Generally speaking, in negligence claims, damages are awarded to put the claimant in the position that they were in before the wrongful act was committed. It may seem that this means that you are entitled to claim for any loss that might be attributed to the wrongful act. However, it is not that simple.
Damages for negligence are subject to the principle of remoteness. This means that the damage must have been foreseeable. It must also be fair, just and reasonable in all the circumstances to attribute it to the defendant. The remoteness test limits the level of damage to which the defendant might be held liable. The principle behind this is to prevent claimants bringing claims for a cascading level of loss; whereby any possible damage that may (however remotely) be attributed to the negligence is recoverable from the defendant.
There are certain noted cases where courts have found that it would be unfair and unjust to impose liability on the defendant, even though the claimant might be able to show factually that the loss did arise from the negligence. One of the clearest examples is the so-called SAAMCO principle. This governs what type of loss is recoverable from a professional who has provided negligent advice/services for a client who is considering whether to enter into a transaction.
| The SAAMCO principle
The SAAMCO principle arises from the case of South Australia Asset Management Corporation V York Montague Ltd  UKHL 10. This was a professional negligence case against a property valuer. By the time the matter reached the House of Lords it had been joined with 3 other identical claims.
The claims themselves arose out of the property crash of the mid-1990’s. The crash caused thousands of people to default upon their mortgages. As a result, the mortgage lenders took possession of the properties with the intention of selling and recovering their mortgage advances. Unfortunately, it became apparent there had been wide-spread negligence by the valuers who the lenders had employed to value the properties for the purpose of obtaining security. The lenders made significant losses when selling the properties which had been substantially over valued by these lenders. The lenders subsequently pursued claims for professional negligence against the valuers.
The case became an argument about what type of loss the lenders could reasonably be expected liable for. Should they be held liable only for losses directly attributable to the deficient security? Or should they also be held liable for further losses attributable to the fall in the property market?
Giving the leading judgment in the House of Lords, Lord Hoffman decided that the former was correct. He identified that recoverable damages should be restricted to damages flowing from the duties which the professional accepted as part of their retainer. To illustrate this, he split professional retainers into 2 different categories; what he referred to as the “advice category” and the “information category”.
| Advice category
Hoffman explained that the advice category covers situations where a professional considers and advises a client whether or not to enter into a transaction. In these situations, the professional’s duty is to consider all relevant matters not only specific factors in a decision. If one of those matters is negligently ignored or misjudged, and this proves to be critical to the decision, the client would in principle be entitled to recover all loss flowing from the transaction.
| Information category
The information category is where a professional agrees to provide only a limited contribution to a prospective transaction. In these situations, identifying the relevant considerations and the overall assessment of the commercial merits of the transaction are the client’s responsibility, rather than the professional advisor’s. In such cases, Hoffman decided that the professional’s legal responsibility did not extend to the decision itself. It therefore followed that the professional advisor is liable only for the financial consequences of negligence in respect of the material which they provided, not for the financial consequences of the client entering into the transaction overall.
In SAAMCO the valuer provided a property valuation to the lender for the purpose of securing the loan. They had not agreed to advise the lender whether it would be a good decision to actually lend the money. For that reason, they were only liable for the losses caused directly by the overvaluations of the properties (i.e. the insufficient security). They could not be held liable for the wider losses suffered by the lender due to the lender’s own decision to enter into the loan transactions.
Have you been a victim of professional negligence and require advice on what you may be able to recover? If so our the experienced team can assist you. Call today on 0800 988 7756 for a free initial consultation.