Main & Orsv (Giambrone & Law (a firm) & Ors

This judgment is in eight parts, namely:

This is an appeal by lawyers practising in England and Italy against a judgment holding them liable to compensate clients who lost money in a disastrous ‘holiday homes’ venture. The principal issues in this appeal are whether the claimants are entitled to equitable compensation for their lost deposits and whether the losses suffered are within the scope of the lawyers’ duties.

There are 185 claimants, who live variously in England and Ireland.

The defendants are a firm of Italian lawyers, who were practising in London and Italy at the material time. The names, membership and status of the firm varied from time to time, but nothing turns on that in this appeal. I shall refer to the firm as “Giambrone”.

The moving force in that firm is an Italian advocate, Avvocato Giambrone. I shall refer to him as “Mr Giambrone”. Mr Giambrone became registered to practise in England in April 2005. In 2009 restrictions were placed on his practising certificate. Following a decision of the Solicitors’ Disciplinary Tribunal in April 2013, Mr Giambrone lost his entitlement to practise in England.

Two Italian companies who feature in the story are RDV Srl (“RDV”) and Veco Construzioni Srl (“Veco”). The administrator (i.e. director) of RDV at the material time was Mr Cuppari. The administrator of Veco at the material time was Mr Velardo.

On 20^th June 2005 the Italian Legislature enacted Legislative Decree No 122. I shall refer to this as “Decree 122”. The purpose of Decree 122 is to protect purchasers of properties which have not yet been built. Article 2 of Decree 122 provides:

Article 3 of Decree 122 requires that the surety referred to in Article 2 be a bank, insurance company or similar body registered under Article 107 of the Consolidated Law on Banking and Credit (“CLBC”).

Some banks, insurance companies and similar bodies are registered under CLBC Article 106, not 107. They have less share capital than organisations registered under Article 107. They are not acceptable as guarantors for the purposes of Article 2 and 3 of Decree 122.

Paragraph 22 of the Solicitors’ Accounts Rules 1998 provides:

From time to time the judgment under appeal refers to paragraph 15 of the Solicitors’ Accounts Rules, when clearly the judge meant to refer to paragraph 22. Nothing turns on that slip. Like all counsel, I shall treat every reference to “rule 15” as if it were a reference to rule 22.

After these introductory remarks I must now turn to the facts.

In 2006 Veco and RDV were planning to construct luxury apartments on two adjoining sites at Brancaleone in Calabria. That is on the toe of Southern Italy. Veco was planning to build 30 to 40 units on a site by the beach. This is referred to as “the Beach Front development”. RDV was planning to build 560 to 570 units on a larger site just behind Veco’s land. This is referred to as “the Main Development”. Veco and RDV hoped to sell the apartments as holiday homes to people living in the UK and Ireland. The two developments together were known as “Jewel of the Sea” (“JoTS”). RDV and Veco no doubt hoped that this enticing name would boost sales.

Unfortunately, there are allegations that the whole project was a money laundering operation organised by the IRA and the Italian Mafia, in order to recycle the proceeds of IRA criminal activities. I do not know whether those allegations are well founded. The Italian Financial Police are currently investigating the matter. They have taken possession of the entire JoTS development.

Be that as it may, the position in 2006 was that RDV and Veco wished to maximise their returns by selling the apartments before they were built. They therefore made arrangements for two individuals in the UK and Ireland to sell apartments “off plan”. Those individuals were Mr Velardo and Mr Fitzsimons. Mr Velardo was a property salesman. According to press reports produced at trial, Mr Fitzsimons was a convicted IRA terrorist.

In November or December 2006 Mr Velardo and Mr Fitzsimons met Mr Giambrone at a property exhibition in London. They told him about the planned JoTS development and said that they needed lawyers to whom they could refer prospective purchasers. Mr Giambrone agreed to accept that role.

In December 2006 Mr Velardo and Mr Fitzsimons set up a company called VFI Overseas Properties Real Estate Agent Ltd (“VFI”). VFI was registered in the Republic of Ireland on 18^th December 2006.

