The application of SAAMCO to cases involving solicitors

The context of SAAMCO was negligence by valuers. The case was in fact the simultaneous hearing of several cases, including Nykredit Mortgage Bank plc v Edward Erdman Group Ltd. This latter case in due course returned for a further hearing in the House of Lords. 6 In valuers’ cases, usually the right property will have been inspected 7 and the allegation will be that, for one reason or another, an indefensible valuation figure has emerged.

The question rapidly arose as to how the principle(s) of SAAMCO applied outside the context of valuers’ work, and in particular, how the decision applied in the contexts of work of other professionals. One of the important cases has been Aneco Reinsurers Underwriting Ltd v Johnson & Higgins Ltd, 8 which was a claim against insurance brokers and itself went to the House of Lords 9 on the question of the application of SAAMCO. I have always thought that the significance of this case may have been obscured by two factors: it was not reported in the generalist law reports, and it involved complexities of insurance.

As Lord Lloyd put it: 10

‘There is no dispute as to the law. Mr Hunter QC for Aneco accepts that the brokers cannot be held liable for losses which fall outside the scope of their duty of care.’

Aneco had written insurance contracts on the basis of their understanding from the defendants that $11 million reinsurance cover would be available in the market. The defendants had been negligent to say that: no such cover was available, and if they had said that no such cover would be available Aneco would not have written the insurance cover at all. Aneco lost $35 million on the insurance they wrote. The defendants contended that they should only be liable for the disadvantage to Aneco of not having the $11 million reinsurance. The award to Aneco of the full $35 million was upheld. Lord Steyn said that the case did not involve a question of law. The key point is surely on the scope of the duty: the duty of the brokers went to protecting the insurers against the risk of writing the insurance business without the reinsurance that they wanted (a risk they were not willing to take), as distinct from the risk of having reinsurance which would cover only part of their exposure if they wrote the risk (a risk they were willing to take).

The correct analysis of the precise duty which has been breached is a matter of fundamental importance. It is essential because the question what damages may be recoverable depends on what is the scope of the duty.

In solicitors’ cases, there may be specific express duties; there will normally be the general duty of skill and care implied by section 13 of the Supply of Goods and Services Act 1982. But the precise detail of the general duty is almost infinitely variable according to factual developments during the course of the matter.

As a matter of history and timing, the Bristol and West Building Society played a central part in the development of the law, as it applies to claims against solicitors, in both England & Wales and Scotland, in the light of the SAAMCO decision. That Society was claimant, or pursuer, at the same time, in what have turned out to be leading cases in the two jurisdictions. Bristol & West Building Society v Rollo Steven & Bond 11 was decided in the Outer House (ie at first instance) by Lord Maclean on 3 April 1997. Bristol & West Building Society v Fancy & Jackson 12 was decided by Chadwick J on 22 July 1997. It was in mid-trial, adjourned part heard, on 3 April 1997, final submissions being made in the later part of that April. I led the defence of the English litigation. Lord Maclean's decision was not known to me and not cited to Chadwick J.

What might be said for Mr Clack was, I suggest, this:

• (a) The specific duty breached was the duty to draw to the claimant's attention that, on the facts as they existed and the application to those facts of the professional skill of a lawyer, the client should not part with his £600,000 or any part of it.
• (b) The precise duty breached was not failure to get security: it was (as was correctly described by the judge) failure to advise the claimant ‘… that the transaction should not be completed …’ (because at ‘completion’ the required security was not being provided).
• (c) The judge awarded damages as if the breach were failure to get security, rather than for the actual breach which occurred.

The judge cited SAAMCO, Nykredit Mortgage Bank plc v Edward Erdman Group Ltd, 13 Broker House Insurance Services Ltd v OJS Law 14 and Haugesund Kommune v Depfa Acs Bank. 15 He identified and set out two principles, which are drawn directly from words used by Lord Hoffmann in SAAMCO. 16 The judge said:

‘Thus, there is a general principle that liability is limited to ‘those consequences which are attributable to that which made the act that is wrongful’, from which it follows that it is not enough for the claimant to show that he would not have suffered the loss ‘but for’ the defendant's breach of duty. It must also be shown that the loss claimed was within the scope of the defendant's duty.’

