As a general principle in negligence claims, the court awards damages to put the claimant in the position that they were in before the negligence occurred. On Friday 18 June 2021, the Supreme Court handed down judgment for two cases. It is said that they are the most significant decisions on the scope of liability in negligence cases. The first of the two cases, Manchester Building Society v Grant Thornton UK LLP, is a professional negligence case. The other, Khan v Meadows is a medical negligence case. Although both cases appear unrelated and independent, the Supreme Court handed down judgment at the same time. This is because both cases are linked to what is known as the SAAMCO principle. We will look at Khan v Meadows in a separate article.

| The SAAMCO principle

The SAAMCO principle was established from the case of South Australia Asset Management Corporation V York Montague Ltd [1996]. This was a professional negligence case against a property valuer. It has become a crucial point in establishing the scope of duty owed by a professional. The SAAMCO principle confirms that in order to have a successful negligence claim, a claimant must show that their loss fell inside the scope of the defendant’s duty.

The SAAMCO principle applies to cases where the defendant’s advice to the claimant is essential in the claimant’s decision-making.  Each factor will determine the extent of the defendant’s liability in a negligence claim. The principle restricts recoverable damages to only the losses for which the relevant professional has assumed responsibility. It also establishes whether the defendant was giving the claimant direct advice or just information; established as an ‘advice case’ or an ‘information case’.  If a case is an ‘advice case’, the defendant has a full duty to advise the claimant against all the possible risks associated with taking the given advice. If a case is held to be an ‘information case’, the defendant gave only part information for which the claimant used to make a decision.

We look at the SAAMCO principle in this article.

| Manchester Building Society v Grant Thornton UK LLP

In Manchester Building Society v Grant Thornton UK LLP, the Defendant was a firm of accountants. The Claimant alleged the Defendants had provided negligent advice regarding the accounting classification for hedged mortgages. As a result of this negligent advice, the Claimant claimed losses of £32.7 million. The issue in question was whether this case was an ‘advice’ or an ‘information’ case; if the Defendant had provided advice, they would be entirely liable for the losses.

| First instance decision – High Court

In the first decision, the judge held that the Claimant was not able to recover the £32.7 million as this loss did not fall within the scope of duty principle established by SAAMCO. The judge held that the loss was as a result market forces, which was not the Defendant’s fault. The Claimant appealed this decision.

| Court of Appeal

Considering the appeal, the Court of Appeal decided that the judge had not accurately applied the principles in SAAMCO. The Court of Appeal held that this was an ‘information case’ and the losses sustained by the Claimant were not within the full scope of the Defendant’s duty of care. It considered that the Claimant could not prove that the loss would have not happened, had the advice given by the Defendant not been negligent. The Court of Appeal dismissed the Appeal. The Claimant then appealed to the Supreme Court.

| Supreme Court

On 18 June 2021, the Supreme Court overturned the decision of the Judge and the Court of Appeal. It held that the Defendant was indeed liable for the losses.

The Supreme Court stated that the court should dispense with the usual ‘advice case’ or ‘information case’ distinction. Whilst the Court acknowledged that some cases could be easily identified as an ‘advice’ or ‘information’ case, it felt that the distinction was misleading and there is often not a clear difference between the two. This moves away from the previous applications of SAAMCO. Further, from now on, Courts will not apply the ‘advice’ and ‘information’ distinction so widely when determining duty of care.

Instead of attempting to “shoe-horn” each case into an ‘advice’ or ‘information’ category, the Supreme Court held that it is more appropriate to objectively ask; what purpose was the advice supposed to serve? And what was the risk that the advice was intended to protect against? Put simply, was the professional advice intended to protect the any chance of the loss occurring? By applying six specific principles that stand as a framework for the scope of duty, (listed below) the Supreme Court implemented a more straightforward and coherent approach to establish the duty of care. Applying these principles, the Supreme Court held that the Defendant was liable for the losses, which were within the scope of its duty of care.

| Comments

The Supreme Court’s judgment on this case, as well as Khan v Meadows, will have a substantial impact on similar claims going forward. It will have a particular impact on how courts apply SAAMCO.

In professional negligence cases, the Court will now focus more on what the claimant had instructed the professional to do. As a client, it is a reminder to specifically consider defining what you have instructed a professional to advise on. The professional should review their terms and conditions to ensure that they specifically relate to their instructions, to avoid any disastrous outcome.

The Supreme Court suggested that in all questions involving potential negligent advice, the parties should address the following questions:

  1. Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence?
  2. What are the risks of harm to the claimant against which the law imposes on the defendant a duty to take care?
  3. Did the defendant breach their duty by their act or omission?
  4. Did the defendant’s act or omission cause the the loss for which the claimant seeks damages?
  5. Is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant’s duty of care as analysed at stage 2 above?
  6. Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid?

If you would like to discuss a potential professional negligence claim, our team can help. Call us on 0800 988 7756.