On 3^rd March 2007, VFI entered into two separate written agreements, one with RDV and one with Veco. These were called “JoTS mandates”. Under the mandates, VFI (described as “the AGENT”) agreed to promote the JoTS development in return for a commission of 31% of the sale prices of the units. Article V of the RDV mandate provided:

VFI prepared a glossy, coloured promotional brochure. The brochure was couched in inviting terms. It said that by purchasing a property in the JoTS development it would be possible to “live the Italian dream” at the same time as buying a property on the coast at a price which “it is estimated…will triple over the next decade”. The brochure also contained the following passage on page four:

VFI’s marketing exercise was highly successful. A large number of people living in England and Ireland agreed to buy JoTS apartments.

Each purchaser paid an initial deposit of €3,000 to VFI. Upon receipt of that money VFI notified Giambrone, who then sent a retainer letter. The retainer letters were all in similar form and included the following passages:

Subsequently Giambrone prepared a letter, which gained wide circulation (as described in paragraph 100 of the judgment below). It included the following passages:

In due course Giambrone sent to their clients a report on title and a preliminary contract for signature.

The report on title included the following passage:

In a separate letter Giambrone stated that it was only able to advise on legal aspects of the purchase. In my view, that brief passage did not have the effect of undermining the much wider obligations which Giambrone undertook in the documents quoted in paragraphs 21 - 24 above.

Upon signing the preliminary contracts, the clients paid (as they were required to do) deposits ranging between £30,000 and £105,000. Upon receipt of the deposits, Giambrone wrote to clients in the following terms:

Unfortunately, Giambrone never received from either RDV or Veco guarantees which complied with Decree 122. The guarantees which the developers provided were non-compliant. First, the issuers were registered under CLBC Article 106, not CLBC Article 107. Secondly, the guarantees lasted only for one year, rather than up to the date of completion of purchase. Some, but not all, of those guarantees were replaced by later guarantees. But again, those later guarantees came from issuers registered under CLBC Article 106 and they were only valid for one year.

Giambrone was not perturbed by those matters. It therefore proceeded to release the deposits received. It paid out 38% of those monies to RDV or Veco and 62% to VFI as commission. Giambrone did not inform its clients that such a small part of the deposits was going to the builders and such a large part was going to the promoters as commission.

Thereafter all did not go smoothly. Only a very small number of the units were completed and conveyed to purchasers. Problems came to light with the planning permissions which had been granted. Those permissions were suspended in June 2008 and all construction work stopped on site. In March 2009 stories appeared in the press about malpractice on the part of those carrying out the development. In March 2013 the Italian Financial Police took possession of the entire JoTS development because of suspected money laundering.

The final outcome was that most of Giambrone’s clients never acquired units at Brancaleone. They rescinded their contracts of purchase but were unable to recover their deposits.

Many of the disappointed purchasers took the view that Giambrone, as their solicitors, were responsible for the losses. Accordingly, they commenced the present proceedings.

A total of 185 claimants issued proceedings against Giambrone in relation to its conduct of 119 attempted purchases of properties in JoTS. Each of the claimants lives in England or the Republic of Ireland. Some claimants are represented by Penningtons Manches LLP, others are represented by Edwin Coe LLP. These two cohorts have been referred to as the “PM claimants” and the “EC claimants”. A few of the PM claimants face a limitation defence. These are referred to as the “PM limitation claimants”. There are other special features affecting individual cases, which will be important in due course but which do not affect the present appeal.

A trial of generic issues took place before Mr Justice Foskett (“the judge”) over four weeks in March 2015. The judge handed down his reserved judgment on 7^th July 2015: Various claimants v Giambrone & Law (a firm) [2015] EWHC 1946 (QB). I shall refer to this as “the July judgment”.

The judge held that Giambrone was in breach of duty to the claimants in eight respects:

Failing to tell the claimants that the guarantees did not comply with Article 3.1 of the Decree: paragraph 128.

Failing to advise on the inadequacy of the terms of the preliminary contract, particularly the apparent inability of the purchasers to terminate the contract for delay: paragraphs 184, 185.

Failing to undertake any checks additional to looking at the face of the planning permission: paragraph 326. Failing to make any inquiry into the intrinsic validity and integrity of the planning permission: paragraph 198. See also paragraphs 315, 320-322.

