LORDS DECISIONSLORDS DECISIONS >>LORDSLORD SLYNN OF HADLEY LORD BROWNE-WILKINSON LORD LLOYD OF BERWICK LORD STEYN LORD MILLETTLORDS OF APPEAL FOR JUDGMENTLORD SLYNN OF HADLEYLORDS,LORD STEYN HAS SET OUT THE ESSENTIAL MATTERS OF FACT IN THIS CASE WHICH STATEMENT I GRATEFULLY ADOPT. IN MY VIEW, AS IN HIS, THE MAJORITY IN THE COURT OF APPEAL WERE ENTITLED TO FIND AND RIGHT IN FINDING ON THE EVIDENCE THAT THE BROKERS HAD UNDERTAKEN A DUTY NOT MERELY TO OBTAIN REINSURANCE COVER IN THE SUM OF $11M BUT ALSO TO ADVISE ON THE AVAILABILITY OF REINSURANCE COVER IN THE MARKET, WITHOUT WHICH THE TRANSACTION WOULD NOT HAVE GONE AHEAD. TO GIVE THAT ADVICE INVOLVED AN INVESTIGATION AS TO THE MARKET'S ASSESSMENT OF THE RISKS INVOLVED, AS MY NOBLE AND LEARNED FRIEND, LORD LLOYD OF BERWICK HAS SHOWN.LORD LLOYD AND LORD STEYN THAT THE SCOPE OF THE DUTY IN THIS CASE IS NOT THE SAME AS IN SOUTH AUSTRALIA ASSET MANAGEMENT CORPORATION V YORK MONTAGUE LTD [1997] AC 191. IT IS TO USE LORD STEYN'S PHRASE ON THE OTHER "SIDE OF THE LINE DRAWN IN SAAMCO".LORD LLOYD AND LORD STEYN THAT THERE IS NO JUSTIFICATION FOR LIMITING THE DAMAGE TO THE LOSS FLOWING FROM THE FAILURE TO OBTAIN THE $11M REINSURANCE: IT IS THE WHOLE LOSS RESULTING FROM THEIR ENTERING INTO THE INSURANCE COVER WHEN NO REINSURANCE WAS AVAILABLE.LORD BROWNE-WILKINSONLORDS,LORD LLOYD OF BERWICK AND LORD STEYN. I AGREE WITH THEM AND FOR THE REASONS WHICH THEY HAVE GIVEN, I, TOO, WOULD DISMISS THE APPEAL.LORD LLOYD OF BERWICKLORDS,LORD MILLETT IS OF THE VIEW THAT THE DECISION OUGHT TO BE OVERRULED; BUT HE WOULD FORGIVE THE LEARNED JUDGE FOR FAILING TO ANTICIPATE THE DECISION IN SAAMCO SINCE THE POINT WAS CONCEDED BY COUNSEL.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 THE 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; SEE P 222, PER LORD HOFFMANN, AND THE PLATFORM HOME LOANS CASE P 210, PER LORD HOBHOUSE.LORD HOFFMANN'S SPEECH, AT PAGE 214 IN WHICH HE DRAWS A CONTRAST BETWEEN A DUTY TO PROVIDE SPECIFIC INFORMATION AND A DUTY TO ADVISE GENERALLY. IT IS CLEAR ALSO FROM A FURTHER PASSAGE, AT P 217, IN WHICH HE POINTED OUT THAT IT IS UNUSUAL TO HAVE A CASE IN WHICH A PLAINTIFF HAS SUFFERED FORESEEABLE LOSS IN CONSEQUENCE OF ENTERING INTO A TRANSACTION IN RELIANCE ON INACCURATE INFORMATION WHERE THE LOSS IS NOT A CONSEQUENCE OF THE INACCURACY OF THE INFORMATION. SO IT WOULD, I THINK, BE A MISTAKE TO REGARD THE SUPERHULLS COVER CASE, IF CORRECTLY DECIDED, AS BEING AN "EXCEPTION" TO SOME GENERAL EXCLUSIONARY RULE ESTABLISHED IN SAAMCO. IT IS RATHER THE OTHER WAY ROUND. 