SAAMCO Revisited - What Losses Will A Negligent Professional Be Liable For?

In its decision last week in BPE Solicitors and another v Hughes-Holland (in substitution for Gabriel) [2017 UKSC 21, the UK Supreme Court revisited the leading case in this area, SAAMCO. In doing so, it provided clarification which will be welcomed by professional advisers on the extent of their liability for negligence.

The Facts

Mr Gabriel agreed to lend £200,000 to a special purpose vehicle called Whiteshore for a £70,000 return. He believed that this money was to be used to develop a property belonging to a company owned by a Mr Little. In fact, the property was mortgaged and Mr Little's intention was that the loan would be used to pay off the borrowing, leaving no funding for development of the property.

Mr Gabriel instructed BPE Solicitors to produce the loan documentation. In a twist of fate, BPE based the loan documents on a previous loan document, such that the new documents they produced contained statements to the effect that the loan monies were to be used for development of the property. These statements erroneously confirmed Mr Gabriel's belief as to the use of the funds, and the loan documents were executed in this form.

The loan was not repaid by the due date and Mr Gabriel exercised his power of sale of the property. The property sold for just £13,000, which was entirely consumed by the costs of sale. Mr Gabriel brought proceedings against (among others) BPE for negligence in drawing up the loan documents.

High Court decision

At trial, the judge found that Mr Gabriel would not have entered into the scheme if he had known the purpose to which the funds would actually be put. BPE had not proved that the property development was a doomed venture from the outset, and had the loan been used to fund development costs as Mr Gabriel had erroneously believed they would be, then it could potentially have been a viable scheme. Accordingly the judge held that Mr Gabriel could have recovered his money but for BPE's negligence, and so BPE was held liable for substantially all of Mr Gabriel's losses resulting from the transaction.

Court of Appeal decision

BPE appealed the judgment and the Court of Appeal allowed the appeal. They found that the judge had been wrong to suggest it was for BPE to prove the scheme was not viable; the burden of proof was on Mr Gabriel to prove that it was and so to prove his loss. In fact, the evidence before the judge indicated that even if £200,000 had been spent on developing the property, it would not have...