Paying commission to VFI out of the deposits without telling the clients the amount payable to VFI. The appellants should have told clients about the division at the outset and did not: paragraphs 375, 392 and 396. They deliberately concealed the existence of the mandates and therefore the level of commission payable to VFI from the claimants in a letter dated 29 April 2009: paragraphs 459 - 460. Failing to disclose the commission payable to VFI was also a breach of the implied duty to seek informed consent to the withdrawal of client money under rule 22 (1) of the Solicitors’ Accounts Rules and payment out in those circumstances was a breach of trust: paragraphs 282 to 284.

Failing to carry out adequate due diligence: paragraph 443. On the scope of the enhanced due diligence, see paragraphs 289, 291, 297 to 298, 302 to 303 and 306.

Failing to advise the purchasers that the non-returnable deposit of 50% was unusually high and failing to explain the reasons for this: paragraphs 362, 368, 373.

Permitting the claimants to part with and paying out the deposits when guarantees extending to the completion date were not in place: paragraph 415. The fact that the guarantees were issued by Article 106 financial institutions should have been drawn to the attention of the purchasers and should have led to no deposits being paid out. Payments were accordingly made in breach of trust (paragraph 417), breach of contract (paragraph 402) and breach of the duty of care in tort (paragraph 402 and paragraph 1 (c) of the order dated 13 January 2016).

Failing to alert purchasers to the risks of criminal activity in the construction industry in Calabria in appropriate terms, and to undertake enquiries into such activity: paragraph 437.

The original intention had been that, after the trial of the generic issues, there would be a second trial of all other issues in the litigation. In the event, however, 101 claimants or pairs of claimants found a short cut. They applied for summary judgment on the basis of the judge’s findings in the July judgment.

The judge heard the application on 29^th October 2015 and handed down his reserved judgment on 17^th November 2015: Various claimants v Giambrone & Law (a firm) [2015] EWHC 3315 (QB). I shall refer to this as “the November judgment”.

In the November judgment the judge allowed the applications for summary judgment. He held:

The majority of claimants (as listed in the court’s order) should recover as equitable compensation for breach of trust the full amount of the deposit which they had paid to Giambrone.

The PM limitation claimants should recover as equitable compensation for breach of trust that element of their deposits which Giambrone had paid out to VFI. Giambrone’s deliberate concealment defeated any limitation defence to that head of claim.

It was not appropriate to grant relief to Giambrone under section 61 of the Trustee Act 1925.

Giambrone was aggrieved by the judge’s decision. Accordingly it appealed to the Court of Appeal.

By an appellant’s notice filed on 8^th December 2015 Giambrone applied for permission to appeal on seven grounds.

On 19^th February 2016 I considered this application on the papers. I refused permission in respect of two grounds. These related to (i) the judge’s refusal to grant relief under section 61 of the Trustee Act 1925 and (ii) the judge’s decision to defer consideration of certain planning issues to the second trial.

I granted permission to appeal on the other five grounds, observing that they raised serious issues which merited argument on a full appeal. Those five grounds are:

The judge erred in awarding equitable compensation, because even if Giambrone had obtained guarantees complying with Decree 122, the claimants would have recovered nothing under those guarantees in the circumstances which arose.

The judge erred in finding that Giambrone’s payment of commission to VFI, without informing the claimants of the level of commission was a breach of trust.

The principles formulated in South Australia Asset Management Corporation v York Montague Limited [1997] AC 191 prevented the claimants from recovering part or all of their deposits either as damages for breach of contract/negligence or as equitable compensation for breach of trust.

Giambrone checked that apparently valid planning permissions were in place for JoTS. It was not under a duty to do more.

Giambrone was under no duty to warn the claimants that in Calabria there was a risk of criminal activity in the construction industry.

This appeal was argued on 27^th and 28^th June. Mr William Flenley QC leading Mr Jamie Carpenter appeared for the appellants. Ms Zia Bhaloo QC and Mr Simon Johnson appeared for the PM respondents. Mr Shantanu Majumdar appeared for the EC respondents. I am grateful to all counsel for their helpful submissions on difficult points.

