The SAAMCO principle was developed by the Court in the 1997 case of South Australia Asset Management Corporation v York Montague Ltd [1]. Characterised as a legal filter used to eliminate certain losses from the scope of the defendant’s liability, this principle has never been straightforward to apply (neither for parties claiming an entitlement nor for a tribunal determining liability). 

This has been evidenced over the past 25 years by a number of cases in which the principle has been revised, applied or distinguished by the Courts. 

One of the main pillars of SAAMCO, before the recent judgment in the Supreme Court (see below), was a distinction between “information” and “advice” given by advisors. Historically, the position was that losses flowing from “information” would be limited to the foreseeable consequences of information being wrong, which was more limited than losses for “advice”. 

In addition, there existed a counterfactual consideration which, in the case of “information”, required consideration of the extent to which the loss would have been suffered had that information been correct. 

The Supreme Court’s view

Clarity on the SAAMCO principle has now been provided by the Supreme Court the cases of Manchester Building Society v Grant Thornton UK LLP [2]  and Khan v Meadows [3]. Distilling the main issues when considering a question of breach of duty in the tort of negligence, the court has laid down a six question framework that should be considered.

•    Step 1- Actionability: Is the harm which caused the loss actionable in the tort of negligence?

•    Step 2- Scope of duty: What are the risks of harm against which there is a duty of care?

•    Step 3- Breach of duty: Is there an actionable breach?

•    Step 4- Factual causation: Does the act or omission give rise to a claim in damages?

•    Step 5- Duty nexus: Is there sufficient nexus between the breach and the loss suffered?

•    Step 6- Legal responsibility: Are there any elements for which loss is too remote or events unforeseeable?

The approach in SAAMCO has therefore been recast. When considering a claim in breach of professional duty, it appears the Court will look at the following:

•    First, does the scope of duty sit within the six question framework (above)?; 

•    Secondly, a view on the scope of duty assumed is governed by the purpose of the duty, which is an objective test;

•    Thirdly, the prior distinction between “information” and “advice” (above) should not be rigidly adhered to and is not treated as a firm rule when it comes to assessing and considering losses; and

•    The counterfactual analysis (above) should only be treated as a tool to cross-check the purpose of duty, and not to subordinate that analysis. 

It appears, therefore, that the SAAMCO principles persist but their application is curtailed to some extent.

The court has yet to apply the new application of SAAMCO, so time will tell what impact this will have on recoverable losses resulting from negligence of professional advisors. A broader and less restrictive approach to determining the extent of an advisor’s liability may well be taken by the judiciary moving forwards. Although we note that there were dissenting justices in the Supreme Court; this was not a judgment that was decided with unanimity. 

What does this mean for the construction industry?

Construction professionals, including architects, designers and engineers may be liable to clients / other parties in respect of loss and damage caused by their negligence. Liability in tort is particularly important where a contractual claim may be unavailable.

The ‘old’ SAAMCO principles were applied in a number of notable construction cases, including Anenco Reinsurance v Johnson Higgins [4] and Equitable Life v Ernst & Young [5].  A question for the industry looking forward is whether the repositioning of SAAMCO will lead to different outcomes before the court in the future? 

It may well be the case that this repositioning of SAAMCO could lead to greater recovery against professional advisors who have been found in breach of the tort of negligence. For example, an architect who may have provided “information” that transpired to be incorrect may previously have been able to reduce financial liability on the basis of the old test. Under the new, broader approach tribunals will not be bound by such rigidity. 

The above shows that there has been a return to the basic principles of a negligence claim, removing the rigid distinction between advice and information. Due to this, the waters have been muddied and the clear distinction that once allowed advisors to frame their advice/information accordingly to manage their risk is harder to qualify.

The message for prospective claimants may be that their ability to recover in respect of negligent acts may have increased, whilst the message for professional advisors is one of prudence; the goalposts have been moved (which is perhaps more accurate than saying that the floodgates have opened). 

[1] [1997] AC 191, [1996] 3 All ER 365.

[2] [2021] [2021] UKSC 20.

[3]  [2021] UKSC 21.

[4] [2001] UKHL51.

[5] [2003] EWCA Civ 1114.

This article was written by Jessica Evans, Oliver Macrae and Alice Eckley.