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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Haugesund Kommune & Anor v Depfa Acs Bank & Anor [2011] EWCA Civ 33 (28 January 2011) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2011/33.html Cite as: [2012] 1 All ER (Comm) 65, [2011] PNLR 14, [2011] 3 All ER 655, [2011] EWCA Civ 33, [2011] 1 CLC 166, [2012] Bus LR 230, 134 Con LR 51

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IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HON. MR JUSTICE TOMLINSON
2008 Folio 1320

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/01/2011

Lord Justice Rix :

The issue

1. A solicitor wrongly and negligently advises a bank that its prospective counterparty to a banking transaction has capacity to enter into the proposed transaction, which is in fact ultra vires and void. The counterparty is nevertheless liable to repay the bank in restitution. Is the solicitor liable to the bank for the whole of the sum transferred to the counterparty irrespective of every other consideration, save only to the extent that the bank succeeds in making an actual recovery from its counterparty? That is the essential question asked on this appeal. If the answer to the question is, Yes, then it would seem, and the bank submits, that even if, immediately after the transfer, the counterparty offered to return the sum transferred, the bank could refuse the offer and sue the solicitor to recover the sum as damages for his breach: see Liverpool (Owners) v. Ousel (Owners), (The Liverpool No 2) [1963] P 64 (CA).
2. The solicitor submits that the answer to the question depends on the scope of the solicitor's duty and therefore the proper assessment of the bank's loss arising from the breach, and that it cannot be presumed that the mere transfer of money under a transaction whose failure involves a restitutionary remedy involves a loss then and there in the total amount transferred. Instead, he submits, the court has to ask whether any loss falls within the scope of the duty to advise: see South Australia Asset Management Corp v. York [1997] AC 191 ("Saamco") and Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd (No 2) [1997] 1 WLR 162 (HL). If the failure to repay is in fact due, for instance, to the counterparty's credit risk, when the bank made it clear that it took that risk upon itself, then, the solicitor submits, there is no relevant loss, and the rule in The Liverpool does not operate.
3. The bank rejoins that where the solicitor's advice is as to the viability of the transaction as a whole, his negligence leads to liability for all the consequences of the transaction because there is no relevant limitation on the scope of the solicitor's duty: see two cases concerned with solicitors' advice decided in the aftermath of the Saamco and Nykredit decisions, viz Bristol & West Building Society v. Fancy & Jackson [1997] 4 All ER 582 (Chadwick J) and Portman Building Society v. Bevan Ashford (a firm) [2000] PNLR 354 (CA).
4. The judge below, Tomlinson J as he then was, agreed with the bank. It was not the intuitive understanding with which he approached the issue at the time of his first judgment, which was concerned with the liability of the counterparty rather than of the solicitor. The latter liability was dealt with in a second judgment, after a separate hearing. In the course of argument at that second hearing, the judge said:

"I have to tell you it never crossed my mind when I was preparing my judgment that this was a situation in which Depfa [the bank] could simply look to Wikborg Rein [the solicitor] for a full and immediate indemnity in respect of its loss without, if it chose, looking to the municipalities [the counterparty] to see what it could recover from them. Rightly or wrongly I saw it in terms of what one sometimes calls a claim over, ie to mop up what is left. You would say that I am wrong about that."

5. Mr David Railton QC, leading counsel for the bank replied:

"The way the litigation started, of course, is a dispute between us and the municipalities, but we have our claim against Wikborg Rein. If, of course, the municipalities pay and pay quickly and willingly, then in practice the point does not arise. But as a matter of legal right, and indeed as we have pleaded, our loss is the loss that we suffer when we pay out. On the authorities, and for sensible reason we would suggest, we are entitled to recover in full against Wikborg Rein."

The background facts

6. The claimants in this litigation are two Norwegian municipalities, Haugesund Kommune and Narvik Kommune (the "Kommunes"). There are 430 such municipalities in Norway. They are autonomous bodies although their powers are limited by legislation. They are not directly involved in this appeal.
7. In 2004 (in the case of Haugesund) and 2005 (in the case of Narvik), the Kommunes entered into swap contracts with Depfa ACS Bank, who is the defendant in these proceedings and in this court the respondent ("Depfa"). Depfa is an Irish bank, a subsidiary of Depfa Bank plc, which is in turn owned by a German company. Depfa specialises in public sector lending outside Germany. The sums involved exceeded NOK 200 million in the case of Haugesund and approached NOK 200 million in the case of Narvik.
8. The nature of swap contracts has been described by Lord Goff in Westdeutsche Landesbank Girozentrale v. Islington London BC [1996] AC 669 at 680. As Lord Goff there stated, the practical effect of the transaction is to achieve a form of borrowing by the bank's counterparty. In the same way, the effect is to achieve a form of lending by the bank. However, section 50 of Norway's Local Government Act 1992 restricts the capacity for a municipality to raise loans, for instance to loans intended for limited purposes and in respect of measures that have been included in the annual budget. It was therefore important for Depfa and the Kommunes to be advised that the swap contracts were not loans caught by section 50.
9. The Kommunes were advised by Norwegian financial advisers Terra Fonds AS, subsequently Terra Securities ASA ("Terra"). Terra also advised the Kommunes as to disastrous investments made by them with the proceeds of the swap contracts.
10. Depfa in turn sought the advice of a well-known and highly respected firm of lawyers in Norway, Wikborg Rein & Co ("Wikborg Rein"). Wikborg Rein is the third party in this litigation, and the appellant in this appeal. Wikborg Rein advised in unqualified terms that the swap contracts were not loans for the purposes of section 50 and that the Kommunes had full capacity to enter into them. It should be said that the validity of the swap agreements was for these purposes the only issue on which Depfa sought Wikborg Rein's advice. It was common ground that Depfa knew, and was willing to take the risk, that it was not possible to obtain execution against the Kommunes, should there be any need to do so. Wikborg Rein had advised Depfa that –

"A claim against a Norwegian municipality cannot be enforced, no distress or seizure may be obtained of any of its assets and no bankruptcy or debt settlement proceedings may be initiated against it."

It was also common ground that Depfa bore the sole credit risk of the transaction. The Kommunes' obligation was in fact regarded as a form of sovereign debt. They were undoubtedly seen by Depfa as honourable, respectable and creditworthy counterparties.

11. The swap contracts were expressly stated to be governed by English law and to be subject to the jurisdiction of the English courts.
12. The Kommunes performed their payment obligations under the swap contracts for a number of years, until questions were raised in Norway as to the validity of this type of transaction. In 2008, the Kommunes asserted that the swap contracts were invalid and declined to make any further payments under them. Then in December of that year they commenced these proceedings in the commercial court in London for a declaration that the contracts were invalid because they lacked capacity to enter into them and that they were under no liability in respect of them. Depfa counterclaimed to the effect that, if the contracts were invalid, it was nevertheless entitled to restitution of the sums which it had advanced. It observed in its pleadings that the Kommunes never understood or believed that they were free to use such sums as their own "without any obligation to repay". If they were correct to say that the swap contracts were invalid, "the only change in this respect has been the basis on which [they are] liable to make such repayment." The Kommunes rejoined that they had a defence to any liability in restitution to repay the amounts advanced, in so far as they had changed their position by using the funds to make the investments which had turned out so disastrously for them. They also disputed any obligation to make restitution at all on the basis that Depfa entered the transactions without an ignorance in good faith of the Kommunes' lack of capacity. Importantly for present purposes, however, the Kommunes pleaded and accepted that, if Depfa had acted in good faith and in ignorance, "Depfa would have been entitled to restitution" of the sums advanced, less any recoveries from the Kommunes, and subject to their change of position. On the basis that Depfa acted in good faith and restitution was due, the Kommunes' "liability…to make restitution is limited to those net proceeds of sale" of their investments.
13. Depfa also brought Wikborg Rein into the litigation by means of Part 20 proceedings under which it alleged that it had entered into the contracts in reliance on Wikborg Rein's advice, and that that advice had been negligent. It alleged that it had suffered loss in the amounts advanced by it to the Kommunes, although it would give credit for such recovery as it made in respect of such advances. The claim was brought in contract, under Norwegian law, which did not recognise alternative duties in tort. Nevertheless, there was no suggestion that Norwegian law differed from English law with regard to a solicitor's obligations.

The English litigation

14. There was no issue as to jurisdiction before the English court. As the judge said: "All parties invite the English court to resolve the disputes of which it is seised."
15. The Kommunes as claimants and Depfa as defendant and counterclaimant were anxious to have the issues which divided them decided by the English court as promptly as possible, even in advance of similar litigation which was proceeding in Norway. Tomlinson J expressed some dismay about the need for the English court to consider the section 50 question of Norwegian law, when that would in due course be more appropriately dealt with in Norway itself, especially as the judge was told that the Terra scheme, which had involved numerous other municipalities in Norway, had there become something of a national scandal. It was common ground, however, that the issue of restitution was governed by English law.
16. In September 2008 the Kommunes offered to pay over to Depfa the outstanding proceeds of the investments which they had made with the monies advanced to them by Depfa under the swap contracts, but at that stage nothing was done in relation to that offer. I am not sure that I know why not. The investments had been liquidated and placed in a separate interest bearing account.
17. In December 2008 the Kommunes applied for an expedited trial. They relied on a first witness statement of their English solicitor, Mr Iain Mackie, a partner at Macfarlanes LLP. He explained that if the Kommunes were liable to repay the amounts advanced, they would need to make deep cuts in their budgets for 2009. In the meantime, discretionary help from within the Norwegian government could not be considered until such budgets had been prepared. There was no suggestion that the Kommunes' liabilities would not be met, whether such liabilities sounded in contract or restitution. On the contrary, the application for expedition was prepared on the basis that they would have to be and would be met. The judge said as much in the judgment under appeal. He said:

"In short, the implication of this evidence was that the municipalities would honour a judgment of this court, and wished to know as soon as possible the basis upon which they must make their financial plans. That is plainly how Depfa understood the position…".

18. The judge then referred to what Mr Railton had said on behalf of Depfa at the first trial on 7 May 2009, when the following exchange took place between them:

"Judge: The whole exercise is actually a pretty high risk exercise, isn't it? It's unsecured lending to a public authority subject to political control against whom you can't enforce a judgment. It's a pretty high risk exercise from the start…

Railton: In the context of public sector lending, these are very good risks. They are creditworthy. There has never been any default in respect of them. There won't be any default now. We have this debate, and it's expedited.

Judge: Do we know there won't be any default now?

