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Case No: QBENI 2000/0166/A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE BUCKLEY
Royal Courts of Justice
Strand, London, WC2A 2LL
Wednesday 24th May 2000
B e f o r e :
LORD JUSTICE KENNEDY
and
LORD JUSTICE KAY
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ROBERT
MARK GORDON
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Respondent
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and -
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J.
B. WHEATLEY & Co (a firm)
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Appellant
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Alan Steinfeld QC (instructed by Messrs Ince & Co for the
appellant)
Alexander Hill-Smith (instructed by Messrs McGoldricks, Croydon for the
respondent)
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Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE KENNEDY:
1. On 25th November 1999 Master Foster ordered that the claimant's claim
against the first defendant be struck out and dismissed. The claimant appealed
against that order, and on 13th January 2000 Buckley J allowed the appeal and
set aside the Master's order. The first defendant now appeals against the
judge's order to this court.
2. Material Facts
From about 1980 the claimant, through various companies, operated a
private mortgage scheme. Until 1991 the lenders (or investors) and borrowers
were identifiably matched, and the security was often if not always a second
mortgage.
Both defendants are firms of solicitors. The first defendant acted for the
claimant until 20th March 1992, and the second defendant acted for the claimant
thereafter. It is the claimant's case that the first defendant was retained by
him to attend to the legal formalities of the scheme and to advise him
generally on it.
On 28th April 1988 the Financial Services Act 1986 came into force. By virtue
of section 3 of that Act no one may carry on investment business in the United
Kingdom unless he is an authorised person, and section 6(2) provides that if a
court is satisfied that a person has entered into any transaction in
contravention of section 3 the court may order that person "and any other
person who appears to the court to have been knowingly concerned in the
contravention to take such steps as the court may direct for restoring the
parties to the position in which they were before the transaction was entered
into." The words which I have just quoted identify what might be said to be
the position of the claimant if any of his companies were to enter into any
transaction in contravention of section 3, and a "collective investment scheme"
as defined by section 75 of the Act would be such a transaction. So when in
1991 the claimant changed his business practice by ceasing to match lenders and
borrowers and beginning to pool it was appropriate for him, if properly
advised, to consider whether any company of his was entering into a collective
investment scheme which might attract the attention of the Securities
Investment Board. It is his case against the first defendant that the first
defendant was negligent and in breach of duty in that at the material time,
that is to say whilst still instructed, the first defendant failed to advise
the claimant that his scheme could be considered to be a collective investment
scheme within the meaning of the 1986 Act and what he should do to safeguard
himself (i.e. obtain the necessary authorisations under the Act, or match
lenders to borrowers and cease pooling). At least for present purposes it
seems to be common ground that no such advice was tendered.
On 15th May 1992, about two months after the first defendant ceased to act for
the claimant, the SIB began an investigation of the claimant's operations. The
claimant promptly, on 18th May 1992, consulted the second defendant, who
advised him to consent to the proposed investigation. The SIB then alleged that
the scheme was a collective investment scheme within the meaning of section 75
of the Act, which was being operated without authorisation.
On 29th May 1992 the second defendant advised the claimant to sign a Deed of
Undertaking and Indemnity which rendered him liable to underwrite investors'
losses under the scheme and to put the companies through which the scheme was
operated into liquidation. The claimant accepted that advice, and thus by
September 1992 rendered himself liable to the companies in liquidation in the
sum of £676,215.50. It was a sum he could not pay and he was later
declared bankrupt.
3. These proceedings
The claimant began this action on 28th May 1998, six years and two months
after the first defendant ceased to act for him. I have already outlined his
case against the first defendant. As against the second defendant the claimant
contends that his scheme did not contravene the 1986 Act and that he
should not have been advised to sign the Deed which led to his bankruptcy.
Nevertheless he pursues his claim against the first defendant on the basis that
it was the negligence of the first defendant which led to a situation in which
both the SIB and the second defendant were liable to conclude, albeit wrongly,
that he was operating in breach of the 1986 Act. Furthermore if the claimant's
case against the second defendant were to fail, on the basis that the advice
given by the second defendant was correct, then the claimant could only recover
if at all against the first defendant.
