BPE Solicitors and another v Hughes-Holland

The issue on this appeal is, in summary, what damages are recoverable in a case where (i) but for the negligence of a professional adviser his client would not have embarked on some course of action, but (ii) part or all of the loss which he suffered by doing so arose from risks which it was no part of the adviser’s duty to protect his client against. The problem may be illustrated by one of the most celebrated legal parables of modern times, the story of the mountaineer’s knee devised by Lord Hoffmann in the course of argument in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191, at p 213:

Mr Richard Gabriel was adjudicated bankrupt in March 2014 and the present appeal is brought by his trustee in bankruptcy, Mr Peter Hughes-Holland. The appeal arises out of events in the days of his prosperity, when he was a semi-retired businessman with money to invest. The Judge described him as “astute”, a “hard-headed businessman” and “undoubtedly knowledgeable in the field of property and generally conversant with property dealing.”

Mr Peter Little was a builder and developer. He operated mainly through a company called High Tech Fabric Maintenance Ltd, which he owned and controlled. Until the events now to be described, Mr Little was a personal friend of Mr Gabriel.

In November 2007, the two men met in a pub. Mr Little told him that he was looking to borrow £200,000 in connection with a disused heating tower situated on Kemble Airfield in Gloucestershire, called Building 428. Mr Little gave Mr Gabriel to understand that the property belonged to him or at any rate to a company which he controlled. He said that planning permission had been granted for the development of the building as offices. He put forward a figure of about £200,000 for development costs, on the basis that he would do the building work himself using relatively inexpensive construction methods. Although Mr Little did not say so in terms, Mr Gabriel assumed that the £200,000 would be used to finance the development. After the meeting, Mr Gabriel visited the site, and formed the view that Building 428 was worth about £150,000 and that once developed it would be worth more than £400,000. Taking Mr Little’s estimate of development costs at face value, he decided that the project was viable and that he would lend the £200,000 that Mr Little needed.

From the outset, Mr Little’s intentions differed from the assumptions of Mr Gabriel. In the light of the Judge’s findings, this must be regarded as a misunderstanding. Building 428 belonged to High Tech, subject to a charge in favour of a bank which secured a loan of £150,000. Mr Little intended to transfer it to a special purpose vehicle called Whiteshore Associates Ltd, which was to be used to carry out the development. Whiteshore was to pay £150,000 to High Tech for the building, which would be paid over to the bank in discharge of the loan and the charge. The purchase by Whiteshore was to be funded from the £200,000 borrowed from Mr Gabriel and the balance used to meet High Tech’s liability for VAT. The Judge found that Mr Gabriel knew nothing about these plans, which were entirely inconsistent with his understanding of the transaction and would not have been acceptable to him. They meant that Mr Little, instead of contributing a property to the project and using the loan to develop it, proposed to contribute nothing to the project. The loan money would in effect be used to pay off a debt owed by his principal operating company to the bank, leaving nothing to fund the development unless it could be found from other sources. The Judge found that Whiteshore never had any assets or income other than Mr Gabriel’s loan and the property purchased with it, and that there was some evidence that Mr Little’s personal finances were under “some strain” from at least this time.

Mr Richard Spencer was an assistant solicitor at BPE Solicitors in Cheltenham. Mr Gabriel had instructed him earlier that year, in connection with a proposal to lend money for a rather similar scheme of Mr Little’s concerning another property, which in the event had not proceeded. Mr Gabriel decided to instruct him to draw up a facility letter and a charge over Building 428. Mr Spencer received his instructions in a rather unconventional way. The Judge found that they came not from Mr Gabriel himself but from Mr Little, in a voicemail message left on his telephone. Mr Little told him that he intended to sell Building 428 to Whiteshore and that Mr Gabriel would lend him the money. Mr Spencer at no time sought confirmation or clarification of these instructions from Mr Gabriel himself. He proceeded to draw up the facility letter and the charge. Unfortunately, he used as a template for the facility letter the document drafted for the abortive transaction earlier in the year. This contained statements to the effect that the loan moneys “will be made available as a contribution to the costs of the development of the property”, and that the purpose of the loan was to “assist with the costs of the development of the property.” Mr Spencer did not notice these statements and failed to remove them. They accordingly found their way into the documentation for Building 428 as executed, although they did not accord with Mr Little’s actual plans or with the instructions that Mr Spencer had received from him. They did, however, accord with Mr Gabriel’s understanding of what was proposed and served to confirm it.