Railton: Yes, my Lord. The whole question that's been put forward as to why you need to expedite it is because the municipalities intend to honour their obligations if they're found to have some. That's why the lights are going out and cuts are being made so that they can do so…

Judge: I don't think the municipalities have given any undertaking…

Railton: My Lord, my clients have absolutely no doubt that they will honour the judgment if one is given. There's no doubt about that."

19. Nothing was said by Mr Milligan QC on behalf of the Kommunes to suggest otherwise.
20. An expedited trial had been ordered. As it happens, Wikborg Rein was impleaded by service of Depfa's Part 20 claim only six days before the order for expedition was made. The judge was to say that he had "some sympathy" with the firm's position and observed that it had given every co-operation in ensuring that the trial date could be met and could be effective.
21. The first trial took place in April/May 2009 and resulted in a first judgment handed down on 4 September 2009 (the "first judgment"), [2009] EWHC 2227 (Comm). That trial and judgment considered all aspects of the Kommunes' liability, and also the issue of Wikborg Rein's liability, for that was closely bound up with the question of Norwegian law raised by the Kommunes as to their capacity: but it left over for later consideration questions of quantification, both of the precise figure of the Kommunes' liability to repay, and of loss arising out of Wikborg Rein's liability in damages. As to the former, the Kommunes and Depfa indicated that the figures could hopefully be agreed. As to the latter, issues briefly canvassed embraced those of causation and scope of duty. The former has not survived, but the latter has. The judge seems to have contemplated that there might never be a need to proceed to that stage of quantifying Wikborg Rein's liability, for, as he said in his second judgment (from which this appeal stems):

"3. Throughout the trial I was under the impression, wrongly, that it was only to the extent that it could not recover, or recover in full, from the municipalities that Depfa claimed damages from Wikborg Rein…"

Similarly, on appeal from the first judgment to this court, Aikens LJ said [2010] EWCA Civ 579, [2011] 1 All ER 190 at [12] that "Issues of damages between Depfa and WR were reserved for a further trial, if necessary".

22. The outcome of the first trial was that the Kommunes succeeded in showing that the swap contracts were invalid, but failed in their defence to Depfa's counterclaim in restitution. Wikborg Rein failed in resisting liability in negligence, but the question of the quantum of that liability was left outstanding. The judge described the outcome as a "Pyrrhic victory" for the Kommunes.
23. The consequences of the first judgment were debated before the judge on 1 October 2009, and he then made the following orders: (1) the swap contracts were declared to be void; (2) the Kommunes were declared to be liable to make restitution to Depfa in sums which had in the meantime been agreed, namely NOK 219,806,556 inclusive of interest in the case of Haugesund and NOK 202,482,163 inclusive of interest in the case of Narvik; (3) the question of the rate of continuing interest was adjourned, but was subsequently fixed at a rate which exceeded that agreed under the swap contracts; (4) judgment was given to Depfa against Wikborg Rein, with damages to be assessed; (5) Wikborg Rein was made to pay all of Depfa's costs; (6) permission to appeal was granted on the issues of capacity and change of position.
24. In the immediate run-up to the hearing of 1 October 2009, Mr Mackie made his second witness statement, dated 29 September 2009, on behalf of the Kommunes, in support of their application to the judge for permission to appeal his first judgment and for a stay of execution. He stated that although the Kommunes were in a position to pay over to Depfa the proceeds of their liquidated investments with accrued interest, "they will be able to pay little, if anything more". He explained:

"there are essentially no funds to meet the payment which is due to Depfa…There is little, if any, scope to increase the municipalities' income…To a limited extent the municipalities can cut their expenditure. However, the major parts of the municipal expenses are statutory…I understand that it is unlikely that the municipalities would be permitted under Norwegian law to raise a loan to pay off the sums in question. However, even if they were, it is not clear what, if any, loans would be forthcoming…For the time being it is not possible to make any assumption as to whether, and if so how, the Ministry will give assistance to the municipalities, beyond the appointment of a supervisory board…It is not clear at this stage, how the shortfalls can be met. That in turn gives rise to an additional problem. Both municipalities have other substantial loans outstanding. In the case of Narvik the total is MNOK 863 [ie NOK 863 million]. In the case of Haugesund, the total is MNOK 1,245. Some of these loans (at least the majority in value for Haugesund) include cross-default clauses…Given the problems outlined above, the municipalities will ask for a stay of execution pending appeal on change of position."

25. The essence of that evidence was that the Kommunes were willing and able to repay the advances to the extent that they had funds left over from their unsuccessful investments, and were willing to meet their obligations in full, but were currently unable to do so. There was no suggestion that they did not recognise their obligation to do so, or that it was in any way unlawful for them to do so, if they could.
26. On the next day, Depfa served its skeleton argument for the hearing of 1 October 2009. It opposed any stay of execution in favour of the Kommunes. As to the liability of Wikborg Rein, the skeleton stated as follows:

"5.2…The second [point] relates to the theoretical possibility that the judgment debt goes unpaid. Depfa has proceeded throughout on the basis that the municipalities would respect the outcome of these proceedings. Indeed, every indication has been that it would be unthinkable for a municipality or for the Norwegian government itself to allow an English High Court judgment to go unpaid, including in circumstances where the debt arises in connection with invalid commercial agreements.

5.3 Depfa continues to believe that this remains the case and that the judgment sums will be paid. However, if they are not, Depfa will seek to recover the shortfall from Wikborg Rein…Whether or not this will become a practical issue is likely to be known in good time before January 2010, and if it is, it is a matter which Depfa will seek to pursue then against Wikborg Rein."

27. That seems to me to support the judge's view that Depfa was only looking to Wikborg Rein to the extent that it did not receive satisfaction from the Kommunes.
28. The expedited appeal was heard in February 2010 and the judgments of this court were handed down in May 2010. The Kommunes retained their judgment on the basis of their lack of capacity (although Etherton LJ dissented from the majority made up of Pill and Aikens LJJ), but failed in their change of position appeal.
29. In the course of that hearing the permission to appeal which had been granted by the judge on the change of position defence appears to have been extended to embrace the more fundamental issue whether a restitutionary remedy at law could survive the failure of an ultra vires contract. This court held that it could, since in that respect the majority in the Westdeutsche case had departed from what the House of Lords had said in Sinclair v. Brougham [1914] AC 398. Moreover, in rejecting the Kommunes' appeal in reliance on its change of position defence, this court, in the judgment of Aikens LJ, also rejected a "public policy" aspect of that defence (see at [89] – [105]), which had not been advanced, at any rate in any detail, before the judge (at [98]). Aikens LJ concluded in this respect:

"[103] My conclusions on the "public policy" issue are therefore as follows: first, the judge did not misunderstand what Lord Goff stated in WLG at p 688. Moreover, what Lord Goff there stated accords with the effect of the majority decision to depart from the decision in Sinclair v Brougham on the relevant point. Secondly, the way that Mr Milligan now puts the case on public policy is not as it was put before the judge. It is therefore unjust to complain that the judge's decision was wrong in principle. In any event, it is not. Thirdly, the judge's decision is not contrary to authority. The truth is that there is no authority directly in point. Fourthly, the judge has not made findings of fact on whether the express or implied effect of the 1992 Act is to bar any claim to recover money paid under an invalid contract with the Kommunes or that such a recovery would be contrary to the statutory intent. It appears to me that he was not invited to do so; I am confident that if he had been, he would have taken care to record his conclusions.

[104] Lastly, this is not an unjust result. The judge concluded, at 141 that Depfa acted in good faith in purporting to enter the "swaps" contracts. He also found that Depfa did not take the risk that the "swaps" contracts were invalid or that they intended that the Kommunes should keep the sums advanced if it should turn out that Depfa was mistaken as to the validity of the contracts: see 143 to 153 of the judgment. If the Kommunes were entitled not to repay what Depfa had advanced to them then, subject to the defence of "change of position", they would indeed have been enriched and, I would say, unjustly so."

30. As for the pure change of position defence, Aikens LJ concluded as follows:

"[124] This case is concerned with the second of the two situations I have identified. The Kommunes understood when they took the money from Depfa that they had to repay it…Admittedly those agreements were always void, but that cannot change the understanding on which the Kommunes received the money. At no stage did they think they had received a gift that would never have to be repaid. Furthermore, if the "swaps" contracts were void, then the cause of action for the claim in restitution for a consideration that had wholly failed must have arisen at the moment the money was paid over to the Kommunes.

[125] I would accept that the Kommunes would not have made the investments via Terra that they did "but for" the receipt of the sums from Depfa. I also accept that the Kommunes acted in good faith in making the investments and that any question of negligence or other criticism of those investments is irrelevant to this defence. But the Kommunes made those investments without any involvement by Depfa and the Kommunes made them on the understanding, at that stage in the history, that they had to repay the principal and interest to Depfa whatever happened to the investments…

[126] So, it seems to me that the question here is: where lies the justice of the case; in favour of the party that received the money and took the risk (in good faith) that the investments might go down rather than up; or in favour of the party that paid over the money and had nothing to do with it thereafter, but thinking it was to be repaid in due course. Like the judge, I think the answer to this question is obvious. The scales fall heavily in favour of Depfa recovering the full amount that it paid over to the Kommunes."

31. In the meantime, in January 2010, Tomlinson J had heard the adjourned hearing of the assessment of damages to be paid by Wikborg Rein. The Kommunes were not represented at that hearing, which concerned only Depfa and Wikborg Rein as parties to the Part 20 proceedings. In the meantime, Depfa had I think received the proceeds of the Kommunes' liquidated investments. Depfa's essential submissions were that it had suffered a total loss of the sums advanced at the time of their advance, and therefore was entitled to recover its total outlay as damages for Wikborg Rein's negligence, albeit credit would be given for any actual recoveries. The law permitted a creditor with separate claims against two defendants to recover the proceeds of judgment in full against either at his option. In any event, if regard were to be had to the value of Depfa's restitutionary claim against the Kommunes, Mr Railton now had begun to express less than total confidence about recovery from the Kommunes. He said in his skeleton for the second trial that "there are many uncertainties in making any further recovery from the municipalities", such as their appeal and "the vexed question as to whether they will in fact meet any judgment against them". Depfa remained "confident" that the Kommunes would in due course meet their liabilities, "but this is not certain". At the hearing itself Mr Railton suffered a further decline in his optimism, for he now described recovery against the Kommunes as "only speculation" (Day 1, at page 3F). When the judge described the Kommunes as "a solvent borrower" (ib at 7E). Mr Railton demurred: the Kommunes were not borrowers and "may or may not, in the event, be able to pay the judgment" (ib).

