Supreme Court judgement:  UKSC 21
BPE Solicitors v Hughes-Holland is an important Supreme Court case which re-visited the scope of the duty rule, first outlined by Lord Hoffmann in SAAMCO. The author welcomes the clarification on the rule, and its sensible application to a complicated case.
The facts in BPE Solicitors were complicated, and this summary does not need a full account of the facts of the case. For a more detailed account, check out Lucid Law’s case summary, which can be found here.
BPE Solicitors v Hughes-Holland concerned a failed investment and development project. The lender (Mr Gabriel) expected (1) his money to be used to develop property owned by his friend (Mr Little), and (2) that the development would be a profitable. In fact, his money was only used to purchase the property outright, and in any event the project was unviable (the Supreme Court found as a matter of fact that, even if the money was used to develop the property, it would not have increased its value).
Mr Gabriel’s solicitors, BPE Solicitors, were aware that Mr Little intended to use Gabriel’s money to purchase the property, rather than develop it. Had Mr Gabriel known this, he would not have invested. Mr Gabriel therefore brought a claim against BPE Solicitors in the tort of negligence. This claim was continued by his trustee in bankruptcy, Mr Hughes-Holland, to the Supreme Court.
Having decided as a matter of fact that the development project was doomed from the outset, the Supreme Court had to decide the extent of BPE Solicitor’s liability. This required the Court to consider the scope of BPE Solicitors’ duty and whether they caused Mr Gabriel any loss.
Reasoning and analysis
Lord Sumption gave the leading judgement for the Supreme Court, with whom the rest of the Court agreed. Lord Sumption spent the majority of his judgement understanding the proper application of the SAAMCO rule, before assessing its criticisms and applying the rule to the facts.
The most interesting part of Lord Sumption’s decision is his demarcation and understanding of the distinction between the SAAMCO scope of the duty rule and causation. This is the main focus of this note.
The relationship between the scope of the duty and causation rules
Lord Sumption accepted, as was undoubted, that a defendant must cause the claimant’s loss. However, he went on to say that not everyone is liable for the consequences of their actions: causation is a necessary but not sufficient component of the tort. The Court must ultimately be satisfied that the defendant was “responsible” for the loss, which it asks through different rules of law (eg, the rule that the loss must not be too remote). He said:
the law is concerned with assigning responsibility for the consequences of the breach, and a defendant is not necessarily responsible in law for everything that follows from his act, even if it is wrongful.
It is within this category that the scope of the duty falls: a claimant must show that the defendant caused them a loss which was within the scope of their duty.
He therefore rejected the criticism made against the rule that it undermines, or negates, the need for causation. The two rules apply in tandem and, whilst they may be closely linked, are ultimately separate requirements of the tort.
The application of this distinction in SAAMCO and BPE Solicitors
In SAAMCO, valuers negligently overvalued properties which were used as security for a loan, meaning the lenders suffered a loss. This loss was increased by a fall in house prices. Lord Hoffmann held that the scope of their duty only covered the valuation itself, not the further losses caused by the fall in house prices. Therefore, his Lordship awarded the lenders the difference between the negligent valuation and the actual value of the property at the time of the valuation, representing the reduced amount of security the lenders received (and therefore lost) by virtue of the valuers’ negligence.
The same logic was applied in BPE Solicitors v Hughes-Holland. Lord Sumption again asked what the scope of the solicitor’s duty was. He used this to identify the different between what Mr Gabriel received compared to what he thought he had received. Mr Gabriel’s money was actually used to purchase property but this development failed and he lost most of his investment. By virtue of BPE Solicitor’s negligence, Mr Gabriel thought his money was being used to develop the property, rather than purchase it. However, still he would have lost all of his money because the project was unviable (he would never have received any of his investment back). Because there was no difference in value of what Mr Gabriel received and what he expected to receive, Mr Gabriel could not recover any losses from the defendant.
Viewing the SAAMCO rule as a way of determining whether the defendant was “responsible” for the claimant’s loss has given much needed clarity to the rule. Firstly, it followed that the burden of proof fell on the claimant to show that the loss was within the defendant’s duty. Secondly, it highlighted that this rule was not a negative rule, or a ‘cap’ in liability. Whilst this may in effect be how the rule operates (possibly with mathematic imprecision), the rule is a broader rule to determine in principle for what loss the claimant can recover.
Finally, it helped to improve our understanding of Lord Hoffmann’s distinction between information and advice cases. Rather than ask which category the case falls into, seen in this way the Court simply compares what the claimant received compared to what they thought they had received by virtue of the defendant’s negligence. The analysis will be slightly different depending on whether the defendant was asked to give information or advice, but the cases can now be viewed on a sliding scale rather than distinct categories.
The reasoning in BPE Solicitors v Hughes-Holland is not the easiest to understand, but this is a complicated area of the law. The Supreme Court was able to arrive at a sensible conclusion, whilst making the application of the scope of the duty rule much more clear and transferable. We might feel sorry that Mr Gabriel has lost his £200,000 investment, but must remember that investments always entail a degree of risk. Yes BPE Solicitors were negligent and should have informed Mr Gabriel that his money would be used to purchase the property, but it would be inappropriate if the tort of negligence used this to subvert the risk of an investment the claimant clearly intended to make.