On 7 December 2007 there was a completion meeting at BPE’s offices attended by (among others) Mr Gabriel, Mr Spencer, Mr Little and his solicitor, The Judge found that at the meeting Mr Gabriel learned for the first time that Building 428 belonged to High Tech, that it was charged to the bank and that it was intended to discharge the bank’s charge. But he was not told that this was to be funded with the loan moneys. The Judge found that Mr Gabriel was taken through the facility letter and read and noted the statements that the loan moneys were to be used to fund the development. He signed it and advanced the money on that basis. The judge found that he would not have done so if he had known the use which Mr Little in fact proposed to make of the loan moneys. The terms of the facility letter were that the loan would be drawn down on 13 December 2007 and repaid on 12 March 2009, together with a lump sum of £70,000, described as Mr Gabriel’s “return”.

The existing planning permission had been granted in February 2004 and was due to expire in February 2009. It provided for 227 square metres (2,659 square feet) of office accommodation. The Judge found that Mr Gabriel understood that the development was to be carried out in accordance with the existing planning permission, but the details do not appear to have been discussed at the time of the transaction. He recorded Mr Little’s evidence that he had always had it in mind to get planning permission for a somewhat larger office development on the site and that this possibility had been discussed with Mr Gabriel at the time of the transaction. The Judge made no finding to this effect, but it is consistent with Mr Gabriel’s evidence that he was told at the outset that the square footage would be between 3,500 and 4,000, which substantially exceeded the square footage allowed by the existing planning permission. At some stage which is unclear but appears to have been early in 2008, Mr Little applied for an enhanced planning permission. The Judge recorded various conversations in the course of 2008 and 2009 in which he told Mr Gabriel about unspecified difficulties and delays in obtaining it. In July 2009, a further application was made for enhanced planning permission, which was granted in August 2009. The new planning permission was for a development of 398 square metres (3,283 square feet), including 103 square metres (1,108 square feet) of ancillary storage, plant and equipment space and staff facilities. This roughly corresponded to the 3,500 to 4,000 feet which Mr Gabriel said had been mentioned to him in 2007. It represented a 45% increase in the usable office space and a 75% increase in the gross developed space envisaged in the original planning permission of 2004.

The transaction was a failure and Mr Gabriel lost all his money. The repayment date (12 March 2009) came and went without any significant construction work being carried out. No attempt was ever made to develop the property in accordance with either planning permission. In late 2009, Mr Gabriel took steps to exercise his power of sale. The property was put onto the market, but failed to find a buyer. Finally, in July 2010, it was sold by auction and fetched £13,000, which was entirely consumed by the expenses of sale. Whiteshore never made any payments under the facility agreement, and was eventually dissolved. Mr Gabriel recovered nothing except £8,191.56 which was paid by Mr Little personally.

Mr Gabriel sued Mr Little, Whiteshore and High Tech for fraud and negligent misrepresentation. He sued BPE for dishonest assistance in a breach of an implied trust of the loan moneys to apply them to the cost of development, and for negligence. The action was tried in May 2012 by Mr Robert Englehart QC sitting as a Deputy Judge of the Chancery Division. He dismissed all the claims against Mr Little, Whiteshore and High Tech. He held that there was no implied trust of the loan moneys, so that BPE could not be liable for dishonestly assisting a breach of it. Turning to the case against BPE in negligence, the Judge held that they had no duty to advise Mr Gabriel about the commercial risks associated with the project, but should have explained to him that the funds would be applied for Mr Little’s benefit and that in reality he was not putting anything into the project. Mr Spencer failed to do that, and indeed negligently misled Mr Gabriel by allowing statements to appear in the loan documentation which suggested the opposite.

At the trial there was an issue, which assumed decisive importance on the subsequent appeals, as to whether if the £200,000 had in fact been spent on the development, it would have enhanced the value of the property. Mr Gabriel’s case was that he was entitled to damages representing the entire loss which he had suffered by entering into the transaction, on the ground that he would not have done so had he not been misled about the proposed use of the loan moneys. BPE’s case was that Mr Gabriel’s loss arose from Mr Little’s over-optimistic assessment of the likely cost of development, coupled with his own commercial misjudgements about the likely value of the property before and after development. Mr Spencer had no knowledge of or responsibility for these matters. His instructions were limited to drawing up the facility letter and the charge. BPE sought to make this case by proving that the development project was never viable. The costs would have been greatly in excess of £200,000, with the result that when the money ran out the development would have been left incomplete and the property unsaleable. Mr Gabriel would therefore have suffered the same loss even if the transaction had proceeded as he had been led to expect.