The judgment

32. The judge ultimately accepted Mr Railton's submissions. Jurisprudentially, he founded himself on two principles. The first was the principle for which The Liverpool stood authority, namely that "A claimant need not take steps to recover compensation for his loss from parties who, in addition to the defendant, are liable to him" (McGregor on Damages, 18th ed, at para 7-085). Thus a claimant was free to choose from whom to recover compensation, without any regard to the doctrine of mitigation. The second was that, in Saamco terms, this case fell within that category of cases where an adviser is responsible for all the consequences of his negligent advice. There was therefore no need to apply the Saamco/Nykredit exception whereby (a) a valuer is responsible for only the difference between his negligent valuation and the true valuation, and (b) even that difference may be limited by the value of the borrower's covenant. In any event, Depfa had suffered a total loss at the time of transfer of its advances, which would not have occurred but for Wikborg Rein's negligent advice.
33. Although the judge considered the authorities carefully, it is common ground that none of them was ultimately binding on him, and that the essence of his decision may be found in the following passages of his judgment ([2010] EWHC 227 (Comm), [2010] 1 All ER (Comm) 1109):

"18. The starting point of the enquiry is in my view that Depfa would not have advanced the money to the municipalities had it been advised by Wikborg Rein that there was any material risk that the swaps were prohibited loans giving rise to no contractual obligation on the part of the municipalities. The money so advanced was in fact irrecoverable as a contractual debt in accordance with the agreed but unenforceable terms. The money was paid over in circumstances where no legal relationship subsisted or came into effect between the payer and the payee. Depfa could recover the money only to the extent that it could demonstrate that the municipalities had by its receipt been unjustly enriched at its expense. That is an uncertain remedy, often difficult of valuation, for as pointed out by Goff and Jones, The Law of Restitution, 7^th Edition at paragraph 14-002, a restitutionary claim is not one for damages for loss suffered. In my judgment this is one of those perhaps rare cases where it is possible and appropriate to say that the bank had lost the money advanced the moment it had paid it over. It acquired in return no right to its recovery. Indeed it acquired nothing in return.

19. Mr Pollock sought to characterise "the restitutionary right" as "an integral part of the (alleged) loss-making transaction". I do not consider that this is appropriate. It is true that Depfa's mistake as to the validity of the transaction is one of the factors which gives rise to the liability of the municipalities to make restitution. However in no sense can it be said that Depfa acquired valuable rights under the transaction. There was no transaction in the sense in which that word is in this context normally used. There was no contract. That is the essence of Depfa's complaint against Wikborg Rein. In these circumstances, the approach which I derive from the authorities, even if they do not necessarily compel it, is that Depfa is to be treated as having suffered loss when it paid away pursuant to a non-existent transaction and that the measure of that loss is the whole amount advanced together with the cost of funding. Further losses might be incurred and its loss might in fact be reduced, but the situation is one in which the law permits recovery in full of the outstanding loss, that loss being assessed independently of the possibility of further recoveries. That is at least in part because the transaction itself was worthless to Depfa, and Depfa would nor have advanced the money had it been advised that it would have no contractual right to its recovery."

The principle in The Liverpool

34. On behalf of Wikborg Rein, Mr Gordon Pollock QC accepts the principle in The Liverpool, but submits that it does not answer the question in the case. He accepts that a claimant is entitled to enforce his rights against any defendant liable to him. It is then for the defendants to debate in contribution or other such proceedings between themselves where the loss should ultimately fall. He submits nevertheless that the anterior question is: For what loss is the defendant liable? To what loss is the claimant entitled against a particular defendant? On the other hand Mr Railton, on behalf of Depfa, submits that the principle by itself answers the question whether Wikborg Rein can take any credit for the fact that Depfa has an alternative remedy against the Kommunes. He submits that this is the fundamental principle, which he calls the exclusionary principle, because it excludes the possibility of any such credit (in the absence of actual recovery). If there is any exception to that principle (as he accepts there is in a valuation case where the covenant of the borrower remains effective despite the negligent over-valuation of the property concerned, see Nykredit), it is a narrow one and confined to a case where the claimant continues to have a good remedy in contract.
35. In these circumstances, it is necessary to consider the ramifications of the principle.
36. In The Liverpool (No 2) [1963] P 64, the Ousel and the Liverpool collided in the Port of Liverpool and the Ousel sank. The owners of the Liverpool admitted liability. The Mersey Docks and Harbour Board (the "Board") took possession of the wreck under statutory powers and claimed the expenses of clearing the wreck against the owners of both vessels. The claim against the owners of the Ousel was a statutory claim, and the claim against the owners of the Liverpool arose from their liability for the collision. The claim was worth about £60,000 (net of recoveries from the sale of salvaged items). However, as against the owners of the Ousel the Board's claim was limited to about £10,000 by reason of the limitation of liability provisions available to those owners under the Merchant Shipping Acts. As against the owners of the Liverpool, however, the prospect of recovery was much larger, for her limitation fund was expected to pay out about 30% (6 shillings in the £), ie closer to £20,000. It was perhaps for this reason, but also perhaps because the collision had been the fault of the Liverpool not of the Ousel, that the Board had declined the tender by the owners of the Ousel of the £10,000, which they had deposited with stakeholders. One issue in the case, therefore, was whether the Board's claim against the limitation fund of the Liverpool had to give credit for the £10,000 which it could, if it chose to, recover so easily from the limitation fund of the Ousel. This court held that credit did not have to be given. Harman LJ said (at 82/3):

"Let it be conceded that if the board had recovered the £10,000 from the Ousel under its statutory power that would have been satisfaction pro tanto of the damages; still the fact is that the board has not recovered this sum, and, in our judgment, there is no duty upon it to do so…even if the board had obtained judgment against the Ousel there would have been no duty upon it to proceed to execution in alleviation of the Liverpool, which is a tortfeasor…[T]his case, in our judgment, has nothing to do with the duty to mitigate damages. It concerns the board's legal rights, and no duty rests on it at the demand of a tortfeasor to satisfy part of the damages by resorting to another tortfeasor; still less by resorting to an innocent party made liable merely by statute."

37. In that case, however, the size of the loss arising out of the wreck removal expenses incurred by the Board was not in issue. The only question was whether the Liverpool's liability could be reduced by reason of the Ousel's.
38. A similar conclusion was determined in International Factors v. Rodriguez [1979] 1 QB 351 (CA), where the defendant had converted cheques which had been assigned to the claimant factors. The defendant said that his liability could be reduced by the factors' rights against the makers of the cheques, ie to make them pay twice. That was roundly rejected. Sir David Cairns said (at 359A):

"The position simply is that, assuming, as I will, that there is a right of action against the debtors, a plaintiff who has two causes of action cannot be met when he makes a claim against one defendant by the answer: "Oh, no; you've suffered nothing by my tort because you have a cause of action against somebody else." That clearly cannot be right."

There again, however, the loss caused by the conversion of the cheques, a strict liability, was not in doubt. The essential position was the same in Standard Chartered Bank v. Pakistan National Shipping Corp [2001] CLC 825 (CA), where fraud had caused the claimant's loss: see at para 52, where The Liverpool was invoked.

39. A full review of The Liverpool principle and its jurisprudence was conducted in Peters v. East Midlands Strategic Health Authority [2009] EWCA Civ 145, [2010] QB 48. This was a claim against the health authority in medical negligence. The health authority sought to avoid damages by submitting that the claimant had a right to care and accommodation from her local authority pursuant to statute. However, the claimant's loss arising from her personal injury was proven. Clarke MR concluded:

"[53] Having reviewed these authorities, we can now express our conclusion on this issue. We can see no reason in policy or principle which requires us to hold that a claimant who wishes to opt for self-funding and damages in preference to reliance on the statutory obligations of a public authority should not be entitled to do so as a matter of right. The claimant has suffered loss which has been caused by the wrongdoing of the defendants. She is entitled to have that loss made good, so far as this is possible, by the provision of accommodation and care. There is no dispute what that should be and the council currently arranges for its provision at The Spinnies. The only issue is whether the defendant wrongdoers or the council and the PCT should pay for it in the future."

40. In my judgment, the principle in The Liverpool is not in doubt. If it were otherwise, no claimant with remedies against more than one defendant could ever get judgment against either, for each defendant could play off the claim against him by referring to the claim against the other. And where the claimant has sued only one out of a number of possible defendants, the litigation before the court would become embroiled in satellite litigation involving the alleged position relating to other parties. It is rather for the defendants involved to bring contribution or other similar proceedings against each other, or for the sole defendant to implead other parties if it is thought prudent to do so.
41. However, all those cases proceed on the basis that the claimant's loss has been established and what is at issue is whether the right to proceed for a remedy against another party can operate to reduce or remove the claimant's right to judgment for his established loss against the defendant of his choice. Those cases and the principle in The Liverpool do not, however, in my judgment answer the real question raised by Wikborg Rein's appeal, and that is whether Depfa's loss has been properly established against it.

The scope of Wikborg Rein's duty: the Saamco principle

42. Mr Pollock submits that the Saamco principle applies in this case to limit Wikborg Rein's responsibility for its negligence to matters which were within the scope of its duty. That was to give a specific piece of advice on the capacity of the Kommunes to enter into the swap contracts, on the basis that they were not loans and thus not prohibited by section 50. Although the firm erred in its advice, and it is acknowledged that Depfa would not have entered into the transactions unless it had received the advice it did, Wikborg Rein is not responsible for all the consequences of its advice having been relied upon, but only for the consequences of that advice being wrong. Those consequences were that a contractual obligation to repay the advances sometime in the future, at a low rate of interest charged, became an obligation in restitution to repay the advances at once, and if not so paid to incur a higher rate of interest.
43. In Saamco the House of Lords decided that in the ordinary case a valuer is responsible for the loss caused by his valuation being wrong, to the extent that is was wrong, but not for any additional loss caused by a fall in the market. Lord Hoffmann, with whose speech the other members of the House agreed, distinguished between issues of causation, measure of loss and scope of duty. The last concept was primary, and the "real question in this case is the kind of loss in respect of which the duty was owed" (at 212C). Moreover, "the scope of the duty in tort is the same as in contract" (at 211G).
44. Lord Hoffmann specifically rejected the court of appeal's reasoning that, since the lender would not have entered into the transaction if he had known of the true valuation, therefore the valuer is liable for all the consequences of the transaction as though bearing all its risks within reasonable contemplation (at 212/213). Lord Hoffmann then distinguished (at 214C/F) between two classes of case, which have been referred in argument before us as "category 1" and "category 2" cases:

"I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable either as an implied term of a contract or as a tortious duty arising from the relationship between them.