4. The Issue
The first defendant contends that any claim against the first defendant is out
of time and statute-barred. It was common ground before the judge, and before
us, that were the claim framed in contract it would be statute-barred, but a
cause of action in tort only arises when loss or damage is sustained, and so
the question is when loss or damage was sustained in this case. Did it happen
before or after 28th May 1992 (which was six years before the issue of the
writ)? Mr Steinfeld QC, for the first defendant, contends that a loss occurred
every time an investor made an investment into the pooled scheme, and all of
the relevant investments were made before the SIB investigation began on 15th
May 1992, and thus more than six years before the issue of the writ. In
addition Mr Steinfeld points to the costs of the legal advice which the
claimant incurred when he instructed the second defendant on 18th May 1992 as a
loss directly attributable to the alleged negligence of the first defendant.
There are therefore two types of loss to be considered - those said to arise
from the conduct of the investors, and the claimants own liability for the
second defendant's fees. I must consider them separately.
5. Losses on transactions
As Mr Hill-Smith, for the claimant, submits, an actual loss is not the same as
a serious risk of loss, and he submits that until at the earliest the claimant
signed the Deed of Undertaking and Indemnity (which was within the six year
period) there was no more than a serious risk of loss.
This issue of what constitutes a sufficient loss to complete the cause of
action has been considered by the courts on many occasions and we were taken
through the leading authorities by counsel on both sides.
In Foster v Outred and Co [1982] 1 WLR 86 the plaintiff executed a
mortgage in the presence of the defendants, her solicitors, charging her
freehold property as security for a loan made by a company to her son, who
subsequently went bankrupt. Having repaid the loan she claimed damages for
negligence and/or breach of contract by the defendants in failing properly to
advise her when the mortgage was executed. As to when the cause of action in
negligence accrued it was held by this court that by entering into a burdensome
bond, or contract, or mortgage she sustained immediate economic loss. Her
valuable freehold was encumbered with a charge, and its value to her was
diminished because she had merely the equity of redemption. At 94 C - D
Stephenson LJ accepted counsel's submission that actual damage -
"Is any detriment, liability or loss capable of assessment in money terms and
it includes liabilities which may arise on a contingency, particularly a
contingency over which the plaintiff has no control; ...... `actual' is really
used in contrast to `presumed' or `assumed'. Whereas damage is presumed in
trespass and libel, it is not presumed in negligence and has to be proved.
There has to be some actual damage."
Mr Steinfeld points to the inclusion of liabilities which may arise on a
contingency - such as a decision by the SIB to investigate - whereas Mr
Hill-Smith submits that in Foster's case there was immediate damage to a
discernible asset, the plaintiff's equity of redemption, not merely a risk of
damage to her assets as a whole. That, however, was not the position in
Milton v Walker and Stanger [1981] 125 Sol. Jo. 861. In that case the
defendant solicitors when preparing an agreement in 1967 allegedly failed to
protect the plaintiff as they had been instructed in relation to possible
future liabilities including capital gains tax, which would arise if there was
to be a sale of a farm in which he had an interest. Nourse J expressly
followed the decision of the Court of Appeal in Foster saying -
"If shortly after executing the agreement the plaintiff had issued a writ
against the defendants, however difficult or even speculative the process might
have been, the court would have awarded damages."
In D W Moore & Co v Ferrier [1988] 1 WLR 267 the plaintiffs were
insurance brokers who on two occasions sought advice from their solicitors, the
defendants, as to covenants intended to restrict the activities of a proposed
employee should he leave the plaintiffs' service. The covenants proved
ineffective, and the question arose as to when actual damages to the plaintiffs
had been done. At 278 F Neill LJ said -
"In the present case the judge rightly rejected the notion that where a
solicitor gives negligent advice, damage is presumed to occur at the time when
the advice is acted upon. I am satisfied that there is no such presumption.
It is a question of fact in each case whether damage has been established. In
the present case .... the plaintiffs suffered damage `because (they) did not
get what (they) should have got'. The plaintiffs rights under the two
agreements were demonstrably less valuable that they would have been had
adequate restrictive covenants been included."
