Most will recall that in June 1997, the House of Lords delivered a unanimous judgment in South Australia Asset Management v York Montague Ltd. [1997] AC 191.

The question in South Australia was to determine, as a matter of law, the scope of the professional's duty and consequently the losses or types of loss for which it would be reasonable to hold that professional responsible. The facts and issues in South Australia are familiar to most: the lenders had sued the valuers who had given valuations which, following the severe fall in the market, appeared in retrospect to have been excessive. The lenders contended that in consequence of those negligent valuations they had lent amounts on properties which turned out to be of a lesser value than the amount of the loan.

In accepting the valuers' argument that a large part of the loss had been caused by the market fall and that the valuation was only one factor in the decision to lend, the House of Lords made a distinction between a professional's "duty to advise upon whether a course of action should be pursued" and a "duty to exercise reasonable skill and care to provide information on the basis of which someone else would decide upon a course of action". In the latter case, losses would have arisen even if the information had been correct, and they were the consequences of risks taken by the lenders. The valuation was correct as long as it reflected the true value of the property at that date. It did not matter that the lenders' losses were greater than they would have been if the valuers had provided a correct valuation.

This case has been much publicized, discussed and interpreted; but beyond the rhetorical analysis, what is of more immediate and practical relevance is to understand the principles that the Courts have subsequently drawn out of this case and applied to different professions.

Later in 1997, Lord Nicholls suggested in Nykredit Mortgages Bank Plc v Edward Erdman Group Ltd. [1997] 1 WLR 1627 that the following analysis might be helpful:

• Has the loss been sustained as a result of entering the relevant transaction?


• What portion of the loss is attributable to the inaccuracy of the information relied upon?

Although expressed somewhat differently, it appears, therefore, that through both cases the House of Lords sought to make it exceptional for a professional whose information is relied upon to enter a transaction, to be held responsible for ALL the adverse consequences of entering that transaction.

Yorkshire Enterprises Ltd. and Another v Robson Rhodes: could the loss be attributed to any other cause?
In 1998, in Yorkshire Enterprises, it was held that the inaccurate information provided by the accountants who had audited the accounts of a company had caused the claimants to invest in and lend to that company - The Court considered, in the light of South Australia, that the foreseeable adverse consequences could be attributed to the defendant's negligent misinformation (as opposed to, for example, the mismanagement of the business). The Court held that the only purpose of the information provided by the accountants was, precisely, to avoid a situation where the claimant would lose its investments: this was not a risk that the claimant was willing to take. In fact, if the accountants had not been negligent i.e. had provided the correct information, the claimant would not have made any investment at all. It was therefore held that the entire lost investment was recoverable as it could not be attributed to any other cause than the accountant's negligent misinformation.

Aneco Reinsurance Underwriting Ltd. V Johnson & Higgins Ltd.: does the professional have a duty to "advise" or merely provide information?
In 1999, in Aneco, the Court of Appeal delivered a judgment in a complex situation where the claimant in effect and summarising for the purpose of this article entered a reinsurance contract following advice from its reinsurance brokers. When the claimant later attempted to obtain payment under that contract, it was discovered that the reinsurance cover of the kind required was not in fact available on the market.

It was held that the brokers knew that the claimant would not insure the risk in the first place if it knew that no reinsurance was available and therefore had a duty to report that such reinsurance was not available. The Court held that this was a "duty to advise" case, therefore the brokers' responsibility was for the full loss which was a no greater liability than that which they thought they were undertaking.

However, LJ Aldous differed on the basis that the advice given by the brokers did not amount to "advising as to a course of action".

Leidig v the Intervention Board for Agricultural Produce: had the information been correct, would the loss have occurred regardless?
Late in 1999, in Leidig, the Court of Appeal examined the "advice/information" distinction as laid out in South Australia from the angle of whether or not the professional had been in a position to address and take responsibility for all the consequences of the claimant's chosen course of action.

In this case Mr Leidig, a farmer, was suing the Board for Agricultural Produce for having misinformed him on the quota system applicable to his farming business. Relying upon that mis-information, Mr Leidig continued farming, whilst he would have given up and sought alternative employment had he known what the quota situation really was.

His claim was rejected at first instance on the basis that the losses would have occurred even if the information provided had been true but the Court of Appeal did not rely on that argument and held that the only loss caused by the incorrect information for which the Board could be said to have taken responsibility was that Mr Leidig was liable to pay a levy under that quota system, that he was not aware of. (As it happened there was no loss because the Board waived its claim in respect of the levy).

The matter is obviously still complex and the above cases are not necessarily consistent in their interpretation of South Australia; but the following guidelines can perhaps be inferred:

1. Would the claimant have been in a better position had the alleged negligence not taken place?


2. Was the defendant providing "information" or "advice" within the meaning of South Australia?


3. What has the defendant expressly or impliedly undertaken to protect the claimant against?


4. Can it be said that although the loss might not have happened but for the alleged negligence, it was in fact caused by an extraneous factor? i.e. the negligence might have provided the occasion for the loss rather than caused it.

It would however be hasty and somewhat dangerous to rely on those questions only to assess whether or not a loss would fall within the scope of a professional's duty of care.

David Bailey 020 7544 5585 davidb@sghlaw.com