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct, and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."

45. Mr Pollock submits that this is a category 1 case, and that Wikborg Rein is not responsible for the Kommunes' loss of the money which had been advanced to them in their disastrous investments. The creditworthiness of the borrower is a risk for the banker, not for the lawyer. Mr Railton, however, submits that this is a category 2 case, so that Wikborg Rein is responsible for the foreseeable consequences as a whole.
46. One of the three cases before the House of Lords in Saamco was that of Nykredit. As in the other two cases, the House of Lords held that the damages were limited to the difference between the negligent valuation and the true value of the property concerned at the date of valuation. The figure in question was then agreed by the parties (at £1.4 million). However, a dispute continued as to the date from which the interest on the judgment amount should run. This in turn could depend on the date at which the lender's cause of action against the valuer arose (because section 35A(1) of the Senior Courts Act 1981 gave the court power to award interest "for all or any part of the period between the date when the cause of action arose…and the date of judgment"). Did the cause of action arise at the time of the valuer's negligence, at the time of the transaction, at the time of default, at the time of realisation of the security, or at some other time? So the interest issue promoted a discussion of a different issue, highly important for the law of limitation, as to when the cause of action in such a case arose. A cause of action in contract, at the very least for nominal damages, had arisen at the time of the negligent valuation itself, but in tort the cause of action does not arise until there is loss or damage, ie measurable damage. Plainly there should not be an award of interest that went back to the time when only nominal damages were suffered; nor even to the time when merely measurable damage was suffered, if the real loss only occurred later. Therefore, the House of Lords in Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 entered upon a broad ranging discussion of these topics, which included revisiting and restating the learning of Saamco itself.
47. Lord Nicholls of Birkenhead said (at 1631D/1633G):

"When, then, does the lender first sustain measurable, relevant loss? The first step in answering this question is to identify the relevant measure of loss. It is axiomatic that in assessing loss caused by the defendant's negligence the basic measure is the comparison between (a) what the plaintiff's position would have been if the defendant had fulfilled his duty of care and (b) the plaintiff's actual position…Thus, typically in the case of a negligent valuation, the basic comparison called for is between (a) the amount of money lent by the plaintiff, which he would still have had in the absence of the loan transaction, plus interest at a proper rate, and (b) the value of the rights acquired, namely the borrower's covenant and the true value of the overvalued property.

However, for the reasons spelled out by my noble and learned friend, Lord Hoffmann, in the substantive judgments in this case [1997] AC 191, a defendant valuer is not liable for all the consequences which flow from the lender entering into the transaction. He is not even liable for all the foreseeable consequences. He is not liable for the consequences which would have arisen even if the advice had been correct. He is not liable for these because they are the consequences of risks the lender would have taken upon himself if the valuation advice had been sound. As such they are not within the scope of the duty owed to the lender by the valuer.

For what, then, is the valuer liable? The valuer is liable for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation. This principle of liability, easier to formulate than to apply, has next to be translated into practical terms. As to this, the basic comparison remains in point, as the means of identifying whether the lender has suffered any loss in consequence of entering into the transaction. If he has not, then currently he has no cause of action against the valuer. The deficiency in security has, in practice, caused him no damage. However, if the basic comparison throws up a loss, then it is necessary to inquire further and see what part of the loss is the consequence of the deficiency in the security…

The basic comparison gives rise to issues of fact. The moment at which the comparison first reveals a loss will depend on the facts of each case. Such difficulties as there may be are evidential and practical, not difficulties in principle.

Ascribing a value to the borrower's covenant should not be unduly troublesome. A comparable exercise regarding lessees' covenants is a routine matter when valuing property. Sometimes the comparison will reveal a loss from the inception of the loan transaction. The borrower may be a company with no other assets, its sole business may comprise redeveloping and reselling the property, and for repayment the lender may be looking solely to this security. In such a case, if the property is worth less than the amount of the loan, relevant and measureable loss will be sustained at once. In other cases the borrower's covenant may have value, and until there is default the lender may presently sustain no loss even though the security is worth less than the amount of the loan. Conversely, in some cases there may be no loss even when the borrower defaults. A borrower may default after a while but when he does so, despite the overvaluation, the security may still be adequate…

Indeed, for the cause of action to arise only when the lender realises his security would be a highly unattractive proposition. It would mean that, however obvious it may be that the lender will not recover his money, he cannot start proceedings. He must wait until he manages to sell the property, a process that may be protracted. This would be a surprising stance for the law to take. It would be all the more surprising when one has in mind that a lender's cause of action against his negligent valuer for breach of contract, as distinct from a claim in tort, arises when the negligent valuation is given. 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 to assess the loss…As Mr Briggs submitted, no accountant or prospective buyer, viewing the loan book of a commercial lender, would say that the shortfall in security against outstanding loans to defaulting borrowers did not represent a loss to the lender merely because the securities had yet to be sold. Realisation of the security does not create the lender's loss, nor does it convert a potential loss into an actual loss. Rather it crystallises the amount of the present loss, which hitherto had been open to be aggravated or diminished by movements in the property market.

I can see no necessity for the law to travel the commercially unrealistic road. The amount of a plaintiff's loss frequently becomes clearer after court proceedings have been started and awaiting trial. This is an everyday experience. There is no reason to think that the approach I have spelled out will give rise to any insuperable difficulties in practice. In their practical conduct of litigation the courts are well able to ensure that assessments of damages are made in a sensible way. It is not necessary, in order to achieve a sensible and fair result, to go as far as asserting that the plaintiff has no cause of action, and hence may not issue a writ, until the assessment can be made with the degree of precision that accompanies the realisation of the security. Further, within the bounds of sense and reasonableness the policy of the law should be to advance, rather than retard, the accrual of a cause of action. This is especially so if the law provides parallel causes of action in contract and in tort in respect of the same conduct. The disparity between the time when these parallel causes of action arise should be smaller, rather than greater.

An alternative, less extreme possibility is that the cause of action does not arise until the lender becomes entitled to have recourse to the security. I am not attracted by this as a proposition of law. This suggestion involves the proposition that until then, as a matter of law, the lender can never suffer loss, and the lender can never issue his writ, whatever the circumstances. That does not seem right to me. This proposition, like the date of realisation submission, loses sight of the starting-point: that the lender would not have entered into the transaction had the valuer given the proper advice. If the basic comparison shows a loss at an earlier stage, why should the lender have to wait until the borrower defaults…?

I recognise that the basic comparison may well not reveal a loss so long as the borrower's covenant is performing satisfactorily. For this reason there is little risk of a lender finding his action statute-barred before he needs to resort to the deficient security. But it would be unwise to elevate this practical consideration into a rigid proposition of law."

48. Lord Hoffmann similarly presented the argument as follows (at 1638D/1639D):

"The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off than he would have been if he had not lent the money at all. What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said. It is of course also the case that the lender cannot recover if he is, on balance, in a better or no worse position than if he had not entered into the transaction at all. He will have suffered no loss. The valuer does not warrant the accuracy of his valuation and the lender cannot therefore complain that he would have made more profit if the valuation had been correct. But in order to establish a cause of action in negligence he must show that his loss is attributable to the overvaluation, that is, that he is worse off than he would have been if it had been correct.

It is important to emphasise that it is a consequence of the limited way in which the House defined the valuer's duty of care and has nothing to do with questions of causation or any limit or "cap" imposed upon damages which would otherwise be recoverable. It was accepted that the whole loss suffered by reason of the fall in the market was, as a matter of causation, properly attributable to the lender having entered into the transaction and that, but for the negligent valuation, he would not have done so. It was not suggested that the fall in the market was unforeseeable or that there was any other factor which negatived the causal connection between lending and losing the money…The essence of the decision was that this is not where one starts and that the valuer is responsible only for the consequences of the lender having too little security.

…It follows that in the present case such loss will be suffered when the lender can show that he is worse off than he would have been if the security had been worth the sum advised by the valuer. The comparison is between the lender's actual position and what it would have been if the valuation had been correct.

There may be cases in which it is possible to demonstrate that such loss is suffered immediately upon the loan being made. The lender may be able to show that the rights which he has acquired as lender are worth less in the open market than they would have been if the security had not been overvalued. But I think that this would be difficult to prove in a case in which the lender's personal covenant still appears good and interest payments are being duly made. On the other hand, loss will easily be demonstrable if the borrower has defaulted, so that the lender's recovery has become dependent upon the realisation of his security and that security is inadequate. On the other hand, I do not accept Mr Berry's submission that no loss can be shown until the security has actually been realised. Relevant loss is suffered when the lender is financially worse off by reason of a breach of the duty of care than he would otherwise have been."