The judge then noted that difficulties are sometimes caused by Lord Hoffmann’s terminology, and discussed the problem extensively, noting en route that McGregor on Damages observed that ‘it is difficult to lay down hard and distinct rules on the scope of the duty, and individual cases may be difficult to resolve.’

The judge observed that the ‘information or advice’ distinction mentioned by Lord Hoffmann in SAAMCO is problematic. 17

He then appears to have accepted the submission of counsel for the defendant that the distinction to be made is not between whether what was given was advice or information, but between whether whatever the solicitors provided was ‘as to a particular feature of a proposed transaction’ or‘as to whether to take the overall decision to proceed with it’.

The word ‘overall’ in this proposition is important, and the proposition is suggested to be difficult. Indeed it may be that there is difficulty in finding the right words simply because the dividing line is, as McGregor says, difficult to identify. With this proposition it is necessary to understand what is meant by the ‘overall decision’, and it is suggested that this is not a precise expression. To take the purchase of goods example: if the critical point for the prospective buyer is whether the seller will give 60 days’ credit or only 30, that may be a ‘particular feature’ of the proposed transaction to be considered, but it is the decisive factor which will in the event determine whether the parties do or do not enter into a transaction. Does that ‘particular feature’ not involve ‘the overall decision’ whether ‘to proceed with it’?

It is submitted that it is difficult to make the proposition fit with the Aneco decision, which was about a particular feature: it was for Aneco, not the brokers, to decide whether they wanted $5 million, $11 million, or $20 million of reinsurance cover, or what premium they would charge their insureds, but Aneco recovered $35 million because the brokers said that a particular feature of the proposed transaction, viz the availability of $11 million of reinsurance cover, was present, when it was not. It went directly to the question whether to proceed with the insurance transaction: what, then, does the word ‘overall’ add?

This passage in the judgment was followed by reference to Jackson & Powell on Professional Liability and to Equitable Life Assurance v Ernst & Young 18 - the latter being a strike-out case in which the Court of Appeal went on to discuss the difficulties of identifying ‘the prospective harm, or kind of harm, from which the person to whom the duty is owed falls to be protected’.

The judge then cited Aneco Reinsurers Underwriting Ltd v Johnson & Higgins Ltd, 19 Bristol & West Building Society v Fancy & Jackson, 20 Portman Building Society v Bevan Ashford, 21 and Lloyds Bank plc v Burd Pearse. 22

This citation led to the propositions that the Court of Appeal decisions in the Burd Pearse and Bevan Ashford cases confirmed the leading-case status of Bristol & West Building Society v Fancy & Jackson, 23 and that:

‘… in general, where the negligent information or advice relates to the reliability of the borrower … it will be treated … as advice as to whether the recipient should enter into the transaction, and not as mere information to help him to make the decision, and that the whole of the loss will be treated as being within the scope of the duty breached.’

One should note that this is not a proposition that in other cases the loss, or the whole of the loss will not be treated as being within the scope of the duty breached.

The trouble for the claimant was that the judge seems to have treated it as such a proposition.

The judge also noted that (on what had been referred to him) there was no previous case on precisely the same facts. As I shall show, while as far as I know that was correct with reference to England and Wales, it is incorrect in the wider sense, because the Scottish case of Preferred Mortgages Ltd v Shanks was precisely in point: if cited, it is seriously arguable that it should have been followed.

In any event, it can be said that the judge was wrong in his characterisation of the case: the advice went to the whole of the decision to enter the transaction. It is surely inconsistent to say, first, that the precise duty breached by the solicitors was that it failed to advise that ‘that the transaction should not be completed’ and second, that that advice did not go to ‘the whole of the decision to enter into the transaction’.