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 THE SCOPE OF THE DEFENDANT'S DUTY IS CONFINED TO THE GIVING OF SPECIFIC INFORMATION.LORD MILLETT. I DO NOT REPEAT THEM. PRIOR TO SAAMCO, THE DECISION OF THE HOUSE WAS REGARDED AS DEPENDING IN THE END ON A SHORT QUESTION OF FACT, ALBEIT ONE WHICH ELUDED THE COURT OF APPEAL. THE FRAUD OF MR LEE, AND THE FAILURE OF THE INSURERS TO DISCLOSE THAT FRAUD TO THE PLAINTIFF BANKS WAS AT MOST (IN THE OLD FORBIDDEN LANGUAGE) A CAUSA SINE QUA NON OF THE FINANCIAL LOSS SUFFERED BY THE BANKS. THE CAUSA CAUSANS WAS THE FRAUD OF BALLASTEROS. BY REASON OF THE LATTER FRAUD THE INSURANCE WHICH THE BROKERS FAILED TO OBTAIN WAS IN TRUTH VALUELESS.LORD HOFFMANN OBSERVED THAT IMPLICIT IN LORD TEMPLEMAN'S REASONING WAS AN ASSUMPTION AS TO THE SCOPE OF THE BROKERS' DUTY OF CARE. UNFORTUNATELY THE FACTS SURROUNDING THE EMPLOYMENT OF THE BROKERS IN SKANDIA WERE NEVER INVESTIGATED, SINCE THE BANKS' CLAIM AGAINST THE BROKERS WAS SETTLED PRIOR TO THE TRIAL ON PAYMENT BY THE BROKERS OF £10,500,000, BEING THE FULL AMOUNT OF THEIR PROFESSIONAL INDEMNITY COVER. SO THE ASSUMPTION AS TO THE BROKERS' DUTY OF CARE IN SKANDIA THROWS LITTLE, IF ANY, LIGHT ON THE SCOPE OF THE BROKERS' DUTY OF CARE ON THE FACTS OF THE PRESENT CASE.LORD STEYN I WOULD DISMISS THE APPEAL.LORD STEYNLORDS,LORD HOFFMANN ILLUSTRATED "THE SCOPE OF DUTY" CONCEPT WITH AN EXAMPLE. HE SAID, AT P 213D:LORD HOFFMANN SAID THAT ON THE USUAL PRINCIPLE THE DOCTOR IS NOT LIABLE. LORD HOFFMANN SUPPORTED HIS REASONING SAYING THAT, IF THE CONTRARY WERE THE CASE, THE PARADOXICAL SITUATION WOULD ARISE THAT THE LIABILITY OF A PERSON WHO WARRANTED THE ACCURACY OF THE INFORMATION WOULD BE LESS THAN THAT OF THE PERSON WHO GAVE NO SUCH WARRANTY BUT FAILED TO TAKE REASONABLE CARE: AT PP 213H-214A. LORD HOFFMANN GENERALISED THE PRINCIPLE AS FOLLOWS, AT P 213C-FLORD HOBHOUSE OF WOODBOROUGH SUMMARISED THE SAAMCO PRINCIPLE BY SAYING "IT IS THE SCOPE OF THE TORT WHICH DETERMINES THE EXTENT OF THE REMEDY TO WHICH THE INJURED PARTY IS ENTITLED": AT P 209B.LORD HOFFMANN'S PARADOX. IN A CLOSELY REASONED CASE NOTE PROFESSOR JANE STAPLETON HAS ARGUED THAT CONCEPTUALLY THERE IS NO PARADOX: NEGLIGENT VALUERS AND FALLS IN THE PROPERTY MARKET (1997) 113 LQR 1. IN THE INTERESTS OF BREVITY, AND DOING LESS THAN JUSTICE TO THE FULL RIGOUR OF THE ARGUMENT (AT PP 3-5), I CITE ONLY ONE PASSAGE, AT P 5:LORD HOFFMANN'S REASONING, I DO NOT PROPOSE TO DISCUSS THE POINT. IT DOES NOT ARISE AND IT IS NOT NECESSARY TO CONSIDER IT IN THE PRESENT CASE.LORD MILLETTLORDS,LORDS, THE FACT THAT THE REINSURANCE WHICH ANECO REQUIRED WAS NOT AVAILABLE IN THE MARKET IS NO LONGER IN DISPUTE, AND IF THE CONCLUSION OF THE MAJORITY OF THE COURT OF APPEAL AS TO THE SCOPE OF THE DUTY UNDERTAKEN BY THE APPELLANTS WERE CORRECT I WOULD AFFIRM ITS DECISION. THE ADDITIONAL LOSS OF $24M WOULD STILL HAVE BEEN OCCASIONED BY ANECO'S DECISION TO ENTER INTO THE BULLEN TREATY WITH ONLY PARTIAL REINSURANCE PROTECTION, AND NOT BY THE APPELLANTS' FAILURE TO OBTAIN EFFECTIVE