Bingham LJ at 279 H followed the approach adopted by Nourse J in
Milton's case, saying -
"If the quantification of the plaintiff's damage had fallen to be considered
shortly after the execution of either agreement, problems of assessment would
undoubtedly have arisen. It might have appeared that Mr Fenton was unlikely to
leave, taking much of the first plaintiff's business with him, to establish a
competing business. If so, the plaintiff's damage would have to be assessed at
a modest figure. But the risk of his doing so could not have been eliminated
altogether, and so long as there was any risk that one of the first plaintiff's
two directors might leave, taking much of the first plaintiff's business with
him, to establish a competing business, there must necessarily have been a
depressive effect on the value of the first plaintiff's business and on that of
the second and third plaintiff's derivative interests. In making his
assessment the judge would have had to attach a money value to a possible
future contingency; but judges do this every day in awarding claimants damages
for the risk of epilepsy, the risk of osteoarthritis, the risk of possible
future operations, the risk of losing a job and so on. The valuation exercise
is, of course, different, but the difference is one of subject matter, not of
kind.
The matter may be tested. It is common ground, on the assumption that the
plaintiffs' pleaded case is correct, that the defendants were in breach of
contract when they negligently advised and settled documents in 1971 and 1975.
A cause of action then arose. Suppose, per impossible, that the plaintiffs had
sued at once and before the later difficulties with Mr Fenton arose. They
would have been bound to succeed. If of opinion that the plaintiffs had
suffered no damage, the judge would have awarded them nominal damages. But it
seems to me plain that the judge would not have done that on these facts.
........ If, in a contractual claim for negligence, the court would have
awarded other than nominal damages, I do not see how it can be said that an
action in tort based on the same negligence would have been bound to fail for
want of any damage as an essential ingredient of the cause of action."
Mr Steinfeld submits that the contractual test envisaged by Bingham LJ can be
applied in the present case. If in April 1992, after the first defendant
ceased to act for the claimant but before the SIB began to investigate, the
claimant had been advised by the second defendant that the advice which he had
received from the first defendant was negligent and wrong, and that he might
suffer financially as a result, then he could have sued the first defendant in
contract with the expectation that he would obtain more than nominal damages.
Mr Hill-Smith, however, submits that the Moore case is just another
example of demonstrable damage being done at the time of the negligence to two
identifiable assets. So far as the employer was concerned the employees'
contracts were less valuable than they should have been because of the
ineffectiveness of the restriction, and that in turn depressed the value of the
employer's business. I confess that I find it difficult to see in this context
any logical distinction between the value of the business and the wealth of an
individual. Either could be insured against the risk of the circumstances
arising in which it would be appropriate for the ineffective restriction to be
relied on, and the premium would be the same.
In Bell v Peter Browne & Co [1992] 2 QB 495 the defendant
solicitors advised the plaintiff husband after the breakdown of his marriage.
It was agreed that the matrimonial home be transferred to the sole name of the
wife, but that should it be sold at some future date he would receive one sixth
of the gross proceeds of sale. However when the plaintiff executed the
transfer the defendants took no steps, whether by declaration of trust, entry
on the register, or otherwise, to safeguard his interests. Eight years later
his former wife sold the house and spent the whole of the proceeds. The
plaintiff the sued the defendant but it was held that damage was sustained and
so the limitation period began to run from the date of the execution of the
transfer. Dealing with the claim in tort Nicholls LJ said at 502 D -
"So when did the plaintiff first sustain damage by reason of his solicitor's
negligence? On this it is necessary to distinguish between (a) the solicitor's
failure to see that the parties' agreement was recorded formally in a suitable
declaration of trust or other instrument and (b) their failure to protect the
plaintiff's interest in the house or the proceeds of sale by lodging a caution.
As to failure (a) clearly the damage, such as it may have been, was sustained
when the transfer was executed and handed over. At that point the plaintiff
parted with title to the house, and he became subject to the practical
inconveniences which might flow from his not having his wife's signature on a
formal document. If the wife thereafter chose to deny his entitlement to one
sixth of the proceeds of sale, the plaintiff would have to rely on the
correspondence between the solicitors coupled with part performance. To the
extent that this was less satisfactory than a formal document recording the
deal, the plaintiff suffered prejudice. He suffered that prejudice when the
transaction was implemented without his having the protection of a formal
document. .........