Mr Flenley and Mr Carpenter had the burden of presenting this appeal on unattractive facts against an array of opponents. Because of the complexity of this case their skeleton argument, for good reason, exceeded the normal upper limit of twenty five pages. That skeleton argument is a model of its kind, which I commend to others. It sets out the facts and issues with clarity. It then concisely summarises the arguments which Mr Flenley was intending to (and did) deploy orally.

Having set the scene, I must now address the individual grounds of appeal, starting with the issue of equitable compensation.

Giambrone was obliged to hold the purchasers’ deposits until such time as it received guarantees which complied with Articles 2 and 3 of Decree 122. In the event, neither RDV nor Veco ever did supply guarantees which complied with those articles. The guarantees which RDV and Veco provided to purchasers through Giambrone were deficient in two respects, as set out in Part 2 above.

The judge found that it was a breach of trust for Giambrone to pay out the deposits to the promoters and the developers in those circumstances. On appeal Giambrone does not challenge that finding.

The central question arising on this issue is how the court should assess equitable compensation for that breach of trust. It is common ground that, perhaps surprisingly, the events at Brancaleone did not constitute a “crisis” situation which triggered the obligation of the guarantors to pay out. Throughout the turbulent events on site, neither RDV nor Veco ever became insolvent.

Against that background, Mr Flenley argues that the measure of equitable compensation must be nil. Even if Giambrone had obtained compliant guarantees before paying out the deposits, the claimants would be in no better position.

Ms Bhaloo and Mr Majumdar, on the other hand, argue that the measure of equitable compensation must be the amount of the deposits which Giambrone wrongly paid out.

Three authorities are central to the submissions on this issue. They are Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4^th) 129; Target Holdings Ltd v Redferns [1996] 1 AC 421 and AIB Group (UK) PLC v Mark Redler & Co Solicitors [2014] UKSC 58; [2015] AC 1503. In Canson solicitors failed to disclose a secret profit which they were making from sequential sales. If the purchasers had known about the secret profit, they would not have proceeded. Misfortunes followed the purchase, because a warehouse subsequently built on the property suffered damage owing to defective foundations. The purchasers recovered compensation from the solicitors for breach of fiduciary duty, but that compensation did not include any of the losses related to the warehouse. McLachlin J, who concurred in the result, rejected the suggestion that there was an analogy with damages in tort. At [154] she said:

On a number of occasions since 1991 English courts have cited the judgment of McLachlin J in Canson as reflecting English law.

In Target CG purchased a commercial property with the aid of a loan from T, a finance company. As security, T required a charge over the property. R acted as solicitors for both CG and T, the mortgagor and mortgagee. T gave £1,525,000 to the solicitors, with instructions not to pay that money out to CG until CG had bought the property and it was charged to T. In breach of trust R paid out the money to CG before the purchase was completed and the charge was in place. A month later the property was charged to T. Ultimately the finance company enforced the charge, but suffered substantial losses. There were other significant features of the case, which I need not explore for present purposes. The Court of Appeal held that R were liable to restore to T the money which R had paid away in breach of trust. The House of Lords, reversing that decision, held that T had suffered no compensatable loss. T had obtained precisely what it would have obtained if no breach of trust had occurred, namely a valid charge over the property.

Lord Browne-Wilkinson gave the leading speech, with which Lord Keith, Lord Ackner, Lord Jauncey and Lord Lloyd agreed. Lord Browne-Wilkinson cited the judgment of McLachlin J in Canson as correctly stating the relevant principles. He said at [439] that equitable compensation makes good the loss suffered by the beneficiaries “which, using hindsight and common sense, can be seen to have been caused by the breach”.

In AIB the claimant bank, A, proposed to lend £3.3 million to S, secured by a first legal charge of S’s property. That property was already subject to a charge in favour of another bank B, to secure borrowings on two accounts. A instructed their solicitors, M, to secure an enforceable first legal charge over the property and to secure the redemption of all existing charges. M failed to do that and left a sum of £309,000 owing to B, secured on the property. Ultimately S defaulted. B was repaid in full. A recovered only £867,697 after selling the property. The Supreme Court held that principles of equitable compensation required the trustee to restore the trust fund, if still in existence, to the position in which it would have been but for the trustee’s breach and, if the trust were no longer subsisting, to pay compensation to the beneficiary on the same basis. Accordingly the Supreme Court, in agreement with the lower courts, assessed the equitable compensation due to A as £273,777.

