How the law relating to professional negligence is changing
Professionals provide vital guidance to us and enable us to make decisions with confidence on many important matters. But what if that advice or guidance turns out to be wrong? What is the extent of a professional’s duty to us, and are we able to recover any losses that we suffer because of professional negligence?
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 restated these historic principles, and significantly changed how the scope of a professional’s duty is assessed. This offers hope for more success in claims for loss as a result of bad professional advice.
The law as it was: the SAAMCo Principle
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[1]. 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 because of 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.
“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 his duty is only to supply information,…if he is negligent, he will be responsible for all the foreseeable consequences of the information being wrong.”
In the years which followed, the SAAMCo Principle was applied to the facts of a variety of professional negligence cases. However, it 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[2]. 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[3]. 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.
The purpose of the professional advice is key
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 their proposed actions in order to be protected from the consequences of market volatility. Therefore, 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.
Role versus Relationship
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 had been 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.
For example, when an experienced surveyor provided purchasers of a property with a Homebuyer Report that failed to notice any problems with damp, he was liable not merely for the defective information he had given, but also for therefore failing to advice further investigation. If the purchasers had received all this information, they would not have purchased the property. The surveyor was therefore responsible for all the consequences of his original failure[4].
What does all this mean?
It seems more important than ever that a professional clearly sets out the purpose for which their expertise is sought, and the risk that the client wants to avoid. If, unfortunately, the wrong professional advice is given, prompt action is always important as professional negligence claims have strict time limits.
Obtaining good legal advice on all these matters is critical. Our team of professional negligence lawyers will be happy to assist you.