49. Lord Goff of Chieveley, Lord Jauncey of Tullichettle and Lord Slynn of Hadley agreed with the speeches of Lord Nicholls and Lord Hoffmann; and Lord Hoffmann also agreed with the speech of Lord Nicholls.
50. In the result, the borrower had defaulted almost at once, and well before the date at which the lender claimed interest. So that the actual case under consideration proved an easy one in which to apply the learning involved.
51. What for present purposes was said in Nykredit? The Saamco principle was clarified: the issue went not to causation, nor to foreseeability, but to the primary question of the scope of the defendant's duty. The valuer did not take the risk of the transaction as a whole, only of his valuation. The basic loss could therefore not exceed the extent of the overvaluation. However, that loss was not necessarily suffered immediately, and might never be suffered, if for instance the borrower's covenant sufficed and the security never had to be looked to. But a material loss, sufficient to create a cause of action in tort and beyond a merely nominal loss for the purposes of a breach of contract, might occur well before the lender might suffer his maximum loss, if it could be said that the lender was materially worse off because of the negligent overvaluation. That might occur because, even at a time when the borrower's covenant continued to be honoured, the borrower's rights would be valued at a materially lower figure because of the lower security in fact provided by the true value as distinct from the advised value. That material loss, sufficient to found a cause of action in tort, was not however necessarily the same as the full extent of the loss which might be suffered if the borrower defaulted and the lender had to look to his security. What therefore had to be valued for the purposes of any claim were the borrower's rights against the lender and the property in the new situation. Although the context was that those rights remained in contract so far as the borrower's personal covenant was concerned, there was nothing about the principles and the "basic comparison" of which Lord Nicholls and Lord Hoffmann spoke which in terms limited their approach to rights in contract, or rights in debt. They were addressing general principles. Moreover, Lord Nicholls emphasised that everything would depend on the facts of the individual case, that difficulties of application were not the same as difficulties in principle, but also that the law would seek principled solutions which reflected commercial realities.
52. Aneco Reinsurance Underwriting Ltd (In Liquidation) v. Johnson & Higgins Ltd [2001] UKHL 51, [2002] 1 Lloyd's Rep 156 ("Aneco") is the third in a trilogy of House of Lords cases on this subject-matter. The defendant was a broker who had been instructed by Aneco to obtain reinsurance for it for an insurance treaty which it planned to subscribe to. The reinsurance which the defendant obtained was avoided for misrepresentation. The defendant was found to have acted negligently in advising Aneco that reinsurance was available, for it was found that reinsurance on any commercial terms was not available and that the defendant should have advised Aneco of that fact. The unavailability of reinsurance would have demonstrated to Aneco the view of the market as to the unacceptable risks involved in the treaty to which it had subscribed. The issue in the House of Lords was as to the extent of the loss for which the defendant broker was responsible. One measure was the extent to which the reinsurance might have assuaged Aneco's losses (some $11 million). The competing measure was the total loss incurred by Aneco from entering into the treaty (some $35 million). The House of Lords, by a majority, held that it was the wider measure of responsibility that was correct. That was because it was the broker's duty to advise Aneco that reinsurance was not available.
53. Thus the essential issue was whether this was a "category 1" case or a "category 2" case. The majorities both in this court and the House of Lords demonstrate that this was not an easy characterisation about which to come to a conclusion. As such, it might be said that Aneco is just an example of what Lord Nicholls in Nykredit had referred to as the difficult application of fact to principle. Nevertheless, Mr Railton relies on it as an illuminating statement of principle, and it is true that in one of the two principal speeches for the majority Lord Lloyd of Berwick suggests that category 2 is the basic category, from which category 1 is the exception. Lord Lloyd said:

"12. What was new and important in SAAMCO was the application of the principle to valuers, so as to exclude their liability for loss due to a fall in the market: see Platform Home Loans Ltd. v. Oyston Shipways Ltd., [2000] 2 AC 190 at p. 209 per Lord Hobhouse. Thus in the case of valuers, and their like, that is to say those who undertake to provide specific information, the SAAMCO principle gave rise to a sub-rule, that valuers are not generally liable (the word is that of Lord Hoffmann, at p. 214) for all the foreseeable consequences of their negligence, but only for the consequences of their valuation being wrong. It follows that the damages will usually, though not always, be limited to the difference between their valuation and the correct value…

13. In par. 12 of their printed case the brokers state this sub-rule as if it were a rule of general application in the law of contract:

The question is not what would have happened if a correct report had been made, but what would have happened if the report actually made had been correct.

But that is not what the House decided. So much is clear from the immediately following paragraph of Lord Hoffmann's speech, at p. 214 in which he draws a contrast between a duty to provide specific information and a duty to advise generally…The Superhulls Cover case represents the ordinary rule, whereby brokers (and others) are liable in contract for the foreseeable consequences of their negligence, including the adverse consequences of entering into a transaction with a third party, provided such consequences can fairly be held to fall within the scope of the defendant's duty of care. SAAMCO is an example of a special class of case – typically that of a valuer, but not confined to valuers – where a scope of the defendant's duty is confined to the giving of specific information."

54. As for the decision on the facts of the case, Lord Lloyd said:

"16. It is to those facts that I now turn. Was the duty of the brokers confined to the obtaining of excess of loss protection for Aneco, and informing Aneco that they had done so? If so, I would sympathize with Lord Justice Aldous' conclusion…But I am quite unable to accept that the duty of the brokers was so narrowly confined. At the very least they owed a duty to inform Aneco whether or not reinsurance was available…"

55. Lord Steyn, however, did not express any general agreement with Lord Lloyd's speech and referred, essentially without additional comment (save for a reference to academic debate about the difference between warranties and the responsibilities involved in a duty of care), to the scope of the duty principle laid down in Saamco (at paras 20 and 36/38). He continued, as to the "correct characterization of the case", at paras 39ff. The essence of his reasoning, which in part relied on the specific concession of the broker's witness that "we were advising him about the state of the market at that time", was that –

"41. The contrary reasoning of Lord Justice Aldous, and the arguments of Counsel for the brokers, are in my view based on the artificial and unrealistic distinction between reporting on the availability of reinsurance in the market and reporting on the assessment of the market on the risks inherent in the Bullen treaty. These are two sides of the same thing: they are inextricably intertwined."

56. Aneco thus illustrates the difference between a category 1 and category 2 case. It might perhaps be observed that insurance brokers participate in the same market as their clients. Indeed, they are typically involved in the negotiation and conclusion of their clients' deals on the insurance market. A valuer, however, stands somewhat apart from the property lending market. He is not concerned with the borrower's covenant, which is a matter for bankers not valuers, but with the value of the security represented by the property concerned.

Other jurisprudence

57. The parties have between them sought to derive assistance from the following further authorities, which the judge also discussed.
58. First and foremost come two authorities concerned with the liability of solicitors. Bristol and West Building Society v. Fancy & Jackson (A firm) [1997] 4 All ER 582 was decided soon after Saamco. The authority covers a number of separate cases. The solicitors involved acted for both the lender and the borrower. Under the terms of their retainer they were required to notify the lender of any matters which might prejudice its security. The solicitors failed in one case to report that they did not have an official search certificate, in another case to report circumstances that suggested that the true price was lower than the basis on which the advance was made, and in a third case to report circumstances which might have suggested the need for a further valuation.
59. In the first case (Fancy and Jackson), Chadwick J held that there was no loss for which the solicitor was responsible (at 621j/622b). In the second case (Steggles Palmer) he held that the solicitor was responsible for all the consequences of the borrower entering the transaction, because the lender, if it had known what it should have known, would have been unwilling to lend to that borrower at all; and in the third case (Colin Bishop), he held that the solicitor should be liable only for what any further valuation would have shown was the extent of the overvaluation concerned, a matter yet to be adjudicated (at 622g/j). It seems to me that no general conclusions can be obtained from that authority. Each solicitor's retainer was general rather than specific, but each case depended on its own facts.
60. The second authority is Portman Building Society v. Bevan Ashford (A firm) [2000] PNLR 344 (CA). The solicitor there was again acting for both lender and borrower and was again responsible to the lender for reporting anything which might adversely affect its security. The solicitor failed to notify the lender that part of the vendor's price was to be met from a second charge. The lender found out about the second charge only a week after completion of the transaction. The solicitor contended that the lender could then have taken possession of the property and realised its security, without any loss at that time. However, this court concluded that the solicitor should be responsible for the whole loss, since the borrower had acted fraudulently, and the purchase was not viable at all since the borrower's income could not support his total borrowings. Otton LJ, giving the lead judgment, expressed this reasoning quite briefly (at 358/9). He pointed out that "the answer to this issue is to be found in the particular facts of this case". He said (at 359A):

"Longmore J. was correct to follow the reasoning of Chadwick J. [in Bristol and West] in the application of the SAAMCO principle and has the effect that where a negligent solicitor fails to provide information which shows that the transaction is not viable or which tends to reveal an actual or potential fraud on the part of the borrowers, the lender is entitled to recover the whole of its loss. In other words, the whole of the loss suffered by the lender is within the scope of the solicitor's duty and is properly recoverable."

61. Mr Railton submits that in our case, Wikborg Rein similarly failed to advise that the transaction was not viable, since it was void. However, it seems to me that it is one thing to fail to advise a lender, where it is within a solicitor's duty to do so, that a borrower is lying about the equity which he is apparently putting into his purchase and thus his means to support his borrowing, and on the other hand for a solicitor to err as to an honest borrower's capacity to enter into a transaction where the borrower's ability to repay is entirely a matter for the lender and not for the solicitor. I do not therefore think that these authorities on a solicitor's responsibility are of much assistance on the facts of our case.
62. Eastgate Group Ltd v. Lindsey Morden Group Inc [2001] EWCA Civ 1446, [2002] 1 WLR 642 involved a claim against accountants who advised on due diligence performed in the context of the purchase of a company. The purchaser claimed for breach of warranty against the seller, and the seller said that the purchaser should blame its own accountants, and also brought Part 20 proceedings against the accountants for a contribution under the Civil Liability (Contribution) Act 1978: on the basis that any actual recovery from the vendor would go to reduce the claim against the accountants and vice versa. The judge struck out the contribution claim on the basis that the seller and the accountants were not liable for the same loss. This court allowed the appeal on the basis that a contribution claim was at least arguable, for the reason put forward by the vendor. The trial judge had reasoned otherwise on the basis that Nykredit demonstrated that the claim against the accountants would in any event have to give credit for the claim under the warranty. However, Longmore LJ distinguished between a claim in debt and a claim in damages. He said:

"It cannot be the case, merely because a valuer can require a claimant, who brings an action for damages against him, to bring into account the value of a borrower's covenant to repay a debt, that therefore any party liable to a claimant for professional negligence can require the claimant to bring into account the value of his claim against any other contractor for breach of warranty. This is due to the essential difference between a claim for repayment of a debt (to which there can ordinarily be no substantive defence and in respect of which a claimant does not have to prove a loss) and a claim for damages for breach of contract (to which there may be many defences and in respect of which the claimant must prove his loss)."

