South Australia Asset Management Corp v York Montague Ltd [1996] 3 All ER 365 (HL)

Facts

  • South Australian Asset Management Corporation (SAAMCO), as lender, relied on property valuations provided by York Montague Ltd when securing loans.
  • The respondent valuers negligently overstated the market value of the relevant properties.
  • Upon borrower default, SAAMCO suffered losses, as the true property values were insufficient to cover the outstanding loans.
  • The central dispute was whether the valuers were liable for all resultant lender losses or only the portion attributable to the overvaluation.

Issues

  1. Whether the valuers’ liability in negligence extended to all losses suffered by SAAMCO as a result of the transactions, or was limited to losses directly caused by the overvaluation.
  2. How the scope of a professional's duty should define the boundaries of recoverable loss in negligence claims.
  3. Whether broader financial consequences, beyond the specific breach, could be recovered from the professional.

Decision

  • The House of Lords held that valuers are only liable for losses falling within the scope of the duty assumed, not for all consequences of the transaction.
  • Recoverable losses are restricted to those directly resulting from the overvaluation, not from wider financial consequences or market fluctuations.
  • The professional is not responsible for the lender’s decision to enter the transaction or for any losses caused by market changes.
  • The scope of duty principle applies across professions, with liability confined to losses directly tied to the specific duty breached.

Legal Principles

  • The SAAMCO principle: A professional's liability in negligence is limited to losses within the scope of the duty undertaken.
  • The loss must be directly attributable to the breach, as opposed to arising merely from entry into the transaction following negligent advice or valuation.
  • The purpose and extent of the assumed duty must be analytically determined to define liability.
  • The scope of duty principle applies across various professions, provided the duty is clearly identified and the loss is directly linked to its breach.

Conclusion

The SAAMCO judgment established that, in professional negligence claims, recoverable losses are limited to those within the scope of the professional’s duty. This principle continues to shape the assessment of liability and damages in professional negligence law.

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