Lord Toulson and Lord Reed JJSC gave the two principal judgments, with which Lord Neuberger PSC, Baroness Hale DPC and Lord Wilson JSC agreed. Lord Toulson refused to qualify or “reinterpret” the speech of Lord Browne-Wilkinson in Target. He held that it would not be right to give redress to a beneficiary for a loss which would have been suffered if the trustee had properly performed its duties.

Lord Toulson said at [71]:

Lord Toulson concluded at [76]:

Lord Reed’s judgment went along similar lines. He came to the following conclusion:

Let me now apply the principles emerging from those authorities. The first task is to identify the duty which has been breached or the content of the obligation which has not been performed. Mr Flenley says that the duty or obligation was to procure guarantees which complied with Decree 122. Ms Bhaloo and Mr Majumdar say that it was the duty of the developers, not the solicitors, to provide compliant guarantees. The duty or obligation of the solicitors was to receive deposits from purchasers and to hold that money as custodians until the developers provided compliant guarantees.

On this issue I accept the submissions of the respondents. The essential difference between this case and Target or AIB is the solicitors’ role in relation to the security. It was not the function of Giambrone to liaise with the providers of the guarantees. Giambrone had no input into the drafting of the guarantees or any of the other formalities under Italian law. Giambrone’s role was to receive whatever guarantees the developers provided and to check whether or not they complied with Decree 122. If (and only if) the guarantees did comply, then the solicitors were under a duty to release the deposits. In the language of Lord Toulson in AIB at [76], that was “the content” of the “relevant obligation”.

The position was different in Target and AIB. In Target the solicitors were under a duty to take active steps to secure a charge over the property, before releasing the monies. In AIB the solicitors were under a duty to take active steps to secure the removal of prior charges before releasing the money.

In the circumstances which unfolded in the present case, I would characterise the solicitors’ obligation as an obligation to act as custodians of the deposit monies indefinitely. Compliant guarantees never appeared. Therefore Giambrone should have remained as custodians of the deposit monies until the preliminary contracts were rescinded, and then paid those monies back to their clients.

In Target the plaintiff’s claim failed on the “but for” test. In the present case the claimants’ claim passes the “but for” test. In AIB the claimants’ loss was limited to that which would have been recoverable in contract, because the trust was “part of the machinery for the performance of a commercial contract”. In the present case the trust was part of the machinery for the performance of the solicitors’ contract of retainer. Giambrone’s breach of contract consisted of wrongfully paying out deposit monies which it had undertaken to keep safe. The contractual measure of damages is the amount of the deposits, because those monies have now vanished. This is a case where equitable compensation and contractual damages run in tandem.

Subject to argument about South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 (which I will address Part 7 below), I therefore conclude that the judge was correct to award the amount of the lost deposits to the claimants as equitable compensation. I reject the first ground of appeal.

Giambrone held the deposits received from purchasers in its client account. Giambrone could only make withdrawals from the client account in accordance with rule 22 of the Solicitors’ Accounts Rules. I have set that rule out in Part 1 above.

The judge held that Giambrone ought to have informed its clients before paying out such a substantial part of the deposit to VFI as commission. The payment of those sums to VFI without notice to the clients was a breach of rule 22 of the Solicitors’ Accounts Rules. That was also a breach of trust: see Bristol and West Building Society v May, May and Merrimans (a firm) [1996] PNLR 138 at 158 – 159. Giambrone deliberately concealed that breach by pretending, in its letter to purchasers dated 29^th April 2009, that it had only just discovered the commission paid to VFI. Therefore the PM limitation claimants can recover the amount of the commission. There can be no limitation defence to that head of claim.

Mr Flenley submits that Chadwick J’s dictum in May, May and Merrimans has been overtaken by the Court of Appeal’s decision in Bristol and West Building Society v Mothew [1998] Ch 1. In Mothew solicitors made a misrepresentation to the lender, as a result of which they were instructed to, and did, pay over the loan monies. Millett LJ, with whom Staughton and Otton LJJ agreed, held that that was not a breach of trust. At 23 Millett LJ said:

Mr Flenley draws attention to paragraph 396 of the judge’s judgment in this case. He submits that Giambrone did not initially realise that it ought to disclose to clients the commission payments to VFI.