Failure (b) comprised the solicitor's own omission to protect the plaintiff's
interest by making an appropriate entry in the land register. This failure
stands on a different footing from failure (a) in that it was within the
plaintiff's own power to remedy failure (b) so long as the house continued to
belong to his former wife......
Is this difference material? On the one hand the plaintiff in the case of
failure (b) as much in the case of failure (a), did not receive the protection
he ought to have received when he executed the transfer and parted with his
title to the house. He was at risk, from the outset. His interest was
vulnerable. On the other hand, so long as the plaintiff's wife did not sell
the property, failure (b) could easily be put right and at little expense and,
had it been remedied, the failure to lodge a caution promptly in 1978 would
have caused no financial loss to the plaintiff.
I am unable to accept that remediability puts failure (b) on the other side of
the line from failure (a). The solicitor's breach of duty in 1978 was
remediable by the plaintiff, but that was only possible after he became aware
that there had been a breach of duty........ Once the solicitors had closed
their file, it was unlikely that failure (b) would come to the notice of the
plaintiff or the defendants until the house was sold and it was too late ......
so his ability to remedy the breach before the house was sold was a matter of
more theoretical interest than practical importance.
In considering whether damage was suffered in 1978 one can test the matter by
considering what would have happened if in, say, 1980 the plaintiff had learned
of his solicitor's default and brought an action for damages. Of course he
would have taken steps to remedy the fault. But he would have been entitled at
least to recover from the defendant the costs incurred in going to other
solicitors for advice on what should have been done and for their assistance in
lodging the appropriate caution. The cost would have been modest, but not
negligible."
Mr Steinfeld relied on those last two sentences when dealing with the matter
to which I will come later in this judgment, namely the claimant's liability
for the second defendant's fees.
But Mr Hill-Smith submits that in Bell's case, as in the earlier cases,
there was immediate damage to a definite proprietary interest other than the
plaintiff's general wealth, and that, he submits, is important. There must be,
as he put it, a tangible loss to a bank balance, or something you can point
your finger to. In addition to the passages already cited he invited our
attention to the judgment of Beldam LJ at 510 E where he said -
"Due to the defendant's negligence, the plaintiff parted with his legal estate
in the property conveyed to his wife in exchange for an equitable interest in
the proceeds of sale. That equitable interest until secured by charge or
acknowledged by a deed of trust was clearly less valuable to the plaintiff.
Unprotected against the interests of third parties by registration of a charge
or a caution, it was less valuable still. I consider therefore that the
plaintiff's cause of action arose when he parted with his property or at the
latest at the time when a careful solicitor would have affected registration
either of a charge or of a caution."
Similarly at 513 C Mustill LJ said -
"As to the claim in tort I have little to add. The transaction caused the
plaintiff to change his valid legal estate for an equitable interest in the
proceeds of sale which was dependant on the good will and solvency of the wife
unless and until protected by a formal declaration of trust or the lodging of a
caution. The failure to see that these steps were taken promptly meant that
the plaintiff was actually, and not just potentially, worse off than if the
solicitors had performed their task competently."
In Hopkins v Mackenzie [1995] 6 Med. L.R. 26 the plaintiff claimed
damages for medical negligence. His action was not diligently pursued. On
11th October 1985 the hospital defendant issued a summons to strike out. The
summons was served on 31st December 1985, and was heard on 4th February 1986,
when the action was struck out. On 27th January 1992 the plaintiff issued
fresh proceedings against the original solicitor. It was accepted that the
cause of action in contract was statute-barred, but in this court it was held
that the plaintiff's cause of action in tort did not accrue until 4th February
1986 because no actual loss or damage was sustained until the original action
was struck out. In the court below the judge had accepted that the plaintiff's
claim had an ascertainable value which was diminished by the negligence of the
solicitors long before the action was struck out. Once it was at risk of being
struck out without the possibility of revival then, apart from anything else,
its settlement value was reduced. So there was it would seem an actual loss
attributable to the negligence of the defendant solicitor, but, as Saville LJ
said at page 30 -
"The overwhelming difficulty with this submission is that it simply ignores the
fact that the plaintiff is not suing for any earlier diminution in the value of
his claim, but the loss of his cause of action through his solicitor's
negligence on February 4th 1986..... What on the plaintiff's case has been
lost is the right to advance his medical negligence claim in a court of law.