The judge accepted Mr Gabriel’s case on this point. The critical finding was at para 90 of his judgment:

Having concluded on these grounds that Mr Gabriel might have recovered his money if the transaction had been as he thought it was, the Judge held that any loss resulting from the transaction was foreseeable, and recoverable subject to contributory negligence and mitigation. He assessed it at £191,808.44, being the advance less the amount received from Mr Little, to which statutory interest was added from the date of drawdown.

The Court of Appeal allowed the appeal. The leading judgment was given by Gloster LJ, with which Fulford and Maurice Kay LJJ agreed. She found (para 81(ii)):

Before this court, Mr Halpern QC, representing the Trustee, has attacked this result on a broad front. He submitted (i) that the Court of Appeal was not entitled to substitute its own assessment of the viability of the development project for that of the judge, and (ii) that even if it was entitled to do so, Mr Gabriel was entitled in law to the whole loss flowing from a transaction into which he would not have entered but for Mr Spencer’s negligence.

It is necessary to start with this question, because it provided the essential foundation for the Court of Appeal’s reduction of the damages to nil. Mr Stewart QC, who appeared for BPE, accepted that unless the Court of Appeal was right to find that the development project was unviable, the judge’s award of damages must be restored, subject only to abatement for contributory negligence.

I have cited the Judge’s conclusion above. Gloster LJ appears to have rejected it mainly on the ground that he applied the wrong burden of proof. She considered that Mr Gabriel had the burden of proving that the project would have been viable, and had failed to produce positive evidence to that effect. She did, however, observe that “such evidence as was before the Judge” suggested that the expenditure would not have enhanced the value of the property, albeit without identifying what evidence she had in mind.

I shall deal later in this judgment with the burden of proof, which is a question of some general importance. But it is not decisive of the issue of fact, because in my judgment the evidence sufficiently showed that the value of the property would not have been enhanced by the expenditure of £200,000 on its development. My reasons are as follows:

In my judgment, irrespective of the incidence of the burden of proof, the Court of Appeal was entitled to find that the expenditure of £200,000 would not have enhanced the value of the property. It follows from this that the factual basis of BPE’s case on damages is sound. It remains to consider its legal basis.

Courts of law, said Lord Asquith in Stapley v Gypsum Mines Ltd [1953] AC 663, 687, “must accept the fact that the philosophic doctrine of causation and the juridical doctrine of responsibility for the consequences of a negligent act diverge.” What Lord Asquith meant by the philosophic doctrine of causation, as he went on to explain, was the proposition that any event that would have not have occurred but for the act of the defendant must be regarded as the consequence of that act. In the law of damages, this has never been enough. It is generally a necessary condition for the recovery of a loss that it would not have been suffered but for the breach of duty. But it is not always a sufficient condition. The reason, as Lord Asquith pointed out, is that the law is concerned with assigning responsibility for the consequences of the breach, and a defendant is not necessarily responsible in law for everything that follows from his act, even if it is wrongful. A variety of legal concepts serves to limit the matters for which a wrongdoer is legally responsible. Thus the law distinguishes between a mere precondition or occasion for a loss and an act which gives rise to a liability to make it good by way of damages: Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360. Effective or substantial causation is a familiar example of a legal filter which serves to eliminate certain losses from the scope of a defendant’s responsibility. It is an aspect of legal causation. So too is the rule that the defendant cannot be held liable for losses that the claimant could reasonably have been expected to avoid: Koch Marine Inc v d’Amica Societa di Navigazione ARL (the “ELENA D’AMICO”) [1980] 1 Lloyd’s Rep 75. But the relevant filters are not limited to those which can be analysed in terms of causation. Ultimately, all of them depend on a developed judicial instinct about the nature or extent of the duty which the wrongdoer has broken.

This is not a new idea, although it took some time for its significance to be fully appreciated. In Roe v Ministry of Health [1954] 2 QB 66, 85, Denning LJ pointed out that questions of duty, causation and remoteness were intimately linked and all directed to the same fundamental question: “Is the consequence fairly to be regarded as within the risk?” In Council of the Shire of Sutherland v Heyman (1985) 157 CLR 424, 487, Brennan J pointed out that the statutory duty of a local authority to approve building plans could not be made the basis of a general duty to protect a subsequent purchaser against even foreseeable problems in the course of construction:

In Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388, the Privy Council reframed an issue which had been presented as depending on remoteness of damage in terms of the scope of the duty owed in tort. Viscount Simonds, delivering the advice of the Board, observed, at p 425:

In Caparo Industries plc v Dickman [1990] 2 AC 605, the House of Lords held that a company’s auditor was not liable for negligent statements in his statutory report which led the plaintiff to make an offer for the company’s shares. The reason was that the purpose of the auditor’s report was limited to enabling shareholders to make informed decisions about the exercise of their rights under the constitution of the company. It followed that no duty was owed to non-shareholders. It also followed that, although a duty was owed to shareholders, the auditor’s legal responsibility to them did not extend to investment decisions that they might make in reliance on his report. Lord Bridge, citing Brennan J’s observation, said (p 627):

This principle underwent considerable development as a result of a number of cases arising from the negligent valuation of property for security purposes before the property crash of the early 1990s. The leading case is the decision of the House of Lords in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 (“SAAMCO”), but the principle for which it is authority was subsequently elaborated in two further decisions of the House, Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (formerly Edward Erdman) (No 2) [1997] 1 WLR 1627 and Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190.

The SAAMCO litigation involved a number of actions which had been decided together in the High Court by Phillips J under the title Banque Bruxelles Lambert SA v Eagle Star Insurance Co [1995] 2 All ER 769. He held that the valuer was not liable for that proportion of the lender’s loss on the loan which was attributable to the fall in the market after the valuation date, even though (i) the lender would not have entered into the transaction but for the valuer’s negligence; (ii) in some of the cases the lender would not even have lent a lesser sum, either because a lesser loan would have fallen outside its lending guidelines or because it would have been of no interest to the borrower; and (iii) adverse market movements were foreseeable. The reason, as expressed in the submission of counsel which Phillips J accepted (p 805), was that the lender

The Court of Appeal [1995] QB 375 reversed Phillips J’s decision on damages and rejected the principle which he had applied. They distinguished between “no transaction cases”, in which the transaction would not have proceeded but for the defendant’s negligence and “successful transaction” cases in which it would have proceeded but possibly on different terms or for a different amount. The Court of Appeal held that once it was proved that the lender would not have made the particular loan but for the valuer’s negligence, the valuer was liable for the entire loss flowing from the transaction so far as it was foreseeable.

The House of Lords allowed the appeal. They accepted the principle underlying Phillips J’s decision, but their reasoning was more elaborate and the way in which they applied it was different. The leading speech was delivered by Lord Hoffmann, with whom the rest of the Appellate Committee agreed. The essential distinction which underlies the whole of his analysis is between the assessment of the loss caused by the breach of duty and the extent of the defendant’s duty to protect the claimant against it. Referring to the principle applied by the Court of Appeal, that damages should be such as to put the claimant as nearly in the position that he would have been in had the breach not occurred, Lord Hoffmann said, at p 211:

He then referred to the nature of the valuer’s duty in the case before him. The purpose of the valuation was to form part of the material on which the lender was to decide whether, and if so how much he would lend, what margin, if any would sufficiently allow for foreseeable valuation errors or a future fall in the market, accidental damage to the property and any other contingencies that may happen.

Against this background, Lord Hoffmann expressed the principle thus, at p 214:

Lord Hoffmann did not, however, assess the damages as Phillips J had done, by simply stripping out the proportion of the loss that could be attributed to the fall in the market. Instead, he limited the damages to the difference between the valuation and the true value, on the ground that the recoverable loss could not exceed what the lender would have lost if the valuation had been correct: see pp 222-223. In effect this meant that although the measure for breach of warranty differs from the measure of damages for breach of a duty of care, the loss attributable to the negligence which caused the valuation to be wrong could not exceed what the lender could have claimed if the valuer had warranted that it was right. Lord Hoffmann derived this principle from the earlier decisions of the House in Swingcastle Ltd v Alastair Gibson [1991] 2 AC 223 and Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1991] 2 AC 249. He justified it on more general grounds at pp 213-214:

The principle thus stated is, as Professor Murdoch has described it in an illuminating article, an “essentially negative one”: ‘Negligent Valuers, Falling Markets and Risk Allocation’, [2000] 8 Tort Law Review, 183, 198. The lender is prima facie entitled to the entire loss flowing from his entry into the loan transaction, except those which would still have been suffered if the property had been worth what the valuer said it was worth. In the follow-on appeal in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd [1997] 1 WLR 1627, Lord Nicholls, with the concurrence of the rest of the Appellate Committee, described the two stages of the inquiry at p 1631. The first stage in a case where the lender would not have entered into the transaction but for the breach of duty, was to compare the position had he not entered into it with his actual position. This meant comparing the amount of the loan with the value of the real and personal rights obtained. Turning to the second stage, he said:

This has commonly been referred to as the “SAAMCO cap”, as indeed it was in the course of argument in this case. But Lord Hoffmann himself, at pp 219-220, rejected the label, essentially because the two stages described by Lord Nicholls were directed to different things. The first involved ascertaining what loss the claimant would have avoided if the defendant had performed his task carefully, as he should have done, whereas the second involved awarding only that part of the loss which was within the scope of the defendant’s duty. He put it this way:

Lord Hoffmann made a similar point in his speech in the Nykredit appeal, again with the concurrence of the rest of the Committee. After explaining that the true measure of damages was the loss attributable to the information being wrong, he said:

The decision in SAAMCO has often been misunderstood, not least by the writers who have criticised it. The misunderstanding arises, I think, from a tendency to overlook two fundamental features of the reasoning.

The first is that where the contribution of the defendant is to supply material which the client will take into account in making his own decision on the basis of a broader assessment of the risks, the defendant has no legal responsibility for his decision. Lord Hoffmann made this point in the Nykredit case. Speaking of the decision in SAAMCO, he said (p 1638):

The second fundamental feature of the reasoning follows from the first. It is that the principle has nothing to do with the causation of loss as that expression is usually understood in the law. Lord Hoffmann made this point immediately after the observation which I have quoted from Nykredit:

Once the reasoning in SAAMCO and Nykredit is properly understood, it is possible to address some of the criticisms which have been directed against them, criticisms which Mr Halpern QC has adopted on behalf of the Trustee on this appeal. They revolve around three main matters. The first is the question whether it is correct to describe the limitation on damages in SAAMCO and Nykredit as having nothing to do with causation. The second is the distinction between information and advice in Lord Hoffmann’s formulation of the principle. The third is the operation of the so-called “cap” or, as I would prefer to call it, the restriction on the damages that may be recovered.

The first criticism was among those made by Professor Jane Stapleton in a case note on SAAMCO, “Negligent valuers and falls in the property market” (1997) 113 LQR 1. She argued (p 3) that it was always necessary to determine what the consequences of the breach of duty were even though it was also necessary to determine for which of those consequences liability should attach, e.g. all foreseeable consequences or only certain foreseeable ones. This criticism, which was put before the Appellate Committee in Nykredit, may have influenced the two-stage analysis adopted by Lord Nicholls and Lord Hoffmann in that case: see paras 32-33 above. Lord Hoffmann himself, speaking extra-judicially has subsequently acknowledged its force: “Causation”, (2005) 121 LQR 592. “When one considers what causal relationship is required,” he observes at p 596,

Turning to the distinction between advice and information, this has given rise to confusion largely because of the descriptive inadequacy of these labels. On the face of it they are neither distinct nor mutually exclusive categories. Information given by a professional man to his client is usually a specific form of advice, and most advice will involve conveying information. Neither label really corresponds to the contents of the bottle. The nature of the distinction is, however, clear from its place in Lord Hoffmann’s analysis as well as from his language.

In cases falling within Lord Hoffmann’s “advice” category, it is left to the adviser to consider what matters should be taken into account in deciding whether to enter into the transaction. His duty is to consider all relevant matters and not only specific factors in the decision. If one of those matters is negligently ignored or misjudged, and this proves to be critical to the decision, the client will in principle be entitled to recover all loss flowing from the transaction which he should have protected his client against. The House of Lords might have said of the “advice” cases that the client was entitled to the losses flowing from the transaction if they were not just attributable to risks within the scope of the adviser’s duty but to risks which had been negligently assessed by the adviser. In the great majority of cases, this would have assimilated the two categories. An “adviser” would simply have been legally responsible for a wider range of informational errors. But in a case where the adviser is responsible for guiding the whole decision-making process, there is a certain pragmatic justice in the test that the Appellate Committee preferred. If the adviser has a duty to protect his client (so far as due care can do it) against the full range of risks associated with a potential transaction, the client will not have retained responsibility for any of them. The adviser’s responsibility extends to the decision. If the adviser has negligently assessed risk A, the result is that the overall riskiness of the transaction has been understated. If the client would not have entered into the transaction on a careful assessment of its overall merits, the fact that the loss may have resulted from risks B, C or D should not matter.