The difficulty with that argument lies in later passages of the judgment. At [375] the judge said:

At [459] – [460] the judge stated:

It was obvious that Giambrone ought to have disclosed the payment of such large and over-generous commissions. Giambrone appreciated this as soon as it gave serious consideration to the matter. Giambrone felt so embarrassed about its conduct that it sought to suppress the truth. In my view that package of circumstances is sufficient to “affect the conscience” of Giambrone in the manner described by Millett LJ in Mothew at 23.

I would therefore dismiss the second ground of appeal.

South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 is an authority on the measure of damages cited so often by lawyers that it is popularly known as SAAMCO. The House of Lords held that the plaintiff lenders could only recover from negligent valuers the difference between the defendants’ valuation and the correct valuation. The plaintiffs could not recover other losses flowing from the transaction, because those other losses were outside the scope of the valuers’ duty.

At 214 Lord Hoffman famously formulated the relevant principles as follows:

Judges in subsequent authorities have accepted the distinction between (1) cases where D is liable for the specific consequences of its information or advice being negligently wrong and (2) cases where D is liable for all the consequences flowing from C entering into a transaction in reliance on D’s negligent advice. But those later authorities make clear that the distinction between categories 1 and 2 does not turn on a simplistic division between “information” and “advice”. Therefore to talk about “information” and “advice” cases as counsel sometimes did in their submissions may be misleading. It is better to use the terms “category 1 cases” and “category 2 cases”, as the Court of Appeal did in Haugesund Kommune & Anr v Depfa ACS Bank [2011] EWCA Civ 33; [2011] 3 All ER 655.

In Haugesund the claimants entered “swap” transactions which WR, Norwegian lawyers, advised were permissible. That advice was wrong. The Court of Appeal held that WR were not liable for all the claimants’ losses from having entered into “swap” transactions. At [73] – [75] Rix LJ said:

Lord Millett stated the relevant principles in his dissenting judgment in Aneco Reinsurance Underwriting Ltd (in liquidation) v Johnson & Higgins Ltd [2001] UKHL 51; [2002] 1 Lloyd’s Rep 157 at [66] as follows:

The most recent and important re-statement of the SAAMCO principles is to be found in Hughes-Holland v BPE Solicitors & Anr [2017] UKSC 21; [2017] 2 WLR 1029. In Hughes-Holland G lent £200,000 to L secured upon a disused building. G mistakenly thought that L was going to spend that money on developing the property. G instructed BPE Solicitors to draw up a facility letter and charge over the building. BPE duly carried out that task. Unfortunately, the facility letter (which was based on an earlier draft for a different transaction) contained statements that the loan was a contribution to development costs. That unintentionally confirmed G’s understanding of L’s plans. The project was a failure and G lost the £200,000 which he had lent.

In the subsequent litigation the trial judge found that BPE had been negligent and awarded damages representing G’s entire loss from the transaction. The Court of Appeal allowed BPE’s appeal and reduced the damages to nil. G then became bankrupt. His trustee in bankruptcy, Mr Hughes-Holland, appealed to the Supreme Court. The Supreme Court dismissed the appeal. Lord Sumption JSC gave the only judgment. Lord Neuberger PSC and Lords Mance, Clarke and Hodge JJSC all agreed with that judgment.

Lord Sumption’s essential reasoning was that G’s losses were not within the scope of the solicitors’ duties, which were limited to the drafting of documents. Lord Sumption’s judgment provides an excellent distillation of the SAAMCO principles, as they have developed over the last 21 years.

I would serve no useful purpose by paraphrasing Lord Sumption’s judgment. I do, however, draw attention to the following features:

Lord Sumption approved the analysis of SAAMCO by Rix LJ in Haugesund: see [42]. Lord Sumption approved the analysis of SAAMCO by Lord Millett in Aneco, except that it did not deal with causation of loss: see [44]. For ease of reference, I have set out the approved passages in paragraphs 76 - 77 above.

