SAAMCO v York Montague [1996] 3 All ER 365

Key point

  • This case established the SAAMCO principle: while an adviser of a course of action is liable in negligence for all foreseeable consequential loss (i.e. loss measured by but-for/factual causation, limited by foreseeability) from a course of action being taken, a provider of information is liable only for the foreseeable loss attributable to incorrect information (a legal rather than factual causation test)
  • Note that in Manchester Building Society v Grant Thornton LLP [2021] UKSC 20, the distinction between ‘advice’ and ‘information’ was rejected by the majority – see commentary

Facts

  • The defendant property surveyors (D) negligently overvalued at £15m a property worth £5m to the lender (C), and C advanced a loan of  £11m secured by a mortgage on the property
  • When the borrower defaulted, C seized possession of the properties to make a sale
  • Before the properties could be sold, the market fell and increased the C losses
  • The judge gave judgment for the plaintiffs for a sum including damages in respect of their loss attributable to market fall

Issue

  • Is C entitled to recover from D its loss attributable to the overvaluation alone or the consequential loss from the market fall as well?

Held (House of Lords)

  • D’ liability is limited to the loss generated by the overvaluation and damages for losses from market should not be granted
  • While avoiding overvaluation was within the duty of D, the risks associated with the transaction as a whole were not

Lord Hoffmann

SAAMCO Principle

  • To recover damages for negligence advice, there are two requirements: “first, to prove that he has suffered loss, and, secondly, to establish that the loss fell within the scope of the duty he was owed.”
  • A distinction was drawn in terms of the scope of duty of providers of “information” and providers of “advice”
  • Providers of “information”
    • They have “a duty to provide information for the purpose of enabling someone else to decide upon a course of action”
    • They are only liable for “all the foreseeable consequences of the information being wrong”
  • Providers of “advice”
    • They have “a duty to advise someone as to what course of action he should take”
    • They are liable for all consequential losses flowing from the course of action taken: “If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken”

Counterfactual Test

  • Lord Hoffmann proposed a ‘counterfactual test’ (as referred to in later cases such as BPE Solicitors v Hughes-Holland [2017] UKSC 21 and Manchester Building Society v Grant Thornton LLP [2021] UKSC 20) for valuing damages in an “information” case
  • “[An information provider] is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties.”

Current case

  • “The consequence of the valuation being wrong was that the plaintiffs had £10m. less security than they thought. If they had had this margin, they would have suffered no loss. The whole loss was therefore within the scope of the defendants’ duty.”

Commentary

  • c.f. Aneco Reinsurance v Johnson & Higgins [2001] UKHL 51 (adviser of action case)
    • D broker advised C to enter into an insurance treaty as the insurer on the ground that C could in turn obtain reinsurance cover for its risk on the market when in reality reinsurance was unavailable
    • D was liable not for the £11 Million loss from the lack of reinsurance cover but for C’s entire liability of £35 million under the treaty
    • The reason being that C would not have entered into the transaction had it not been advised by C on the market availability of reinsurance cover
  • The majority in Manchester Building Society v Grant Thornton LLP [2021] UKSC 20 rejected the rigid distinction between ‘advice’ and ‘information’ and held that the correct test should be whether the loss fell within the scope of the duty, which is judged on an objective basis by reference to the purpose for which the advice is being given
  • The majority in Manchester Building Society also held that the counterfactual is meant to only be a tool to cross-check the result given pursuant to analysis of the purpose of the duty and should not subsume it