That loss was not sustained until the action was struck out. To my mind a
cause of action for diminishing the value of a claim is not the same thing as a
cause of action for losing the right to advance that claim in a court of
law."
Mann LJ, whilst agreeing in the result reserved his position as to whether the
diminution in value of a cause of action through its susceptibility to a strike
out could constitute damage for the purposes of an action in negligence, adding
at page 31 -
"A provisional view might be that it could, for the injurious affection
represents an economic loss."
Nourse LJ, also agreeing, again pointed to the distinction made by both other
members of the court, saying -
"The plaintiff sues in respect of the loss or damage suffered by him by reason
of the striking out ... on February 4th 1986. He does not sue in respect of
the loss or damage suffered by him by reason of some earlier depreciation in
value of his right of action against the defendants in that action. It cannot
be assumed that the value of the right at the date of striking out was the
equivalent of, or less than, its value at the earlier date. So the plaintiff's
cause of action against the present defendant did not fully mature until the
later date. Since the plaintiff may rely on whatever cause of action is
available to him how can it be defeated by a defence to a cause of action on
which he does not rely? ...... thus if, before February 4th 1986, the plaintiff
had here compromised (his) action .... on terms rendered disadvantageous by the
risk of striking out, the limitation would have run from the date of the
compromise and not from some later date."
Mr Hill-Smith placed considerable reliance upon the decision in Hopkins
case, but in my judgment it is of limited assistance because, as all three
judges made clear, so much turned on the precise nature of the plaintiff's
cause of action in that case. As Mr Steinfeld said in reply, it is necessary
to identify the loss claimed, and to measure it against the duty allegedly
breached. Here the breach of duty relied upon is an alleged failure to advise
the claimant how to operate in such a way as not to be likely to attract
adverse criticism for the SIB, in consequence of which negligence vulnerable
transactions were made which were all completed before the beginning of the six
year period, and before the SIB began to investigate.
In First National Commercial Bank v Humberts [1995] 2 All E R 673 the
plaintiff bank made advances on the basis of what was alleged to be a negligent
valuation by the defendant valuer. It was held that the cause of action did
not accrue until the bank's outlay together with the cost of borrowing, or the
notional profits that would have been obtained elsewhere, was less than the
security held in respect of the advance. At 679b Saville LJ said -
"At the hearing and in the judgment much reliance was placed on the cases where
the claimant entered into a transaction which through a breach of duty owed to
the claimant provided the claimant with less rights than should have been
secured, or imposed liabilities or obligations on the claimant which should not
have been imposed."
He then referred to Foster, Bell and one other case and
continued -
"In all of those cases, however, the court was able to conclude that the
transaction then and there caused the claimant loss, on the basis that if the
injured party had been put in the position he would have occupied but for the
breach of duty, the transaction in question would have provided greater rights,
or imposed lesser liabilities or obligations than was the case; and that the
difference between these two states of affairs could be quantified in money
terms at the date of the transaction."
Mr Steinfeld contends that if the claimant had been in the position which he
would have occupied but for the alleged breach of duty (by receiving and thus
being able to act on advice to avoid pooling) the transactions (i.e. each
investment) would have provided greater rights because they would have been
free of the risk of having to be repaid, or being thought vulnerable to that
risk. And, even though it might be difficult, the difference between those two
states of affairs could if necessary be quantified in money terms before the
six year period prior to the writ began to run.
At 680f in the Humberts case Neill L J said -
"Economic loss may take a variety of forms, and the answer to the question when
a cause of action for negligence causing economic loss accrues may require a
consideration of the precise interest infringed by the negligent act or
omission. It may also require consideration of the nature of the interference
to which the interest is subjected. Some of the cases to which we were
referred in the course of argument, however, demonstrate that courts have been
driven to draw narrow, and some would say unconvincing, distinctions between
transactions where it has been held that the loss was measurable when the
relevant transaction was entered into and transactions where it has been held
that loss occasioned by the unsatisfactory bargain lay in the future."
I see no reason to add to that last telling comment.
