Solicitor’s Duties – Liability Capped?

Solicitor’s Duties – Liability Capped?

The Supreme Court has recently deliberated on a professional negligence case against a firm of solicitors in the matter of BPE Solicitors and Anor –v- Hughes –Holland (in substitution for Gabriel). The Court considered limitation of liability and recoverable losses in accordance with the SAAMCO test (South Australia Asset Management Corp v York Montague Ltd).

Background

The Claimant in this matter instructed his solicitors in relation to a loan he intended to make to his friend’s company Whiteshore Ltd. The loan was for £200,000.00 for a period of 2 years and interest at 28% per annum. The loan was secured by way of first legal charge against the company’s development property which was due to be converted into offices. The company used £150,000.00 to pay off a loan secured on the property. It came to light once the Claimant enforced against the company and took possession of the property, that it was in fact worth only £13,000.00. The Claimant sued the firm for breach of duty in drawing up the relevant documents, namely the facility agreement.

SAAMCO Test

The SAAMCO test distinguishes between the duty of the solicitor to provide information to allow the client to decide a course of action (information duty) and the duty to advise the client on the relevant course of action (advice duty).

Advice Duty: the solicitor assumes full responsibility and owes a duty to the client to consider all the relevant factors involved in the transaction. In the event, there has been any negligent advice then the solicitor will be liable for all the foreseeable consequences of the transaction entered into.

Information Duty: this is where the solicitor provides a limited part of the material on which the client relies on before entering into the transaction. The overall assessment of the commercial viability of the transaction is solely at the discretion of the client. In the event, negligent information has been provided; the solicitor will only be liable for the financial consequence of the incorrect information and not for all of the losses.

Findings

The Judge at the first instance held that the solicitors had been in breach of their duty as they failed to inform their client of the intended purpose of the loan to the company. Therefore, the Judge awarded the Claimant all of his losses.

BPE appealed the decision; the Court of Appeal overturned the decision by applying the SAAMCO test. The Court of Appeal held that the solicitors had provided information only and did not advise the client on the course of action to take. As a result of the client entering into an information retainer the Court of Appeal held they would only consider losses attributable to the information being incorrect.

The Supreme Court confirmed the Court of Appeal’s position, as the solicitor’s had only provided the Claimant with information regarding one of many issues. The Claimant had failed to investigate the commercial risk involved in providing the loan, as he did not obtain a proper valuation of the property or assess the company’s financial situation. The Court held that in any event the Claimant would have suffered losses as they arose from commercial misjudgements and such misjudgements were not in the remit of the solicitor’s control.

This case has provided further clarity on liability and recoverable losses from solicitors when providing wrong information. It has removed any doubts that solicitors are liable for full transactional losses and that their costs are only capped to consequences of the information being incorrect.