63. Mr Railton therefore submits that the doctrine in Nykredit that the value of the borrower's covenant may go to reduce a valuer's liability in negligence does not apply outside contract to our case in restitution. However, I confess that I do not find the reference to Eastgate to be helpful. The "same loss" argument there has its own obscurities, which it was not necessary for that court finally to resolve and which have not been elucidated before us. In any event the Nykredit doctrine is not about another claim (whether in contract, in debt, or otherwise) reducing a claim against valuers, but about whether the lender has in fact suffered any loss, or if any, how much loss, in circumstances where the transaction into which he has entered is still functioning and promises to continue successfully to do so. What light the Eastgate rationale throws on that doctrine, or how Eastgate is relevant to a case where a lender loses his contractual rights altogether, but in their demise instantaneously receives in their place a right to recover there and then his advance as a restitutionary debt, not as damages, are obscure to me. We are concerned with a situation where (a) the original transaction does not survive at all, but (b) its loss automatically generates (at least prima facie) an alternative remedy in restitution.
64. In Niru Battery Manufacturing Co v. Milestone Trading Ltd [2002] EWHC 1425, [2002] 2 All ER (Comm) 705 (Moore-Bick J), [2003] EWCA Civ 1446, [2004] 1 Lloyd's Rep 344 ("Niru"), a purchaser under an international sale of goods, Niru, paid for the goods under a letter of credit which required a bill of lading and an inspection certificate to be given by SGS. The bill of lading was fraudulent because no goods had in fact been shipped but SGS had negligently certified that they had been. When Niru's bank paid for the documents, Niru became obliged to indemnify its bank, Bank Sepah. Niru had a claim in restitution against the seller's bank, CAI, which had received the price of the goods under a mistake, and also a claim in negligence against SGS. Both claims succeeded, in the same amount, namely the price paid under the letter of credit. There were issues as to whether there had been a break in the chain of causation between SGS's negligence and Niru's loss, all of which failed (see under the heading in Moore-Bick J's judgment "Causation and Loss" at [84]ff). However, there was no issue as there is in the present case to the effect that Niru's loss was not within the scope of SGS's duty (which in my judgment it plainly was); nor as to whether Niru's loss had not occurred at all because the payment for the goods was compensated for by the restitutionary claim against the seller's bank.
65. Moore-Bick J said this:

"[90] The inspection certificate was one of the keys to the funds represented by the letter of credit. Possession of it enabled Milestone [the seller] to present conforming documents and thereby (on the face of it) trigger Bank Sepah's obligation to make payment. The fact that Bank Sepah failed to honour its obligation promptly helped to bring about a situation in which CAI felt it necessary to realise its security, but it did not itself cause the loss to Niru. That arose when Bank Sepah made payment against false documents, having debited Niru's account a little earlier in respect of the funds. Bank Sepah's failure to pay promptly merely delayed the loss. It was no more than one element in a combination of circumstances which ensured that the incipient loss was not averted. Since the bill of lading was in fact worthless Niru was bound to suffer loss once apparently conforming documents had been presented to it under the letter of credit, unless something subsequently intervened to prevent it. Mr Mahdavi had hoped and intended that the payment of the price and the release of the goods by CAI would intervene to make good the position, but in the event they did not. The loss thus flowed from the original cause, namely, the presentation of worthless documents. Similarly, the prompt return of the money by CAI would no doubt have made good the loss, but the loss itself occurred as soon as the funds were transferred to CAI."

66. The points about causation of loss were not repeated on appeal. In this court Clarke LJ needed only to say this:

"93. As the Judge put it, although there were other causes of the loss, the inspection certificate was one of the keys to the funds represented by the letter of credit and the loss flowed from the original cause, namely the presentation of worthless documents. Miss Andrews did not challenge this part of the Judge's reasoning but, in any event, I see no reason to disagree with it."

67. Mr Railton accepts that the points raised in the present case did not figure in Niru, but he submits that the situation in the two cases are for relevant purposes identical and that Niru shows that an alternative remedy in restitution against another defendant does not assist a negligent party, but for whose negligence a transaction would not have occurred, from escaping responsibility, and that loss occurs in full at the time of transfer of payment.
68. In circumstances where the present issues were not live, I cannot regard Niru as an authority in Depfa's favour. In any event, any examination of the scope of SGS's duty must have concluded that it took responsibility for the payment for non-existent goods, and that payment for non-existent goods against a fraudulent bill of lading represented an actual loss. It is like a solicitor whose retainer includes advising its client against the possibility of fraud. The fact that there might have been a claim in restitution against the vendor's bank might have reversed that loss, but could not have prevented one occurring in circumstances where the money was transferred as the price for non-existent goods.

The nature of the restitutionary claim

69. The parties' submissions raise a question as to the nature of a restitutionary claim. It is accepted that it is a claim in debt and not in damages. It is not founded upon any wrong by the defendant. It does not depend upon an exercise of discretion, but is a matter of right (Lipkin Gorman (a firm) v. Karpnale Ltd [1991] AC 548 at 578D per Lord Goff).
70. Mr Railton submits that a claimant in restitution must by definition have suffered loss in order to found his restitutionary claim. Therefore, it must follow that Depfa must have suffered loss at the time of transfer of its advances to the Kommunes, otherwise it could not support its claims in restitution against them. He supports that submission by citations from jurists on the subject of restitution and unjust enrichment to the effect that the defendant's benefit must be gained at the claimant's expense in order to support a restitutionary claim: see Goff and Jones, The Law of Restitution, 7^th ed, 2007, at para 1-044, Burrows, The Law of Restitution, 2^nd ed, at 25-31, and Virgo, The Principles of the Law of Restitution, 2^nd ed, at 105, 112-116. The jurists do not, however, agree as to the theoretical basis of the requirement. Mr Railton also cites Lord Clyde in Banque Financière de la Cité v. Parc (Battersea) Ltd [1998] 1 AC 221 at 237 that the enrichment of the defendant must have "come about because of the loss" However, it does not seem to me to follow that any sense in which the claimant's "expense" or "loss" is used in this context amounts to established loss for the purpose of a claim in contract or tort against another party. The concept of loss in the latter context answers different purposes and requirements.
71. Mr Railton submits that a claim in restitution is totally unlike a claim in contract, in that it is an uncertain claim, subject to problematical defences, such as change of position. Therefore there can be no analogy between the contractual remedy against a borrower under the Nykredit doctrine and an alternative remedy in restitution against a defendant whose lack of capacity frees him from any contractual liability. There is, he says, a better analogy between a claim in restitution and a claim in damages (see above where Eastgate is discussed).
72. In my judgment, however, especially in the context of an ultra vires transaction, the claim in restitution which rises up in place of the invalid contract is sufficiently close to the claim in contract, even though its theoretical basis is totally different, being based not on agreement, but on an obligation imposed by law. That obligation reflects the moral consciousness that a defendant who has been unjustly enriched at another's expense must, subject to defences which are part and parcel of that same moral consciousness, such as change of position, return what he has received.