In Knapp v Ecclesiastical Insurance [1988] PNLR 172 the plaintiffs had
a fire at their home on 16th October 1996. They were insured with the first
defendants and had renewed their policy on 12th April 1990 through their
brokers, the second defendants, who, the plaintiffs claimed, knew all material
matters and completed the proposal forms on their behalf. The first defendants
alleged non-disclosure of material facts, and avoided the policy. On 16th
October 1996 the plaintiffs issued a writ against both defendants. In this
court it was held that, so far as the second defendants were concerned, on
renewal of the voidable policy on 12th April 1990 the plaintiffs suffered
actual loss. Hobhouse L J reviewed the authorities and concluded at 184 E -
"From these authorities it can be seen that the cause of action can accrue and
the plaintiff have suffered damage once he has acted upon the relevant advice
`to his detriment' and failed to get that to which he was entitled. He is less
well off than he would have been if the defendant had not been negligent.
Applying this to the present case the plaintiffs paid their renewal premium
without getting in return a binding contract of indemnity from the insurance
company. They had acted to their detriment: they did not get that to which
they were entitled."
Mr Steinfeld submits that is precisely the situation in this case. Because
the first defendant failed to advise, the plaintiff was deprived of that to
which he was entitled, namely sound advice which would have enabled his company
to avoid any investment which he was at risk of having to repay. Mr
Hill-Smith, by contrast, points to the immediately identifiable damage in the
Knapp case. For the premium the plaintiff did not get the contract he
sought. At 184 F Hobhouse L J continued -
"The fact that how serious the consequences of the negligence would be depended
upon subsequent events and contingencies does not alter this; such
considerations go to quantification of the plaintiff's loss not to whether or
not they have suffered loss. The risks of loss existed from the outset and in
the absence of better evidence would have to be evaluated and assessed as a
risk and damages awarded accordingly."
Again Mr Steinfeld submits that the words are appropriate. In Knapp
the subsequent event or contingency was the fire which caused the plaintiffs to
claim on their policy. here it was the investigation by the SIB.
As to the earlier case of Hopkins Hobhouse L J said at 187 D -
"The decision is difficult to reconcile with the earlier authorities and
arguments similar to those which I have accepted in the present case were
advanced on behalf of the solicitor defendants without success. However for
the purposes of the present case it suffices to say that the Court of Appeal in
Hopkins v Mackenzie were clearly of the view that they were applying the
principles to be derived from the earlier authorities ...... I do not consider
Hopkins v Mackenzie can be taken as qualifying the earlier decisions of
the Court of Appeal or the principles to be derived from them."
At 189 to 190 Buxton L J cautioned against over-reliance on the latter part of
the passage from the judgment of Bingham L J in Moore v Ferrier which is
set out above, suggesting that it is not a general test, but -
"A reminder that if damage has been caused in, for instance, Foster v Outred
terms, a negligence action is thereafter very unlikely to fail on the
ground that that damage is unquantifiable."
Very soon after the Court of Appeal decided Knapp the House of Lords
gave judgment in Nykredit plc v Edward Erdman Ltd [1997] 1 WLR 1627.
The plaintiff bank in March 1990 advanced money in reliance on an
over-valuation of property by the defendant valuer. The money would not have
been advanced if the plaintiff had known the true value of the property. The
borrower defaulted at once. The bank obtained possession of the property, and
in February 1993 sold it for a relatively modest sum. As to when the cause of
action accrued, Lord Nicholls at 1630 endorsed what had been said by Stephenson
L J in Foster as to the meaning of actual damage, adding only -
"The cautionary reminder that the loss must be relevant loss. To constitute
actual damage for the purpose of constituting a tort, the loss sustained must
be loss falling within the measure of damage applicable to the wrong in
question."
At 1631 C Lord Nicholls identified the difficulty of the case where -
"As a result of negligent advice, property is acquired as a security. In one
sense the lender undoubtedly suffers detriment when the loan transaction is
completed. He parts with his money, which he would not have done had he been
properly advised. In another sense he may suffer no loss at that stage because
often there would be no certainty he would actually lose any of his money: the
borrower may not default. Financial loss is possible but not certain. Indeed,
it may not even be likely. Further, in some cases, and depending on the facts,
even if the borrower does default the over valued security may still be
sufficient."