The true distinction between categories 1 and 2 does not depend upon information or advice. The distinction lies in whether D is guiding the whole decision making process or merely providing part of the material on which C will rely: see [39] – [41]. In a category 2 case “it is left to the advisor to consider what matters should be taken into account when deciding whether to enter into the transaction”: [40].

The SAAMCO cap excludes loss that would still have been suffered even if the erroneous information had been true. That “is simply a tool for giving effect to the distinction between (i) loss flowing from the fact that as a result of the defendant’s negligence the information was wrong and (ii) loss flowing from the decision to enter into the transaction at all”.

Valuers and conveyancers usually fall into category 1. They provide part of the material on which the client bases its decision: see [44] – [47].

How do the SAAMCO principles affect the present case? The first point to note is that this was not a conventional conveyancing situation. The claimants were buying properties in Italy and had no knowledge of Italian law and conveyancing procedures. Giambrone decided what information the claimants needed and provided that information to them. The documents which I have referred to in Part 2 above show that Giambrone were (albeit imperfectly) guiding the whole decision-making process. They were telling the clients what protection they needed, what sums they should pay out and when it was safe to pay those sums out.

If and in so far as the claimants’ claims rest upon negligent information or advice, in my view this is a category 2 case. Obviously the claimants decided whether or not they wanted to buy holiday homes in Southern Italy. But having taken that primary decision, they put themselves into the hands of Giambrone as their experienced Anglo-Italian lawyers.

The actual breach with which I am concerned at this stage of the judgment is paying out sums of money to VFI and the developers in circumstances where those payments were breaches of trust and breaches of contract. The loss which those breaches caused was the disappearance of the deposit monies. The claimants were never able to get those monies back. In my view that was a direct loss, which the SAAMCO cap does not shut out.

The mere fact that the claimants can surmount the “but for” test is not the end of the matter. The claimants must establish that the loss which they suffered was within the scope of Giambrone’s duty.

That loss clearly was within the scope of Giambrone’s duty. It was Giambrone who explained to the claimants their rights, liabilities and protections under Italian law. Giambrone explained to the claimants that they would be adequately protected by guarantees complying with Decree 122. Having done all that, Giambrone proceeded to pay out the deposits when no such guarantees were in place.

In the result, therefore, the SAAMCO principles do not shut out the claimants’ claims for the deposits which they have lost. I reject the third ground of appeal.

I can deal with these two grounds of appeal more briefly. These grounds are challenges to breaches of duty (iii) and (viii) found by the judge, as set out in Part 3 above.

In relation to planning permission, the appellants argue that the judge never identified precisely what the planning problem was. Therefore he could not hold that the claimants were in breach of duty.

The difficulty with this argument is that Giambrone undertook to carry out extensive due diligence, including ensuring that there was valid planning permission. In the event, there were serious flaws in the planning permissions, such that they were suspended in June 2008. The nature of the planning problem seems to have been within the knowledge of Giambrone and its experts (see paragraphs 190-191 and 196-197 of the judgment), but they did not reveal the details.

The judge found, on the evidence, that Giambrone undertook to carry out an enhanced level of enquiry into the existence of valid planning permissions. In fact Giambrone did no more than observe that there were apparently valid planning documents. The judge held that Giambrone should have done more than that, but he left over to the second trial whether further investigation by Giambrone would have uncovered the problem.

Having regard to the terms of the retainer letter and the particular circumstances of this case, the judge was entitled to find that Giambrone undertook to carry out an enhanced level of enquiry into the planning permissions. Giambrone, but not his clients, knew perfectly well that Calabria was a “crime-ridden part of Italy” (see paragraph 105 of Giambrone’s defence in the Noel action). In cross-examination Mr Giambrone said that crime infiltrated all sectors. That included the construction sector. Any lawyer with that degree of knowledge about how things were done in Calabria would do more than merely take the planning permissions at face value. Whether Giambrone’s breach of duty in this regard had any practical consequence will be a matter for the second trial, if there is one.

I turn finally to ground 5. Giambrone did not warn the claimants about the risk of organised crime in Calabria. Quite the opposite. The documents which Giambrone sent out suggested that everything was above board and the clients were making safe investments in holiday homes.

Giambrone knew perfectly well about Mafia activities affecting all sectors in Calabria, including the construction sector. He was acting for foreign clients whose knowledge of the area was based upon VFI’s glossy brochure and the clients’ ‘inspection visits’.