Discussion

73. It seems to me that the primary question raised by this appeal is as to the scope of Wikborg Rein's duty. It may be that in the context of contract that might have to be rephrased as a question of assumption of responsibility, but the Saamco line of cases shows that English law is prepared to adopt the phraseology of tort, scope of duty, even in cases where there are parallel obligations in contract and tort. I bear in mind that in the present case, which is formally one of Norwegian law, Wikborg Rein's obligation arises only in contract. But the obligation remains one to exercise a duty of care, and it has been common ground in this court, as before Tomlinson J, that it is appropriate to consider the scope of that (contractual) duty in the terms laid down in Saamco and the cases which follow it.
74. In this context, the preliminary question is whether this is a category 1 or category 2 case. Mr Pollock contends for the former, and Mr Railton contends for the latter. In my judgment, however, this is a category 1 case. For these purposes, I am prepared to assume, with Lord Lloyd in Aneco, that category 2 reflects the primary category, and category 1 reflects the exceptional cases. Nevertheless, it seems to me that it is difficult to see Wikborg Rein's duty as being that of a general, as distinct from a specific kind. Wikborg Rein was asked to advise about a specific question, the validity of the proposed swap contracts. It did not have a general retainer to report or notify problems about the proposed transactions. It was not concerned with the creditworthiness of the Kommunes. It warned Depfa that it could not execute a judgment against the Kommunes, so that in that, different, sense, its contractual rights could not ultimately be vindicated or, one might say, be enforced. In such circumstances, Depfa knew that it ultimately relied on the creditworthiness and good faith of the Kommunes: and on those qualities Depfa made up its own mind and was wholly confident.
75. It is of course true that Depfa would not have entered into the transactions at all unless it could be advised that the contracts were valid and within the Kommunes' capacity. In effect, that causal connection between advice and loss goes without saying in all such cases. It is not in itself the reason for finding that the scope of duty concerned embraces all the loss consequential upon entering into the transaction concerned. For these reasons it does not seem to me that it is a sufficient explanation for characterising a case as a category 2 case to say that, without the forthcoming albeit negligent advice, the transaction concerned would not have been "viable". That is simply another way of saying that, if the claimant had not received the advice it did, it would not have entered into the transaction. A lender who is given a negligent overvaluation does not know that his transaction is not viable on the basis of the true value of the property concerned: but if he would not have gone ahead had he known the truth, it is because the transaction was not commercially viable, or not safely so. Alternatively, if he would have gone ahead even on the basis of that true value, for instance because he was content to rest on the safety of the borrower's covenant alone and was not concerned with the passing value of the property, then there has been no reliance and for that separate reason no relevant loss.
76. I therefore do not consider Wikborg Rein's retainer to have been of a general kind. It was not like the examples of general retainers which have been considered in the authorities discussed above. Wikborg Rein had no general responsibility to advise Depfa on whether to proceed with the transactions or not. It did not share the same markets, in the way that insurers and insurance brokers do. It was not acting as lawyers sometimes do, as hommes des affaires. It was giving a specific piece of legal advice. The judge, citing Bristol and West, Portman, and Aneco, appears to have considered otherwise (see at para 31 of his judgment), but essentially on the ground that the Saamco principle applies only to cases where a transaction (albeit on different terms) would still have occurred if the claimant had known of the true position, and does not apply where, but for the negligence, no transaction would have occurred at all. In my judgment, however, that involves a misreading of the principle, which takes as its starting-point that, but for the negligence, the transaction would not have occurred, and then asks whether, even so, all the loss caused by entering into the transaction is within the scope of the defendant's duty.
77. If therefore the present cases are to be characterised within category 1, as I believe they should, the question remains as to the extent of Depfa's loss that fell within the scope of Wikborg Rein's duty. In my judgment, that must depend on the reason for that loss. If it is due to the invalidity of the transactions, then the loss was plainly within the scope of Wikborg Rein's duty. That appears to have been the judge's view of the matter, for he stressed at various points of his judgment that the whole loss had already been incurred at the time of payment of Depfa's advances, at a time when the money was advanced on the strength of a contractual obligation to repay which had no legal reality because of the invalidity of the transactions (see for instance at the end of the judge's para 18, cited above). In my judgment, however, the facts of this case tend to show that it was not the invalidity of the transactions, but the impecuniosity of the Kommunes that was the real difficulty.
78. Thus the Kommunes have never disputed that, if Depfa acted in ignorance and good faith, they were under an obligation to make restitution. The allegation of lack of good faith has long been water under the bridge. The Kommunes have always stood to return the net proceeds of their investments. They have now in fact done so. They have said that their obligation was limited, however, by their misfortune. They have at all earlier times emphasised their inability to pay, but, subject to that, their willingness to make restitution to the extent that the law, in the form of a judgment of the English court, required it.
79. There are no findings to that effect, and, for reasons which I will explain below, the matter has become muddied by the latest information which has passed between the Kommunes and Depfa. Nevertheless, unless the law must regard Depfa's loss as having been incurred entirely by the time of its initial transfers, irrespective of all questions of the obligation to make restitution on the one hand and of impecuniosity on the other, then it seems to me that it would be wrong simply to assume, on the basis of the transfers of funds, that there was then and there established loss within the scope of Wikborg Rein's duty.
80. In my judgment, however, the question of the existence of a loss must essentially be a question of fact. If the law has a role to play, as setting the boundaries within which fact plays its part, then the legal principles must seek realistic and, in a commercial setting, commercial results. It seems to me to be harsh doctrine to visit a loss in fact due to lack of creditworthiness on a solicitor as being within the scope of his duty to advise as to the validity of a transaction, when that creditworthiness has been entirely within the province of the lender and outside the scope of the solicitor's duty.
81. I would accept that nominal loss for the purposes of breach of contract occurred at the time of the negligent advice; and I would be perfectly willing to assume that material loss for the purposes of a cause of action for breach of duty occurred at the time of transfer of the advances, because at that time Depfa became materially worse off in having to pursue its remedies by other than contractual means. There is, as I understand the matter, in fact no dispute that Wikborg Rein is responsible for the legal costs which have ensued, not merely as costs within the litigation for which Wikborg Rein can be made liable as a matter of the discretion of the court, but also as damages consequent on its breach. It does not follow, however, that all loss which follows or is in some sense caused by that breach lies within the scope of the negligent advisor's duty.
82. The matter can be tested perhaps by asking what would have happened if on the day following the advances by Depfa to the Kommunes, the inaccuracy of Wikborg Rein's advice had been appreciated and Depfa had requested the return of its advances. I assume for these purposes that the Kommunes had not yet made their investments. On this hypothesis, it is impossible to believe that there would have been any question about the Kommunes' obligation to return the advances or their willingness to do so. It would simply have been commercially dishonest for the Kommunes to have sought to retain the funds, as soon as the true legal position for the purposes of section 50 had come to light; and there has never been any question of the Kommunes' honesty in entering into the transactions. If the contracts were valid, there would be no loss; and if the contracts were invalid, there would be an obligation to make restitution, and there would be no loss – unless for some inexplicable, or at any rate entirely unexpected and extraneous, reason the Kommunes simply refused to part with the cash, for instance because they needed it to plug some hole in their finances. Since any loss to this date has in fact arisen solely out of the Kommunes' disastrous investments, without which the sums transferred would have been repaid, it is difficult to understand why that loss (like the loss caused by the fall in the market in Saamco) should be visited on Wikborg Rein.
83. The matter can be tested still further. Assume that with the realisation that the transactions were invalid, and the appreciation of their obligation to return the advances to Depfa, the Kommunes had actually offered to return the money to Depfa, and had paid it into a separate account to await retransfer. Assume that Depfa had then said: "Thank you very much, but we decline your offer. We have a good claim against our lawyers, Wikborg Rein, and we wish to make them pay for their negligence. The law allows us to choose for ourselves which of several potential defendants we proceed against. It is entirely in our option." Mr Railton was pressed in argument with just such a scenario, and his submission was that, absurd as it was, and he accepted the absurdity, the law, in the form of the principle in The Liverpool, permitted Depfa to act in that way.
84. The acknowledged absurdity of that situation suggests that there is something wrong with Depfa's analysis. In my judgment, the flaw is to suppose that Depfa has suffered a total loss of its advances at the time of their transfer. The flaw exists whether or not such a loss could be within the scope of Wikborg Rein's duty, but the flaw is all the greater if it is not. The Liverpool and all the cases which follow it are concerned with established loss for which the alternative defendant is responsible. We, however, are asking ourselves whether there was, eo instante at the moment of Depfa's transfers, a relevant loss of that money for which Wikborg Rein was responsible. We cannot beg that question. On the hypothesis stated where the Kommunes honestly offer to return the money, there is plainly not a relevant loss. On a hypothesis where the Kommunes are insolvent and determined to keep the money for their own needs, there may be a loss, but not one for which Wikborg Rein is responsible: the creditworthiness of the Kommunes is a matter for Depfa. (I accept, however, that on a hypothesis where a borrower is dishonest, and the lender's lawyers ought to have appreciated that or the possibility of that and warned their client, there is likely to be a loss for which the lawyers are responsible.) And if the position of the Kommunes, uncomfortable as it would be and I do not for a moment suggest that it is their position, were that they recognise their obligation to make restitution, but they make no offer to do so, at any rate beyond their current means to do so, and they say to Depfa, "Ultimately, we do not care what our obligations are, for you cannot execute any judgment against us": then Depfa's loss might only be established after that had become apparent, and would be due to a reason which lay outside the scope of Wikborg Rein's duty.
85. The judge said (at para 18) that "this is one of those perhaps rare cases where it is possible and appropriate to say that the bank had lost the money advanced the moment it paid it over. It acquired no right to its recovery. Indeed it acquired nothing in return". In my respectful judgment, that is not correct. Depfa acquired no contractual right for the money's repayment, but it did acquire a restitutionary right, and it acquired it at the very moment of the money's transfer and by right of the very reason that its contractual remedy failed with the invalidity of the transactions. This is to my mind totally unlike the situation in The Liverpool, where the Board's loss, created by the expense of removing the wreck of the Ousel, had plainly been incurred and was plainly the responsibility of both the Ousel and the Liverpool, at all relevant times.
86. Mr Railton submits that a merely restitutionary right should not be taken into account, whatever the circumstances. In my judgment, however, there is no reason in principle why it should not be. The existence of loss and its allocation as being within the scope of a defendant's duty will always be fact sensitive. The law should not create principles, particularly with regard to remedies, which are so inflexible that they lead to unrealistic and uncommercial results. That is to my mind the principal teaching of Saamco and Nykredit. It is not sufficient, even if it is necessary, to say that but for the negligence of the advisor, the transaction would not have taken place and no loss would have been incurred. It is not necessary to assume, because the transaction would not have taken place without the defendant's negligence, or for any other reason, that therefore the full loss must have been incurred at the time of transfer. The jurisprudence regarding liability in negligence for pecuniary loss suggests a real concern that responsibility should not flow merely because foreseeable loss has been caused. The fact that the law promotes an earlier rather than a later establishment of a cause of action (see Lord Nicholls in Nykredit) does not need to mean that a material loss which completes a cause of action has already at that time matured into the full loss claimed: quite typically in matters of financial loss it does not, see for instance: Shore v. Sedgwick Financial Services Ltd [2008] EWCA Civ 863, [2009] Bus LR 42.
87. In these circumstances, it seems to me that everything depends on the reason why, despite the Kommunes' recognition of the right of Depfa to recover its advances in restitution, there has been no recovery (beyond the proceeds of the liquidation of the Kommunes' investments). If the reason has been the Kommunes' impecuniosity, then it seems to me that that is not within the scope of Wikborg Rein's duty. That is a risk which Depfa always shouldered. If the reason is that the Kommunes, perhaps in part because of their impecuniosity or the difficulty of raising taxes or cutting expenses, have simply been unwilling to shoulder their responsibilities in restitution, relying on the fact that Depfa will ultimately be unable to execute against them, then again it seems to me that that is not within the scope of Wikborg Rein's duty. The inability to execute has always been a risk the responsibility for which lay on Depfa, not on Wikborg Rein. It is only if the Kommunes are prevented from repaying what they owe to Depfa by something which arises from their legal incapacity to enter into the swap contracts that it could be said that the loss of a contractual right to repayment had established the loss in question. But is there any evidence at all that that is the case? If there is, it was not before Tomlinson J at either the first or the second trial.

The latest information

88. This is where a recent application on behalf of Depfa, taken out for the purposes of this appeal, enters into the argument. The application, dated 12 July 2010, seeks to admit into evidence for the purposes of Wikborg Rein's appeal against the judge's second judgment a letter from the Kommunes' Norwegian solicitors, Lund & Co, dated 7 July 2010 to Depfa's London solicitors, to which is attached a legal opinion dated 3 June 2010 which Professor Dr Juris Hans Petter Graver has written at the request of Lund & Co. Professor Graver was asked to express an opinion on whether the judgment of the Commercial Court, that is to say Tomlinson J's first judgment, was binding on the Kommunes under Norwegian law: in other words –

"whether the municipalities, under their public law obligations, are under a duty to address and seek clarification of the question whether the Norwegian local government act allows them to restitute money received, and later lost, before abiding by the judgment of the Commercial Court."

89. Professor Graver observes that the English judgment "determines the obligations of the municipalities under civil and commercial law, but not under public and administrative law". He then raises the question whether for these purposes the English judgment is enforceable under the Lugano Convention, or whether it lies outside it because the Kommunes were acting in the context of the exercise of sovereign power (acta iure imperii) rather than in relations governed by private law (acta iure gestionis). He observes that under Norwegian law the legal capacity of the municipalities is determined by public law, namely the Local Government Act 1992. He concludes:

"In my view therefore, the issue of whether restitution is excluded under the Norwegian local government act has not been decided in a legally binding way by the English courts in this case. This is a legal issue that is independent of the terms of the agreement between the parties, because the municipalities cannot by contract limit the scope or effects of the provisions of the local government act. A provision stating that the loan agreement shall be governed by English law and determined by English courts cannot, and does not extend the powers of the municipalities conferred on them under the local government act, and cannot in any way moderate or determine the legal consequences of violating the provisions of this act."