By comparison, in the “information” category, a professional adviser contributes a limited part of the material on which his client will rely in deciding whether to enter into a prospective transaction, but the process of identifying the other relevant considerations and the overall assessment of the commercial merits of the transaction are exclusively matters for the client (or possibly his other advisers). In such a case, as Lord Hoffmann explained in Nykredit, the defendant’s legal responsibility does not extend to the decision itself. It follows that even if the material which the defendant supplied is known to be critical to the decision to enter into the transaction, he is liable only for the financial consequences of its being wrong and not for the financial consequences of the claimant entering into the transaction so far as these are greater. Otherwise the defendant would become the underwriter of the financial fortunes of the whole transaction by virtue of having assumed a duty of care in relation to just one element of someone else’s decision.

What is clear is that the fact that the material contributed by the defendant is known to be critical to the claimant’s decision whether to enter into the transaction does not itself turn it into an “advice” case. Otherwise all “no transaction” cases would give rise to liability for the entire foreseeable loss flowing from the transaction, which is the very proposition rejected in SAAMCO. I respectfully agree with the careful analysis of this point by Rix LJ, giving the leading judgment in the Court of Appeal in Haugesund Kommune v Depfa ACS Bank (Wikborg Rein & Co, Part 20 defendant) (No 2) [2011] 3 All ER 655. The facts of that case were that a firm of lawyers had negligently advised that a Norwegian local authority had legal capacity to enter into a loan agreement, when it did not. A local authority’s legal capacity to borrow might fairly be thought fundamental to any decision to lend it money, and the evidence was that but for the lawyer’s advice the bank would not have lent. But under Norwegian law the debt would not have been enforceable against the assets of the authority even if legal capacity had existed, making the debt in effect one of honour only. Rix LJ held that it was an “information” case, because legal capacity was only one factor in a wider assessment of whether to lend the money, with which the lawyers were not concerned. At para 75, he said:

Aneco Reinsurance Underwriting Ltd v Johnson & Higgins [2002] PNLR 8 was a case which on its facts fell on the other side of the line. The claimant reinsurer proposed to reinsure a book of excess of loss business. He intended to proceed only if he could retrocede $11m of the risk. He instructed a broker to place the retrocession. The broker reported that he had placed it, but he failed to present the risk fairly to the retrocessionaires, with the result that after the claimant had written the reinsurance his retrocession was avoided. The claimant claimed to be entitled to recover the entire loss, $35m, which had been incurred on the reinsurance on the basis that he would not have entered into it if he had not been assured that the retrocession was in place and (by implication) enforceable. The House of Lords, in agreement with the Court of Appeal, classified it as an “advice” case. This had the ironic consequence that although the claimant had apparently been content to assume an exposure of $35m on the reinsurance with protection by way of retrocession for only $11m, they recovered the whole $35m as damages, two thirds of which they would have suffered even if the retrocession had been effective. The critical feature of the case which led to this result was that the broker’s responsibility was found to extend beyond the placing of the retrocession to the entire transaction including the writing of the reinsurance itself: see paras 16-17 (Lord Lloyd), 40 (Lord Steyn). In particular, his duty was found to include reporting to the reinsurer the market’s highly adverse assessment of the reinsured risk.

It is right to say that at para 11 of his speech in Aneco, Lord Lloyd seems to have regarded the principle laid down in SAAMCO as turning on ordinary principles of foreseeability and remoteness considered in leading cases such as Czarnikow v Koufos [1969] 1 AC 350. This may be why he regarded the “advice” category as representing the ordinary rule, and the “information” category as exceptional: see paras 12-13. But, with respect, foreseeability was assumed in SAAMCO. For that reason, and because categorisation is inevitably fact-sensitive, I doubt whether it is helpful to describe either of Lord Hoffmann’s categories as “normal” or “special”. A valuer or a conveyancer, for example, will rarely supply more than a specific part of the material on which his client’s decision is based. He is generally no more than a provider of what Lord Hoffmann called “information”. At the opposite end of the spectrum, an investment adviser advising a client whether to buy a particular stock, or a financial adviser advising whether to invest self-invested pension fund in an annuity are likely, in Lord Hoffmann’s terminology, to be regarded as giving “advice”. Between these extremes, every case is likely to depend on the range of matters for which the defendant assumed responsibility and no more exact rule can be stated. In my judgment the decision in Aneco is not authority for any general proposition of law beyond the particular factual context of that case. The fullest statement of the law was that of Lord Millett at para 66. Lord Millett dissented on the facts, but the parties to this appeal agreed that, subject to one reservation, his summary of the law was correct. I think that they were right to do so. The reservation has no bearing on the present case. It is that Lord Millett confined his analysis of the law to the scope of the duty, and did not deal with the question of causation of loss. Normally, all the foreseeable loss flowing from the transaction will be treated as having been caused by the breach of duty, albeit that only that part of it which flows from the information being wrong will be recoverable as damages.

