The SAAMCo principle, which limits damages for professional negligence to losses falling within the scope of a professional's duties, was revisited by the Supreme Court in 2021 in the cases of Manchester Building Society v Grant Thornton (MBS), and Khan v Meadows (Khan). The proper method of applying the so-called SAAMCo principle was clarified and the court also set out a new six-part test for establishing liability in professional negligence.
This newly clarified SAAMCo principle has also been considered by the Privy Council in the recent Trinidad & Tobago case of Charles B Lawrence & Associates v Intercommercial Bank Ltd involving two negligent professionals and the extent to which a loss was recoverable by a lender based on a surveyor's negligent valuation.
The factual background
Intercommercial Bank Ltd ("ICB") was lending $3 million secured by way of a mortgage over a portion of land, and in doing so, relied on a valuation by Charles B Lawrence & Associates (CBL).
CBL valued the land at $15 million on the assumption that, among other things, good title could be shown and planning permission would be granted for commercial development.
When both the borrower and its guarantor (who purportedly had title to the land) defaulted on the loan without making any payments, ICB sought to enforce its security.
The bank's problems were further compounded however when it was identified that the guarantor did not have good title to the land in any event, so the land could not be sold and the mortgage was of no value at all.
Decisions at first instance
ICB raised a separate negligence claim against its conveyancing attorneys for failing to properly investigate title; and that claim was settled for $2.4million.
ICB also sued CBL for over-valuing the land, arguing that it should have been valued on the basis of potential for residential, rather than commercial, development at a lower figure of $2.375 million (rather than $15 million).
At first instance, the High Court of Trinidad and Tobago found that had it not been for CBL's negligent valuation, ICB would not have entered into the loan transaction and CBL was therefore liable to the bank for the entirety of its losses. The Court of Appeal of Trinidad and Tobago upheld that decision and CBL appealed to the Privy Council, the highest court of appeal for Trinidad and Tobago.
The scope of duty
CBL argued that the SAAMCo principle should limit the losses for which it was liable to those that arose as a consequence of their overvaluation of the land, as that was the extent of CBL's scope of duty.
CBL submitted that the losses suffered by ICB should be split into two distinct categories: first the loss suffered because of that overvaluation; and secondly, the loss suffered because the title was defective (which had of course already been settled).
The Privy Council, comprising five UK Supreme Court Justices, unanimously upheld CBL's appeal, citing the decisions in MBS and Khan. The Privy Council considered:
- what was the professional's purpose in the circumstances, and
- what was the loss attributable to the professional failing in its resulting duty.
The purpose of CBL's report was to properly value the land on the basis that there was good title to it; not to advise on, or give information about, the title. Although ICB would not have entered into the loan had it not been for the negligent valuation, it was for ICB's conveyancing attorneys to advise on whether there was good title to the land. It was the overvaluation loss that was within the scope of the valuer's duty of care; not the defective title loss.
The loss recoverable by ICB from CBL was therefore assessed at $625,000, being the difference between the loan sum of $3m and the true residential value of the land at the date of the loan, assuming good title (i.e. $2.375 million). That was all that fell within the scope of CBL's duty of care. A deduction of 20% was allowed for contributory negligence on the part of the bank but judicial interest was awarded in addition.
Importance of knowing the scope of a professional's services
This case highlights the importance of carefully considering the purpose and scope of a professional's services, as explained in MBS and Khan, when assessing the true value of claims.
Professionals should ensure that they agree the scope of their instructions with clients in advance and revisit those during the course of a job to avoid 'mission creep'. In defining the scope, the purpose of the instruction should be considered. Meticulous filenotes of any discussions around scoping should also be kept.
Although the case originated outwith the jurisdiction of England & Wales, it applied English law and so confirms the court's departure from the 'SAAMCo counterfactual' analysis when assessing whether damages fall within the scope of a professional's duty, following MBS and Khan. The court did however apply the 'SAAMCo counterfactual' as a cross check as suggested by the court in MBS. However it found that was "unhelpful" as it would have resulted in this appeal being rejected, and the court reiterated that it is of "second-order importance" to establishing the scope of duty of care.
This case highlights the potential for the value of claims to be restricted as compared with the SAAMCo counterfactual approach. Caution should therefore be exercised by parties negotiating settlement of related claims. While the sum paid to ICB by its attorneys was deemed irrelevant to the valuation of the claim against CBL, the losses attributable to the valuation report could have been relevant to the value of ICB's claim against its attorneys.