The judge found that Giambrone’s failure to warn the claimants about the risks of criminal activity in the construction sector was a breach of duty. He was entitled to make that finding.

Mr Flenley submits that the judge’s decision has the effect of substantially widening the duties of conveyancing solicitors. I disagree. The judge’s decision is based upon the particular facts of this case. It has no impact on the usual scope of the duties of conveyancing solicitors in England and Wales.

Let me now draw the threads together. For the reasons set out above, I would reject all five grounds of appeal and accordingly dismiss this appeal.

I agree with Jackson LJ’s conclusion and reasoning on all grounds save ground 4. But I would like to add a little on grounds 2 and 5.

As to ground 2, I was at first dubious about whether the Judge was right to hold that Giambrone was obliged to inform its clients about the size of VFI’s commission and/or that, in consequence of it, so large a proportion of the deposit was payable to VFI rather than the relevant developer. I was not sure that the split between promoter and developer was a matter in which a purchaser in a case like this would have a legitimate interest. But the Judge’s conclusion to the contrary was based on his evidently very thorough understanding of the unusual circumstances of this particular case, including what he found to have been Giambrone’s deliberate decision to conceal the fact that it had known this information from the start; and I am not prepared to say that he was wrong.

As to ground 4, my disagreement with Jackson LJ is a matter more of form than of substance, and I will state it briefly. At para. 315 of his judgment the Judge held that Giambrone should have conducted “a degree of enquiry … higher than normal” into whether the developments had planning permission; and he appears to have decided that, since it admittedly did no more than ascertain that there were planning permissions from the comune which on their face applied to the developments, it was in breach of that enhanced duty. But he made it clear in the following paragraph that the evidence available to him did not enable him to decide what further steps could have been taken. That of course puts in issue whether the breach that he found caused any loss, which was deferred to the next stage of the trial. But to my mind it also undermines the finding of breach. I do not think that it was right for the Judge to hold in the abstract that Giambrone was in breach of an obligation to do more than he did unless and until he was in a position to identify what the further steps were. However, if I am right about this, there is no substantive difference in the nature of the enquiry required at the second stage. On either basis it will be necessary for the Judge to decide, with the benefit of such further evidence as may be called, what further steps, if any, Giambrone could and should have done to ascertain whether the developments had valid planning permission; and, if so, what information such steps would have disclosed.

As to ground 5, again, I was at first dubious whether Giambrone could really be under an obligation to advise clients about the prevalence of organised crime in the construction industry in Calabria, which might be said to go more to the overall wisdom of the purchase than to a matter within the remit of a lawyer, even a lawyer advising on a foreign purchase. But it is, again, necessary to bear in mind the very particular circumstances of this case and the width of the role undertaken by Giambrone; and I have come to the conclusion that the Judge was entitled to make the finding that he did.

I agree with Jackson LJ’s judgment including in respect of Ground 4, with which Underhill LJ disagrees. Given the disagreement, I very briefly set out my reasons for agreeing with Jackson LJ.

As set out in paragraph 34(iii) above, the judge held that Giambrone was in breach of duty to the claimants in respect of planning permission. In my view, these were breaches which the judge was entitled to find having regard to his conclusion that Giambrone was under an “enhanced level of due diligence” in respect of “checking the validity of the planning permission” (paragraph 315) based significantly on Giambrone stating in the retainer letter that the firm “would “carry out enquiries to ensure … that valid planning permission is in place …”” (paragraph 313).

The judge found that the enquiries which Giambrone had undertaken in respect of planning permission did not fulfil this enhanced level of obligation. This is not surprising because Giambrone did not accept that there was any such obligation. The judge referred to one expert who gave evidence that ““the regulatory and specialist plans” would have demonstrated the “mistake on the part of the municipality …””. The judge also gave examples of the type of additional enquiries which, in his view, were required.

As Jackson LJ says, whether the breaches of duty had any practical consequences will be a matter for the second trial, if there is one. However, this does not mean that the evidence before the judge was not sufficient for him to find that there had been such breaches, even if the judge was unable to determine whether those additional enquiries would, in fact, have discovered the problems which existed with the planning permission.