra floor because, following BPE, the SAAMCO principle meant that the bank could not recover any damages flowing from its decision to enter into the loan in the first place. Further, the bank’s contributory negligence should be increased to two-thirds because of numerous failures (including not providing MCCL with a copy of the facility letter) described by Longmore LJ as “a formidable catalogue of irresponsibility which the judge appears to have regarded as comparatively insignificant.” MCCL only had to pay £86,597 by way of damages. Given sums already paid out, this meant it was entitled to a refund from the bank.
It remains to be seen whether this will be the last appellate hurrah for SAAMCO or the issue will continue to trouble the courts in the future.
Stuart Pemble is a partner at Mills & Reeve