At 1631 H he pointed out that -
"The valuer is liable for the adverse consequences, flowing from the entering
into the transaction, which are attributable to the deficiency in the
valuation."
At 1632 E he acknowledged that -
"To greater or lesser extent, quantification of the lender's loss is bound to
be less certain and therefore less satisfactory, if the quantification exercise
is carried out before, rather than after, the security is ultimately sold .....
but the difficulties of assessment at the earlier stage do not seem to me to
lead to the conclusion that at the earlier stage the lender has suffered no
measurable loss and has no cause of action, and that it is only when the
assessment becomes more straightforward or final that loss first arises and
with it the cause of action.
Indeed for the cause of action to arise only when the lender realises his
security would be a highly unattractive proposition. ...... if disaster were
evident and the lender were to sue his valuer for breach of contract without
waiting until he had realised his security, it is inconceivable that the court
would award only nominal damages. The court would do its best the assess the
loss."
Lord Nicholls then cited with approval the "trenchant observation" of Bingham
L.J. in Moore v Ferrier, which Buxton L J had qualified in
Hopkins.
At 1639 Lord Hoffmann said that in a case such as Nykredit loss will be
suffered "when the lender can show that he is worse off". Mr Hill-Smith
submitted that in the present case when investments were made the claimant was
not actually worse off as a result of the first defendant's alleged negligent
failure to advise. He was only potentially worse off, but in my judgment that
is not right. After the investments were made the plaintiff was exposed to the
risk of being required by a court, pursuant to section 6(2) of the 1986 Act, to
restore the parties (i.e. investors and borrowers) to the position in which
they were before the transactions were entered into. That was a liability,
albeit a contingent liability, a fetter on his assets, from which on his case
he would have been protected if the first defendant had exercised proper care.
The final authority to which our attention was invited in relation to this
aspect of the case is Bacon v Howard Kennedy [1999] PNLR 1, but I do not
believe that it adds to the authorities set out above.
Despite the wealth of authority I do not find the question which I have sought
to address an easy one, but in my judgment if the first defendant was negligent
in the way that is alleged (i.e. by failing to advise the claimant how to set
up his scheme so that it was not capable of being considered a collective
investment scheme, or failing to advise him to seek authorisation pursuant to
the 1986 Act) then, for the reasons I have given when reviewing the
authorities, I must conclude that the claimant did sustain actual loss
sufficient to complete his cause of action, as Mr Steinfeld submits, when each
investment was made.
6. Second Defendant's fees.
Even if I were wrong as to the transactions giving rise to loss it seems to me
to be absolutely clear that the claimant did sustain actual loss as a result of
the first defendant's alleged negligence when he instructed the second
defendants to advise in relation to the SIB investigation, and that was ten
days before the start of the six year period which preceded the issue of the
writ. As Mr Hill-Smith points out, the second defendants did not, it seems,
require any payment on account, so the claimant did not, in accordance with
normal practice, become liable to pay the second defendant until the second
defendant sent its invoice. Mr Hill-Smith further submits that the second
defendant's advice was worthless, so there was a total failure of
consideration, and that any liability for fees incurred prior to 28th May 1992
must have been de minimis in the context of this case. In my judgment
it is for present purposes of no consequence that the second defendant did not
seek payment on account. The claimant knew that by instructing solicitors he
was incurring a liability to pay the fees that those solicitors could properly
and reasonably charge for their services on and from 18th May 1992, subject
perhaps to the remote possibility of a total failure of consideration, and
that, in my judgment, must be a sufficient actual loss to complete a cause of
action in negligence. The amount of money concerned may not have been very
large, but it can hardly have been insignificant.
It is only right to point out that this alternative way of putting the first
defendant's case was not developed before Buckley J, but in my judgment it is
unanswerable.
7. Conclusion.
I would therefore allow the appeal, and restore the order of Master Foster
that the claim against the first defendant be struck out and dismissed. So far
as costs are concerned the first defendant is, as it seems to me, entitled to
recover the costs of the hearing before the judge in chambers, and the costs of
this appeal, those costs to be subject to a detailed assessment, and, subject
to any submission that counsel may wish to make, I would so order.
LORD JUSTICE KAY: I agree
Order: Appeal allowed with cost's leave to appeal was
refused.
(Order does not form part of the approved judgment)
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