One of the most celebrated legal parables of modern times, devised by Lord Hoffmann in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191, concerns a mountaineer’s knee.
The intrepid mountaineer seeks advice from a doctor about his knee and, reassured by his opinion, goes on an expedition that he would not have undertaken had the doctor told him the true state of his knee. He suffers an injury: an entirely foreseeable consequence of mountaineering, which has nothing to do with his knee. As a result, the doctor is not liable.
How does this principle apply to conveyancers? In BPE Solicitors v Hughes-Holland [2017] UKSC 21; [2017] PLSCS 70 a firm of solicitors negligently based a draft facility letter and legal charge on documents used in a previous transaction. As a result, they contained statements that their client was making a loan of £200,000 “to “assist with the costs of the development” of a property. Unfortunately, the borrower had different intentions; he planned to use the bulk of the money to repay existing borrowings from another lender and to use the balance to discharge VAT liabilities, leaving nothing to fund development unless cash could be found elsewhere.
The transaction was a failure. The repayment date came and went without any significant construction work being carried out and, when the property eventually sold at auction, it fetched £13,000, which covered the costs of the sale. The lender gave evidence that he would not have lent the money had he known how the borrower intended to use the advance. Were his solicitors liable for the money that he lost?
Lord Sumption distinguished between a duty to provide information to enable someone to decide upon a course of action and a duty to advise someone what to do. If the duty is to advise whether or not a course of action should be taken, a professional who is negligent will be responsible for all the foreseeable loss that is a consequence of that course of action having been taken. But if his duty is only to supply information, the professional will be responsible only for the foreseeable consequences of that information being wrong.
Interestingly, the Supreme Court took the view that conveyancing solicitors ordinarily provide information, in the same way that valuers do. Furthermore, the fact that information supplied by a professional is known to be critical to a decision whether to enter into a transaction or not does not, of itself, turn an “information” case into an “advice” case.
Had the lender’s solicitors assumed responsibility for their client’s decision to lend? The Supreme Court ruled that they had not and that they were liable only for the foreseeable consequences of providing inaccurate information to the lender in the facility agreement and charge. So the question was: what loss, if any, was attributable to the mistake in the paperwork? And the answer was: none. If the statement that the money was being lent for development had been correct, the lender would still have lost all his money. The transaction had never been viable and the lender’s loss arose from his own commercial misjudgement.
Allyson Colby is a property law consultant