As for the SAAMCO “cap” or restriction, which 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. Mr Halpern submitted that the distinction is incoherent, because it does not achieve the professed object of the principles stated by Lord Hoffmann. Similar criticisms have been made by academic commentators, including Professor Stapleton and Professor Murdoch. It is of course true that the restriction does not systematically exclude loss arising from collateral risks with which the defendant was not concerned. Thus in the lead case in the SAAMCO litigation itself, York Montague overstated the value of the property by a factor of three, valuing at £15m a property worth £5m. Damages were limited to £10m, which exceeded the whole of the loss flowing from the transaction including the loss flowing from the fall in the market. The whole of that loss was accordingly awarded. In other cases, where the negligence of the valuer was less egregious, only part of the loss on the loan account was recoverable.

Criticism of this result is in my opinion unjustified. The principle laid down in SAAMCO depends for its application on the award of loss which is within the scope of the defendant’s duty, not on the exclusion of loss which is outside it. In a simple case, they may amount to the same thing. It may, for example, be possible in a valuation case to strip out the effect of the fall in the market if that is the only extraneous source of loss. Even there, however, the exercise will be complicated by the common practice of lenders to allow a margin or “cushion” between the loan and the value of the property to allow for contingencies including some adverse market movement. Where the loss arises from a variety of commercial factors which it was for the claimant to identify and assess, it will commonly be difficult or impossible as well as unnecessary to quantify and strip out the financial impact of each one of them. In York Montague’s case, the valuer’s duty had been to value the property at £5m instead of £15m. Given his duty to exercise reasonable care to get it right, £10m was the measure of the increased risk to which he exposed the lender by getting it wrong. That increased risk was the maximum measure of his own responsibility for what happened, and therefore provided the limit to what was recoverable by way of damages. It is fair to say that as a tool for relating the recoverable damages to the scope of the duty the SAAMCO cap or restriction may be mathematically imprecise. But mathematical precision is not always attainable in the law of damages. As Lord Hobhouse observed in Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190, at 207, the principle is “essentially a legal rule which is applied in a robust way without the need for fine tuning or a detailed investigation of causation.”

Most cases about negligent valuation have specific features which are not necessarily characteristic of other professional negligence cases. But the principle stated in SAAMCO was expressed as a general principle of the law of damages. It has subsequently been applied, as we have seen, by the House of Lords to cases of information negligently provided by an insurance broker and by the Court of Appeal to negligent legal advice. However, much the most fertile area of development has been a body of case law concerning the liability of conveyancing solicitors for negligence in reporting on title or related matters to a prospective mortgage lender. Mr Halpern relies on these cases as qualifying the application of the principle. It is therefore necessary to say something about them.

The background to most of the conveyancing cases was similar to that of the valuation cases. As a result of a steep fall in the residential property market in the early 1990s many mortgage lenders were left with non-performing loans for which the property no longer provided full security. Some of them sued solicitors who had negligently failed to report at the time of the conveyance on some matter which they said would have deterred them from entering into the transaction if they had known of it. In each case, the lender sought to recover the entire loss on the relevant loan account from the solicitor. The pathfinder was the Bristol and West Building Society, which brought 87 actions against solicitors on this basis. Eight of them were heard together by Chadwick J. Judgment was given on these cases under the title Bristol and West Building Society v Fancy & Jackson (a firm) [1997] 4 All ER 582 in July 1997, a few months after the decision in SAAMCO but before the important elucidations in Nykredit.

Chadwick J found that in three of the eight cases the lender would have refused to proceed if the solicitor had complied with its duty to report some relevant fact. These were accordingly “no transaction” cases. He resolved them as follows:

I respectfully doubt whether these are rational distinctions. In all three cases, the solicitors were on the face of it supplying specific information in accordance with the lender’s standard reporting instructions. The lender would in due course take it into account in deciding whether and if so how much to lend, along with other important information for which the solicitors had no responsibility, such as the valuation of the property, the amount of the loan, and the borrower’s capacity to service it. The solicitors had not assumed responsibility for identifying all the matters relevant to the lender’s decision or for advising them whether to proceed. That was a matter for the lender, and would depend not just on the whole of the material before it but on its internal guidelines and lending policies and the judgment of individual loan officers. All of these cases therefore came within Lord Hoffmann’s “information” category.

