BPE Solicitors and another v Hughes-Holland

Factual causation and foreseeability do not alone establish liability for professional negligence. The claimant must prove that the loss arose from a risk against which the defendant’s duty required protection.

Where an adviser assumes responsibility for the whole decision, liability may extend to all foreseeable losses flowing from the transaction. Where the adviser supplies only part of the information used by the client, liability is confined to the financial consequences of that information being wrong. This remains so even when the information was decisive and the client would otherwise have declined the transaction.

The claimant bears the burden of proving both actual loss and that the loss fell within the scope of the duty. Loss which would have occurred had the information been correct is irrecoverable.

Mr Gabriel lent £200,000 for a property-development project. He believed that the money would finance construction, but most of it was instead used to acquire the property and discharge an existing secured debt. BPE Solicitors negligently included wording in the facility agreement which confirmed Mr Gabriel’s mistaken understanding.

A Deputy Judge found BPE negligent and awarded £191,808.44 plus interest. The Court of Appeal, [2013] EWCA Civ 1513, allowed BPE’s appeal because the evidence did not show that spending £200,000 on the development would have made the transaction viable. It reduced the damages to nil.

Following Mr Gabriel’s bankruptcy, his trustee brought the appeal in BPE Solicitors and another v Hughes-Holland. The central issue was whether a professional who negligently supplies information that causes a client to enter a transaction is responsible for losses arising from risks outside the scope of the professional’s duty.

1. Disposition. The Supreme Court unanimously dismissed the appeal. Lord Sumption gave the judgment, with which Lord Neuberger, Lord Mance, Lord Clarke and Lord Hodge agreed.

2. Viability of the project. The Court of Appeal was entitled to find that expenditure of £200,000 would not have enhanced the property’s value. The development had to be substantially completed before expenditure could add value, but the available cost evidence showed that £200,000 was insufficient. The trial judge’s suggestion that some unspecified reworking of the project might have succeeded did not amount to a finding that the project was viable: paras 18–19.

3. Scope of duty. But-for causation is generally necessary, but it is not sufficient for recovery. The law must determine whether the loss resulted from the particular risk which made the defendant’s conduct wrongful. The principle in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 concerns the scope of the duty, or equivalently the extent of liability for its breach. It is not simply a conventional rule of causation or a mathematical cap on otherwise recoverable damages: paras 20–38 and 45–46.

4. Advice and information. The relevant distinction depends on the responsibility assumed. An adviser responsible for guiding the whole decision-making process must consider all relevant risks and may be liable for all foreseeable transaction losses against which proper advice should have protected the client. A professional supplying only a limited part of the material is responsible for the consequences of that information being wrong, not for the client’s overall commercial decision. Information does not become comprehensive advice merely because it was decisive or because the transaction would otherwise not have occurred: paras 39–44.

   Accordingly, the reasoning 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 was wrong insofar as it treated the gravity of omitted information, or its connection with viability or fraud, as sufficient to make a solicitor responsible for the lender’s entire decision: paras 47–52.

5. Burden and application. The claimant bears the burden of proving both loss and that it fell within the scope of the duty. BPE was retained only to draw the facility agreement and charge. It did not assume responsibility for assessing the project, its costs, the borrower’s resources or the value of the security. Even if the loan money had been used as Mr Gabriel believed, the project would have remained incomplete and the money would still have been lost. None of the loss therefore fell within BPE’s duty, and no question of contributory negligence arose: paras 53–57.

• United Kingdom Supreme Court: In BPE Solicitors and another v Hughes-Holland [2017] UKSC 21, the court unanimously dismissed the trustee’s appeal and upheld the reduction of damages to nil.
• Court of Appeal: In [2013] EWCA Civ 1513, the court allowed BPE’s appeal and reduced the damages to nil. It held that the claimant had not proved that expenditure of £200,000 would have made the development viable. It also held that any recoverable damages would have been reduced by 75% for contributory negligence.
• High Court, Chancery Division: A Deputy Judge found BPE negligent and awarded £191,808.44 plus statutory interest. The other claims were dismissed.