The key principles which need to be proved in all claims of negligence, including those involving professional advisors, were set out by the English courts decades ago, and applied for many years. But in certain cases they caused difficulties, and often limited what could be recovered in a case of professional negligence. In recent years the UK Supreme Court has significantly changed how the scope of a professional’s duty is assessed.
The ‘SAAMCo principle’ was established by the House of Lords in 1997 in the case of South Australia Asset Management Corp v York Montague Ltd. This concerned a negligent over-valuation of a property by a surveyor. The lender who had agreed a mortgage based on this valuation sold the property when the borrowers defaulted. But, as the actual value of the property was substantially less than the given valuation, and the market price had also fallen, the lender sustained an enormous loss. The court decided that the surveyor was only liable for losses within the scope of the duty of care that he owed to the lender. This meant that the lender could recover the loss caused by the over-valuation, but not the additional loss due to the fall of the market because that was a risk associated with lending in the property market, and not related to a negligent valuation.
The SAAMCo principle established that, in cases of professional negligence, recoverable damages would be limited to the extent that they fell within the scope of duty of care which the professional owed to the client. The court distinguished between a duty to provide information for the purpose of enabling someone else to decide a course of action, and a duty to advise someone as to what course of action should be taken. In the first case, they were only liable for the consequences of that information being wrong. However, if the professional had a duty to provide advice they are responsible for the consequences of any decisions made based on that advice.
Afterwards, the SAAMCo Principle was applied to the facts of a variety of professional negligence cases. However, that distinction limited the recoverability of damages, as many cases struggled to determine the specific scope of duty of care of each professional advisor. This led to misunderstanding and a lack of clarity in professional negligence claims.
REVISITING SAAMCO
In 2021, the Supreme Court provided new guidance on the determination the scope of duty and the extent of liability of professional advisers in two professional negligence cases.
The first of these cases involved negligent advice given to a small mutual building society by its auditors (Manchester Building Society v Grant Thornton UK LLP). The building society acted on this professional advice. After several years, the auditors realised their mistake and informed their client, who then incurred losses of over £32 million in order to correct the unsound advice. The auditors accepted that their advice was negligent, but said they were not liable for the building society’s losses, which arose from market forces and were outside their scope of duty to the building society. The court held that the losses fell within the scope of the duty of care assumed by the auditors, and that they were therefore liable.
The second of these cases involved negligent advice given by a GP to a patient (Khan v Meadows). The patient had sought advice from her GP in order to establish whether she was a carrier of the haemophilia gene prior to becoming pregnant. The GP led the patient to believe that any child she had would not have haemophilia. The patient became pregnant and shortly after giving birth, her son was diagnosed with having haemophilia and autism. Had the GP referred her for genetic testing, she would have known that she was a carrier of the haemophilia gene and would have undergone foetal testing when she became pregnant which would have allowed her to make a decision on whether or not to terminate her pregnancy. The court had to consider whether the GP’s the scope of duty made her liable for all the associated costs.
PURPOSE BECOMES A KEY FACTOR
In both cases the court held that the scope of the duty of care assumed by a professional is governed by the purpose of the duty, judged on an objective basis, by reference to the reason why the professional advice is being given.
In the first case, the building society originally asked the auditors for advice on its proposed actions to be protected from the consequences of market volatility. So the loss suffered by the society fell within the scope of the auditors’ duty of care, and the auditors were liable for this loss.
In the second case, the court decided that the purpose for which the patient consulted the GP was to enable her to make an informed decision about any child that she may subsequently conceive, but only in relation to the haemophilia gene. The doctor had breached her duty in this regard, but the scope of this duty did not extend to general risks that may arise in pregnancy. The doctor was therefore only liable for the consequent costs of the haemophilia, but not of autism.
Determining the losses that can be claimed from a professional who has been negligent depends on the scope of that professional’s duty. Establishing this scope is no longer about trying to decide whether advice or information has been given, but rather identifying the purpose for which the professional was engaged.
This may relate to the role normally played by a specific professional, but it will also be determined based on the relationship of the parties in each case: the reason a particular professional was engaged and all the communications between the professional and the client.
Identifying the reason why the advice was being given places greater emphasis on why the party sought advice from the professional, which will involve considering the correspondence that was exchanged, what the engagement documents said, the circumstances etc., as opposed to just looking at the engagement documents which, in a number of cases, do not set out any clear agreement as to exactly what a professional has been engaged to do. This is likely to provide a party with a wider range of losses that could be claimed than before.
If, unfortunately, the wrong professional advice is given, prompt action is always important as professional negligence claims have strict time limits.
An earlier version of this article originally appeared in Engineering Designer in September 2022.
BOX: ADVICE FOR PROFESSIONALS
It seems more important than ever that professionals clearly sets out the purpose for which their expertise is sought, as well as the risk that the client wants to avoid. If there is anything the professional is not doing/advising on, the professional should expressly set this out.
Professionals should all have insurance, and the scoping document agreed with the client may include a limitation of liability clause, which states a maximum amount for which the professional will be liable.
As a general point, professionals should keep these agreements constantly under review and update them if necessary.