Mr Halpern relied on the decision in Steggles Palmer for the proposition that nonetheless where the defendant ought to have reported some fact which was fundamental to the claimant’s decision whether to proceed, the whole loss flowing from the transaction was recoverable as such. I agree that that is what Chadwick J appears to have decided in Steggles Palmer, but I consider that he was wrong to do so. The facts of Steggles Palmer were no different in any legally relevant respect from those of Colin Bishop. The duty of the solicitors depended on their retainer, which was agreed before any breach of duty occurred and appears to have been in substantially similar terms in both cases. In both cases, it extended to the care with which the solicitor answered the questions in the lender’s standard reporting instructions, but not to the decision whether to proceed with the transaction. It followed that the loss flowing from the decision to lend could not as such be within the scope of their duty. Chadwick J’s approach was to make the measure of damages depend not on the scope of the duty but on the gravity of the particular breach and on his assessment of the objective quality of the reasons why the lender would have responded by refusing to proceed. In effect, he reverted in Steggles Palmer to the distinction between “no transaction” and “successful transaction” cases which had been rejected in SAAMCO. His observation that the lender had been deprived of the opportunity to make the decision that he would have made is only another way of saying that this was a “no transaction” case.

For the same reason, I consider that the Court of Appeal was wrong to apply the reasoning in Steggles Palmer in Portman Building Society v Bevan Ashford (a firm) [2000] PNLR 344, where the facts were indistinguishable. Otton LJ, delivering the leading judgment, declined to ask himself whether the scope of the solicitor’s duty extended to the lender’s decision or only to the material which the solicitor contributed to that decision, because in his view the distinction was irrelevant in a case where the facts withheld were sufficiently grave. He put the point in this way, at p 359:

The Court of Appeal considered that the burden of proving facts which engaged the SAAMCO principle lay upon the claimant. This is not a straightforward question, but in my judgment they were right about this. The legal burden of proving any averment of fact lies upon the person who is required to assert it as part of his case. In the ordinary course, this means that the claimant has the burden of pleading and proving his loss, whereas the defendant has the burden of proving facts (such as failure to mitigate) going to avoid or abate the consequent liability in damages. The practical effect of the principle formulated in SAAMCO in cases such as this is to limit the amount of the damages recoverable in respect of loss flowing from the claimant’s decision to enter into a transaction. But it is not a principle of assessment, let alone of avoidance or abatement. It is an essential part of the claimant’s case that he was owed a relevant duty. As Lord Hoffmann expressed it in SAAMCO, at p 220:

The first question is whether BPE Solicitors assumed responsibility for Mr Gabriel’s decision to lend money to Mr Little. In my judgment, it is clear that they did not. Their instructions were to draw up the facility agreement and the charge, nothing more. Mr Spencer did not know and did not need to know what had passed between Mr Gabriel and Mr Little, except that they had agreed upon a loan of £200,000 secured by a charge on Building 428. He knew nothing about the nature of the proposed development, its likely cost, the financial capacity of Mr Little to fund it without Mr Gabriel’s loan or the value of the property in its developed or undeveloped state. Indeed, he does not even appear to have known of Mr Gabriel’s assumption about the use to be made of the loan moneys. He simply included in the draft facility agreement by oversight language which by an unhappy chance confirmed that assumption. The only ground on which the Deputy Judge held that BPE were responsible for the decision was that, applying the approach adopted in Bristol and West Building Society v Fancy & Jackson and Portman Building Society v Bevan Ashford, “Mr Spencer’s breach of duty meant that Mr Gabriel was not able to know the true nature of the loan transaction into which he was entering” (para 91). As in the two building society cases, this simply meant that this was a “no transaction” case in the discredited taxonomy of the Court of Appeal in SAAMCO.

On the footing that BPE was not legally responsible for Mr Gabriel’s decision to lend the money, but only for confirming his assumption about one of a number of factors in his assessment of the project, the next question is what if any loss was attributable to that assumption being wrong. The answer is that if it had been right, Mr Gabriel would still have lost his money because the expenditure of £200,000 would not have enhanced the value of the property. The development would have been left incomplete, the loan unpaid and the property substantially worthless when it came to be sold into a depressed market under the chargee’s power of sale. None of the loss which Mr Gabriel suffered was within the scope of BPE’s duty. None of it was loss against which BPE was duty bound to take reasonable care to protect him. It arose from commercial misjudgements which were no concern of theirs.

In these circumstances, no question of contributory negligence arises.

I would accordingly dismiss the appeal.