Changes to the liability landscape

On 22 March 2017 the Supreme Court handed down its long awaited decision on the application of SAAMCo to claims against professionals in BPE Solicitors and another v Hughes-Holland [2017] UKSC 21.

The claim concerned advice given by solicitors to a wealthy businessman in respect of a loan to an individual borrower. The transaction was unviable from the outset and the claimant lost all of his money. The judge at first instance held that the solicitor was negligent in drawing up the facility letter and in failing to advise that the loan was going to be used for site acquisition expenses rather than developing the property. The claimant would not have entered into the transaction had he been aware of this and he was awarded the whole of the loss he sustained as a result of entering into the transaction.

The Court of Appeal overturned the judgment on loss and applied SAAMCo principles in a conventional way. The judge had been wrong to hold that the losses were the type of losses that fell within the scope of the solicitor’s duty. It was an ‘information’ rather than ‘advice’ case and no element of the loss was attributable to the information being wrong; the transaction had been unviable from the outset.

The Supreme Court upheld that decision. The solicitor had not assumed any duty for the claimant’s decision to lend. He was only responsible for failing to dispel the lender’s misunderstanding about the intended use of the funds. No part of the loss suffered was attributable to that assumption being wrong. It arose from the lender’s own commercial decisions.

Importantly the Supreme Court overturned the decisions in Steggles Palmer (one of a group of cases decided in Bristol and West Building Society v Fancy & Jackson (a firm) [1997] 4 All ER 582) and Portman Building Society v Bevan Ashford (a firm) [2000] PNLR 344. In those cases the court had held the solicitor responsible for the decision to enter into the transaction because the nature of the breach in each case meant that the lender was not able to understand the nature of the transaction that it was getting into. This was incorrect and wrongly reverted to the no transaction approach rejected in SAAMCo itself.

The decision will be hugely significant in limiting the liability of solicitors in claims going forward.

Solicitors’ duty to warn

On 21 February 2017 the Court of Appeal gave an insight into the current judicial treatment of duty to warn cases in Balogun v Boyes Sutton & Perry [2017] EWCA Civ 75. The claimant instructed solicitors to advise in connection with the proposed acquisition of a commercial lease intended for restaurant use. Following completion, a dispute arose between the claimant and the landlord over the nature of some proposed works to a pre-existing ventilation shaft. The works were not undertaken and the restaurant never opened.

At first instance the claimant asserted that the underlease did not confer a right to use the ventilation shaft, or alternatively that there was sufficient ambiguity in the drafting of the underlease that it gave rise to a duty to warn of a risk of dispute with the landlord. The claim was dismissed, with the court holding that the underlease conferred the necessary right to vent and there was no appreciable risk in the drafting that gave rise to a duty to warn.

The Court of Appeal analysed the authorities on duty to warn and referred in particular to the decision in Baker v Baxendale Walker [2016] EWHC 664 (Ch). In that case the judge suggested that where a solicitor advised in favour of an interpretation that was likely to be the correct one, it was unlikely that they would be in breach of duty for failing to warn the client that their interpretation may be wrong except where the position was finely balanced. In Balogun the Court of Appeal held that whether a solicitor is in breach of a duty to warn the client that a court may favour a different interpretation ‘will necessarily be highly fact-sensitive and will depend on the strength of the factors favouring a different interpretation and thereby giving rise to the risk’. On the facts, there was sufficient strength of those factors.

Assignment of CFAs

The Supreme Court delved into the world of CFAs and ATE premiums when it handed down its decision in Plevin v Paragon Personal Finance Limited [2017] UKSC 23 on 29 March 2017.

The claimant lost her claim at first instance but won on appeal before the Supreme Court. When her costs were assessed she recovered a success fee on her pre-1 April 2013 CFA and her ATE premium, even though the CFA had been assigned twice and the ATE policy had been varied after 1 April 2013. The defendant appealed, arguing that any success fee or ATE premium arising out of any variations made after 1 April 2013 was not recoverable.

The Supreme Court rejected that challenge. The defendant had argued that the variations to the CFAs created new agreements entered into after 1 April 2013, and so fell outside the transitionary provisions of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). Lord Sumption considered that the ‘matter that is the subject of the proceedings’ in transitionary provisions meant the underlying dispute. Although the two deeds of variation concerned the appeal stages, they were still for the same underlying dispute as the original CFA, and the full success fee was recoverable.

The recoverability of the ATE premium turned on the words requiring an insurance policy to be ‘in relation to the proceedings’. The defendant argued that the appeals were separate proceedings. This was rejected. While in some circumstances appeals are considered to be separate proceedings from the original trial, it was necessary to look at the underlying purpose and context in which the legislation was made. In this case it was to preserve rights under the previous law. A rigid interpretation would defeat that purpose. The full premium was recoverable. Lord Hodge dissented on this point. He preferred the view that the transitional provisions only protected pre-existing rights.

While this decision may be unhelpful for solicitors, the effect is going to become increasingly less relevant as the existence of pre-1 April 2013 CFAs and ATE policies fades away.

Res inter alios acta and transferred loss

On 11 April 2017 the Supreme Court handed down its decision in Lowick Rose LLP (in liquidation) v Swynson Ltd and another [2017] UKSC 32. This dealt with issues of res inter alios acta and transferred loss.

In 2006 the claimant company Swynson lent money to ESML. The loan was induced by negligent advice from the defendant accountants Lowick Rose. ESML did not perform well and Swynson advanced further funds to ESML in 2007 and 2008 by way of reasonable mitigation. In December 2008 the owner of Swynson, Mr Hunt, made a loan to ESML to enable it to repay the 2006 and 2007 loans to Swynson (which it did). Subsequently ESML ceased trading without repaying both the 2008 loan from Swynson and the further loan from Mr Hunt.

Swynson and Mr Hunt brought proceedings against the accountants seeking damages for the amount of the three loans from Swynson, including the two that had been repaid. The accountants argued that there had been no loss in relation to the two loans that had been repaid to Swynson. At first instance the court held that Mr Hunt’s loan was a collateral payment to ESML and could not be taken into account in assessing Swynson’s loss; it was entitled to recover the amount of all three loans (less recoveries unrelated to Mr Hunt’s loan). That decision was upheld by the Court of Appeal.

The Supreme Court overturned the decision. It held that the refinancing loan by Mr Hunt was not a collateral payment. The refinancing transaction was independent to the original loans and was made between different parties and for valuable consideration. Further, it discharged the very liability that represented Swynson’s loss. Mr Hunt’s loss arose out of his commercial decision to enter into the refinancing transaction and not as a result of the negligent advice.

The Supreme Court also considered and rejected Mr Hunt’s alternative cases on transferred loss and unjust enrichment. The principle of transferred loss provides a limited exception to the general rule that a claimant can only recover loss which it has suffered. It could not apply to this case because the advice was not intended to benefit Mr Hunt personally. Unjust enrichment did not apply either because Mr Hunt had got precisely what he had bargained for in making his 2008 loan to ESML.

Nick Bird is a partner and Laura Stocks a senior associate at RPC

@RPCLaw

www.rpc.co.uk