90. Lund & Co commented in their letter as follows. They said that the Kommunes do not "have liquidity to pay off the judgment sum". Their solution therefore "without reducing the services and operations" is to "raise a liquidity loan". They state, however, that there are legal challenges to such a solution, for instance as to whether a municipality can raise a liquidity loan to replace an illegal loan; and as to whether such a loan could be repaid within the year which Norwegian law requires, subject to the grant of a longer dispensation. As for "enforcement of the Judgment", they say that there might be difficulty about that, as expressed in Professor Graver's opinion: "Provided that the conclusions of Professor Graver are correct, the Judgment will not be legally binding to the Kommunes. If the Judgment is not legally binding, a new question will arise as to whether a municipality with public money can pay a sum that the municipality is not technically obliged to pay." The Ministry of Local Government had been approached, but had not yet responded.
91. Mr Railton submits that this is new information, which was not available to Depfa before, and should therefore be admitted. It was not Depfa's fault if it had been misled by the Kommunes' previous attitude to the English litigation which they had initiated, and which had led to Depfa's previous confidence that a judgment of the English court would be respected, at any rate within the Kommunes' ability to repay. Mr Railton described the Kommunes' latest information as "outrageous", but submitted that Depfa should not be prejudiced by the previous confidence it had shown in the Kommunes' willingness to repay.
92. Mr Pollock submits, on the other hand, that the Kommunes and Depfa, and Depfa and Wikborg Rein, had entered into and conducted this litigation on the basis that the advances would be repaid if the issues raised in it were determined against the Kommunes. In these circumstances, it was not open to Depfa to resile from that position. The question was simply whether the failure of a contractual remedy constituted a loss within the scope of Wikborg Rein's duty when that failure itself created a restitutionary obligation which was always recognised subject to Depfa's good faith and an argument about change of position.
93. I have not found this an easy question to determine. Ultimately, however, it seems to me that Wikborg Rein has the justice of this issue. Depfa was willing to litigate against Wikborg Rein on the basis of the Kommunes' pleaded assurance that they recognised the obligation to make restitution, subject to Depfa's good faith and to the defence of change of position. The Kommunes lost both those arguments. In the court of appeal, on appeal from the judge's first judgment, the Kommunes raised an additional defence on the back of their "change of position" defence, which this court treated under the rubric of "public policy". They lost that argument too. It would seem that Professor Graver's opinion is an attempt to raise that public policy issue anew. Meanwhile the Kommunes' essential position, reflected in Lund & Co's letter, seems to me to remain as it always has been, that they would comply with their obligation to make restitution if they could, but they do not have the money and cannot acquire it (at any rate without altering their budget). That, however, for the reasons which I have sought to explain in this judgment, is not something for which Wikborg Rein bears responsibility. Nor does it seem to me that the Kommunes' unwillingness or inability to meet the judgment of the English court whose decision they have invoked renders Wikborg Rein any more responsible for such consequences.

Conclusion

94. I have sought to determine this interesting appeal on the jurisprudence which the parties have put before this court, and on the excellent submissions which we have received. I conclude that Wikborg Rein is not responsible for any loss with respect to its advances which Depfa may ultimately suffer by reason of the Kommunes' impecuniosity or unwillingness to abide by the decision of the English court which they have invoked. Even if, contrary to the view I have expressed above, Depfa did suffer a complete loss of its advances at the time of their transfer to the Kommunes, that loss was not within the scope of Wikborg Rein's duty. That position is a fortiori, if, as I think, there was no complete loss of Depfa's advances at that time. Ultimately, I am not unhappy to have come to that conclusion, because it seems to me that it would be unfair to leave Wikborg Rein with the consequences of this situation, seeking some form of contribution, indemnity or subrogation from the Kommunes: not only because Wikborg Rein never took responsibility for the Kommunes' creditworthiness, freedom from execution, or good faith; but also because in any clash between international lenders of sovereign debt (or would-be debt) and sovereign obligors, the realistic, commercial and moral argument lies between obligor and obligee, rather than between obligee and its advisor who undertakes only a specific and limited responsibility, or between such an advisor and the sovereign obligor.

Lord Justice Gross :

95. I have read, with respect, the judgment of Rix LJ in draft and agree with the outcome he proposes. I have, however, arrived at the same conclusion by a somewhat different route and therefore add a few words of my own. I also wish to pay tribute to the judgment of Tomlinson J (as he then was) under appeal; insofar as my view differs, it may well relate to the manner in which the argument before this Court developed.
96. I gratefully adopt Rix LJ's outline of the facts. I have nothing to add in that regard save for underlining:

i) Wikborg Rein's advice to Depfa that a claim against a Norwegian municipality cannot be enforced;

ii) It was common ground that Depfa bore the sole credit risk of the transaction.

To me, these considerations – in my judgment serving to limit Wikborg Rein's sphere of responsibility – are key to the disposal of this appeal.

97. For Wikborg Rein, Mr. Pollock QC advanced the appeal under two broad heads. First, that Depfa had suffered no loss. Secondly, that any loss suffered was outside, or was not on the evidence shown to be within, the scope of Wikborg Rein's duty.
98. For my part, I am, with respect, far from persuaded as to Mr. Pollock's "no loss" argument – but it is academic if he is right on the "scope of duty" point. I therefore say only this as to the no loss argument.

i) First, I am unable to accept that the Depfa claim in restitution is very close or akin to a claim in contract; to my mind it is very different both in commercial terms and as a matter of legal analysis. Commercially and as it was colloquially put in argument before us, Depfa would have "run a mile" if told that there was a risk of the contract with the Kommunes being void; Depfa's interest was in lending money, not in buying litigation. In legal terms, the contractual claim for repayment arose under a valid and subsisting contract; the restitutionary claim arises only because the contract was void.

ii) Secondly, I think that Depfa did suffer substantial loss on the transfer of the sum to the counterparty (the Kommunes). In agreement with Rix LJ, I think such loss was ample to found a cause of action whether in contract or tort. It is unnecessary to decide whether the whole of Depfa's loss was then suffered or not.

iii) Thirdly, I see much force in the argument of Mr. Railton QC (for Depfa) that Depfa, in advancing its claim against Wikborg Rein, is not obliged to give credit for its restitutionary claim against the Kommunes. As it seems to me, such a "remedial cause of action" (as Mr. Railton put it) is far removed from the "borrower's covenant", discussed by Lord Nicholls of Birkenhead in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No. 2) [1997] 1 WLR 1627, at pp. 1631D and following. My only hesitation in this regard is the inflexibility in Mr. Railton's approach, something best avoided in dealing with questions of damages.

99. However, as already flagged, all this is by the by if Mr. Pollock is correct in his submissions as to the scope of Wikborg Rein's duty. In my judgment, it is inescapable that Depfa cannot recover from Wikborg Rein loss for which Wikborg Rein is not responsible. To me, the fundamental question on the appeal is whether Wikborg Rein's liability has been properly established.
100. In my judgment, the question of the scope of Wikborg Rein's duty and, hence, the establishment of its liability, is an anterior question to consideration of the principle laid down in The Liverpool (No. 2) [1963] P 64. As Rix LJ has observed (at [40] above), the Liverpool principle is not in doubt; a claimant with remedies against more than one defendant must be free to choose which defendant to pursue, without the need to give credit for his claim against the other. However, even assuming that the claimant has (sufficiently) established his loss, no question can arise of pursuing one defendant rather than another until the liability of the defendant in question has first been established.
101. It is here that the Depfa claim encounters insuperable difficulty. For my part, I am unable to accept that Wikborg Rein could be liable for loss relating to enforcement and credit risks, which, as already emphasised, were never assumed by Wikborg Rein. In this regard, I must respectfully disagree with the Judge's view, as expressed at [28] of his judgment. In the light, perhaps, of the manner in which the very different threads were disentangled in the argument before us, I do not think it can be right - without more – to suppose that the loss suffered by Depfa was within the scope of Wikborg Rein's duty. Even if the contract was valid, Depfa had been advised that it could not enforce a claim against the Kommunes. So far as concerns the credit risk, that was for the bank (Depfa) not its legal advisers. Further, merely because in one sense it can be said that the transaction would not have taken place but for Wikborg Rein's negligence (i.e., so that this was a "no transaction" case), it does not follow that Wikborg Rein is liable for the whole of Depfa's loss. For these purposes, I do not think that it matters whether this is a "category 1" or "category 2" case, in terms of the distinction canvassed by Lord Hoffmann in South Australia Asset Management Corp v York [1997] AC 191, esp. at p.214 – a distinction which, with respect, may perhaps be easier to state than to apply in practice. (Cf., Aneco Reinsurance Underwriting Ltd (In Liquidation) v Johnson & Higgins Ltd. [2001] UKHL 51; [2002] 1 Lloyd's Rep. 156.) In short, whether this was a "category 1" case or a "category 2" case, losses attributable to enforcement and credit risks were outside the scope of Wikborg Rein's duty.
102. It follows that for Depfa to be entitled to recovery against Wikborg Rein, it is necessary for it to establish that loss has been suffered by reason of the invalidity of the transaction, as distinct from the enforcement and credit risks already discussed. As expressed by Rix LJ, at [87] above:

" It is only if the Kommunes are prevented from repaying what they owe to Depfa by something which arises from their legal incapacity to enter into the swap contracts that it could be said that the loss of a contractual right to repayment had established the loss in question. But is there any evidence at all that that is the case? If there is, it was not before Tomlinson J at either the first or the second trial."

103. What Depfa thus needs is a finding that this is a "won't pay" case – and a "won't pay" case attributable to the invalidity of the contract rather than to budgetary constraints – not a "can't pay" case by reason of the Kommunes' impecuniosity. With respect, it seems to me that the judgment under appeal, at [28], begs the question as to why the Kommunes have not honoured the first judgment of Tomlinson J. As became increasingly clear in the submissions before us and as remarked upon by Rix LJ (supra), there is no evidence that the Kommunes' unhappy failure to honour that judgment (contrary to all their earlier protestations in the English litigation) flowed from an unwillingness to honour it due to the invalidity of the contract, as distinct from local political difficulties and/or their impecuniosity in the current straitened financial climate. Accordingly, on the material before us, Depfa is not entitled to a finding that its loss was attributable to the invalidity of the contract.
104. In these circumstances, the appeal must be allowed, subject only to the question raised by Mr. Railton of fresh evidence, the grant of leave to Depfa to cross-appeal the judgment of the Judge and remission. Rix LJ has already addressed this question (at [88] – [93] above) and I agree with the answer he gives. I confess to considerable sympathy for Depfa's position, arising as it does from the vacillation of the Kommunes. However and for my part in particular, I am not inclined to admit the new evidence because it remains – at least to me – wholly unclear. Nothing in the letter from Lund & Co or in Professor Graver's opinion discloses, even now, cogent evidence that the Kommunes' failure to honour the judgment was (or is) attributable to the invalidity of the contract. The evidence appears to go no further than presage a faint effort to re-open the public policy argument, with respect, decisively disposed of by this Court at the previous hearing: see [2010] EWCA Civ 579, at [89] – [105]. At this late stage, that cannot suffice.
105. Notwithstanding my regret at the position in which Depfa finds itself vis-à-vis the Kommunes, like Rix LJ and, with respect, for the reasons which he gives (at [94]), I am not unhappy to have reached the conclusion outlined above.

Mr Justice Peter Smith :

106. I agree.