A novel context for SAAMCo

Background

The Claimants had invested in a Jersey-based trust which had an interest in a Cirencester property. The Bank of Scotland advanced a five year loan of over £14m to fund its development, and over £100m to finance the acquisition and development of the other sites. The Bank of Scotland engaged CBRE to value the Properties for loan security purposes. CBRE valued the Properties at £143.91m.

Figures/information from CBRE’s valuation was contained in an information memorandum, provided (at a later date) by Evans Randall (via financial advisers) to the Claimant investors. The Claimants subsequently invested a total of £26.775m, and lost everything when the development project subsequently collapsed.

The Claimants investors sued Evans Randall and CBRE, alleging that both of them were in breach of duties of care to the Claimants, because the valuations in the information memorandum were (allegedly) over-stated and underpinned by factual errors.

The Defendants applied for summary judgment, relying on the SAAMCo principle.

SAAMCo and the scope of duty

The well known SAAMCo case (South Australian Asset Management Company v York Montague [1997] AC 191) limits/caps the loss that can be recovered from a negligent information-provider (eg a valuer). The Defendants sought summary judgment on the basis that investors’ losses were caused by any inaccuracy or overstatement in the valuation. This was because the security/priority arrangements (unsurprisingly) ensured that the main lender (the Bank of Scotland) got paid off first. Due to the level of loans outstanding to the Bank of Scotland, the Claimant investors would never have recovered anything anyway. Any overvaluation, therefore, made no difference.

SAAMCo provides that, where the duty is limited to providing information (rather than advice on whether, from a commercial point of view, it is advisable to proceed with a given transaction), the defendant "information-provider" (such as a valuer) would normally only be liable for the foreseeable consequences of the information being wrong. The usual application of this, for a valuer in a simple lending case, is the so-called "SAAMCo cap", which usually limits/caps a valuer’s liability at the amount by which his valuation was over stated. As a policy matter, a valuer is not liable for all a lender’s losses caused by making the loan. These may massively exceed the SAAMCO cap and may have been caused or exacerbated by the collapse in property values in the wake of the financial crisis.

The SAAMCo principle is, however, that the information-provider will be liable for all the foreseeable consequences of the information being wrong. Applying a two-stage analysis of the SAAMCo principles to the present case, it was held first that there is at least a triable issue that the Claimants would not have made their investments at all if the Defendants had not been negligent, so that the Claimants’ basic loss totalled the whole value of their investment. At the second stage, assessing the extent of the loss capable of falling within the Defendants’ duty of care, the Court held that it was arguable that the deficient information goes not just to value but more generally to the viability of the transaction as a whole. The Defendants must have known that the allegedly deficient information in the memorandum would be used as part of a decision as to whether or not to enter into the transaction. Although “quite likely” not capable of proof at trial, there is an arguable case that the loss of the full £26m investment may therefore be attributable to the over-valuation.

The Court did not think it appropriate to make a final determination on the approach to determining loss on a summary judgment application. However, it did consider (obiter) that there was force in some of the Defendants’ submissions, including that loss should be calculated on the SAAMCo cap, and on causation (ie would the investors have lost everything anyway, even if the valuation had been right?)

Going forward

This was a summary judgment application, rather than a final determination. Any case involving SAAMCo is always of interest. It will be interesting, in light of the judge’s encouragement to CBRE in the judgement, and the causation case, to see whether the Claimant investors continue with the claim.