New Supreme Court Ruling in Professional Negligence Case

Thursday, 23rd March 2017

BPE Solicitors and another (Respondents) v Hughes-Holland (in substitution for Gabriel) (Appellant) [2017] UKSC 21

(Gabriel v Little)

On 22 March 2017, The Supreme Court upheld the Court of Appeal’s decision to dismiss a professional negligence claim against a firm of solicitors brought by a businessman who made an imprudent loan to his friend.

Backgound

Mr Gabriel loaned £200,000 to a property company controlled by his friend Mr Little. BPE, Mr Gabriel’s solicitors, were instructed to draft an agreement recording the terms of the loan and repayment. The purpose of the loan was said to be to develop a building owned by Mr Little. However, Mr Little actually used the loan monies not to develop the building but instead to redeem lending charges that had previously been secured against the building. As a result, Mr Gabriel was out of pocket and the building eventually sold for only £13,000 at auction. Mr Gabriel sued BPE alleging that had BPE advised him on the real purpose of the loan then he would not have made it and suffered his subsequent loss.

Proceedings

The first instance decision held that although BPE was not expected to advice Mr Gabriel on the commercial risks of the loan, BPE ought to have advised him of its true purpose. Had that advice been given, Mr Gabriel would not have made the loan and therefore his ‘no transaction’ case against BPE succeeded.

The Court of Appeal overturned that decision. It concluded that Mr Gabriel had not taken preventative measures that would otherwise have guarded him against making such a risky loan. In other words, he had not fully considered the risks of agreeing to make the loan to Mr Little. Significantly, it also held that even if the purpose of the loan was what Mr Little represented, it was unlikely to have made any difference to the outcome.

The Supreme Court (unanimously agreed by Lord Sumpton, Lord Neuberger, Lord Mance, Lord Clarke and Lord Hodge) upheld the Court of Appeal’s judgment that BPE was not responsible for Mr Gabriel’s loss.

Significance

The Supreme Court demonstrated that the difference between the duty of a professional solicitor in its capacity as an ‘adviser’ or ‘to provide information’ can and ought to be critical. A higher standard will be imposed on solicitors advising their clients on what action to take than solicitors who are providing information for their clients and facilitating a transaction for them.

Lord Sumpton also held that the House of Lords SAAMCo judgment in 1996 is often misunderstood. Whilst one must ascertain what loss the claimant would have avoided had the defendant performed his task carefully one should also not overlook that only the part of the loss which was within the scope of the defendant’s duty is recoverable. As a result, cases such as Steggles Palmer were overturned because a solicitor acting as a provider of information should not be held liable for failing to advise, including where that would have detected a fraud.

This judgment ought to be welcomed by professional indemnity insurers and insureds limiting their potential liability only to the precise scope of the professional’s retainer and what could have reasonably been expected of them.

A copy of the Supreme Court’s judgment can be found here.

 

This article was written by Alex Delin, Solicitor

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