Return of the Mountain Climber's knee: The Scope of a Professional Person's Duty
/BPE Solicitors and Another v Hughes-Holland (in substitution for Gabriel) [2017] UKSC 21
The scope of a professional person’s duty was famously illustrated by Lord Hoffman’s legal parable in South Australian Asset Management Corpn v York Montague Ltd [1997] AC 191 (SAAMCO).
“A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber foes on the expedition, which he would not have undertaken in the doctor has told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee.”
In SAMCO, the House of Lords held that a person who is under a duty to provide information on which another person will decide a course of action is not responsible for all the consequences of that course of action. The duty is limited to the consequences of the information being wrong and does not cover losses that would have occurred even if the information given had been correct.
In terms of Lord Hoffman’s parable, the doctor is not responsible for loss caused by the mountaineer being hit by an avalanche while sleeping in his tent but will be responsible for loss caused by the mountaineer’s knee giving way while on the mountain.
This principle distinguishes between “a duty to provide information for the purposes of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take.” In the case of providing information, a person must take reasonable care the information is correct. If this person is negligent, their responsibility will be limited to the foreseeable consequences of the information being wrong.
In Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627Lord Hoffman further clarified where the client is supplied information by the defendant but ultimately makes their decision based on a broader assessmentof risks (such as commercial and market factors) the defendant has no legal responsibility for the decision. The defendant is only liable for the financial consequences of the information being wrong and the Plaintiff must show their loss is attributable to incorrect information and that he is worse off than he would have been had that information been correct.
SAAMCO and Nykredit involved the duties of valuers. A number of subsequent cases involving conveyancing solicitors have taken a different tack. In those cases the Court held that where the solicitor ought to have reported some fact to his or her client that would have been fundamental to the client’s decision on whether or not to proceed then the whole loss flowing from the transaction is recoverable. This reasoning was applied by the UK Court of Appeal in Portmans Building Society v Bevan Ashford (a firm) [2000] PNLR 344.
In this unanimous decision, the UK Supreme Court emphatically reaffirmed the principles established in SAAMCO and Nykredit as general principle of the law of damages. The Supreme Court rejected the ‘fundamental importance’ rationale applied in the conveyancing cases.
The Supreme Court held that where a professional person provides incorrect information to a client which is used by the client to decide on a course of action the profession is not responsible for all consequences which arise from the client’s action. The professional is only responsible for loss which falls within the scope of the professional’s duty; that is the consequences of the information being wrong. However, a professional who negligently advises his or her client on whether to enter a transaction will be responsible for all loss which flows from the transaction.
So when does a professional person have a duty to provide information and when does he or she have a duty to advise? The Supreme Court said that this is inevitably fact-sensitive and that every case will turn on its own facts. However, the Court observed that a valuer or conveyancer will rarely supply more than part of the material on which the client’s decision is based and therefore be considered an information provider. Whereas an investment adviser who advises a client on the selection of stocks will likely be an adviser.
Comment
Matt Atkinson from Fee Langstone says this case will be of real use to professionals facing claims by former clients where the clients seek to pass off the impact of the client’s own poor business decisions. It reaffirms that a professional who provides information to his or her client is only responsible for the consequences of that information being wrong. However, the key will be to establish that the professional’s duty was limited to the provision of information. The New Zealand Court of Appeal in Sherwin Chan & Walshe Ltd v Jones [2012] NZCA 474; [2013] 1 NZLR 166 applied similar reasoning to hold a firm of accountants responsible for all the consequences of the client creating a particular business structure. The Court held that the firm’s obligation was not limited to the provision of information but was to advise the Trust on the best course of action to efficiently manage its taxation liability. The take out for professionals from these cases is to be extremely careful where a client seeks broad advice on the merits of a proposed transaction.