REINSURANCE. BUT ANECO'S DECISION WOULD BE ATTRIBUTABLE AT LEAST IN PART TO THE APPELLANTS' BREACH OF DUTY IN FAILING TO ASCERTAIN AND ADVISE ANECO OF THE MARKET'S ADVERSE ASSESSMENT OF THE RISKS INHERENT IN ITS DECISION TO PARTICIPATE IN THE BULLEN TREATY.LORD BRIDGE OF HARWICH SAID, AT P. 627:LORD BRIDGE FORMULATED THE ISSUE, I THINK THAT IT IS CONCEPTUALLY BETTER TO SAY THAT THE DEFENDANT'S LIABILITY FOR THE CONSEQUENCES OF HIS ACTIONS IS LIMITED BY REFERENCE TO THE SCOPE OF THE DUTY THAN TO SAY THAT THE DUTY ITSELF IS OWED ONLY WITH RESPECT TO A PARTICULAR KIND OF LOSS: SEE PROFESSOR STAPLETON'S ARTICLE ON LEGAL CAUSE: CAUSE-IN-FACT AND THE SCOPE OF LIABILITY FOR CONSEQUENCES: VANDERBILT LAW REVIEW (2001) VOL 54, P 942.LORD ROSKILL DEALT WITH LIABILITY FOR THE PROVISION OF INFORMATION IN TERMS WHICH ARE PARTICULARLY APPOSITE IN THE PRESENT CASE:LORD HOFFMANN GAVE THE ONLY REASONED SPEECH. HE APPLIED THE PRINCIPLE WHICH HAD EMERGED IN CAPARO V DICKMAN AND SKANDIA. HE OBSERVED THAT A PERSON WHO IS UNDER A DUTY TO TAKE REASONABLE CARE TO PROVIDE INFORMATION ON WHICH SOMEONE ELSE WILL RELY IN DECIDING WHETHER TO TAKE A COURSE OF ACTION IS, IF NEGLIGENT, NOT GENERALLY RESPONSIBLE FOR ALL THE CONSEQUENCES OF THAT COURSE OF ACTION. HE IS RESPONSIBLE ONLY FOR THE CONSEQUENCES OF THE INFORMATION BEING WRONG. HE IS NOT RESPONSIBLE FOR LOSSES WHICH WOULD STILL HAVE OCCURRED EVEN IF THE INFORMATION HAD BEEN CORRECT. IT WAS NECESSARY TO EXCLUDE FROM THE COMPUTATION OF LOSS THAT PART OF THE OVERALL LOSS WHICH WOULD STILL HAVE BEEN SUSTAINED IF THE FACTS HAD BEEN AS REPRESENTED. THIS EXPLAINED WHY NO PART OF THE LOSS WAS IRRECOVERABLE IN SKANDIA; IT WAS UNINSURED LOSS AND WOULD HAVE BEEN IRRECOVERABLE EVEN IF THE COVER HAD BEEN FULLY IN PLACE AS THE BROKER HAD CERTIFIED. IN THE SUPERHULLS COVER CASE THE SAME PRINCIPLE WOULD HAVE EXCLUDED THAT PART OF THE LOSS WHICH WOULD HAVE BEEN RETAINED BY THE PLAINTIFF EVEN IF THE DESIRED REINSURANCE COVER HAD BEEN OBTAINED. IN SAAMCO ITSELF IT EXCLUDED THAT PART OF THE LOSS WHICH WOULD HAVE BEEN SUSTAINED EVEN IF THE PROPERTY HAD BEEN WORTH THE AMOUNT AT WHICH IT HAD BEEN VALUED.LORD HOFFMANN DREW A DISTINCTION 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." [1997] AC 191, 214 THIS HAS BEEN WIDELY MISUNDERSTOOD. LORD HOFFMANN WAS NOT DISTINGUISHING BETWEEN A DUTY TO PROVIDE INFORMATION AND A DUTY TO GIVE ADVICE. THAT IS A DISTINCTION WITHOUT A DIFFERENCE, FOR THE TERMS ARE INTERCHANGEABLE. HE WAS DISTINGUISHING BETWEEN A DUTY TO PROVIDE PARTICULAR INFORMATION OR ADVICE ON REQUEST AND A DUTY TO ADVISE GENERALLY WHEN IT IS LEFT TO THE ADVISER TO DECIDE WHAT MATTERS HE SHOULD CONSIDER. EVEN WHERE THE DEFENDANT ASSUMES RESPONSIBILITY FOR ADVISING GENERALLY "WHETHER OR NOT A COURSE OF ACTION SHOULD BE TAKEN" IT IS STILL NECESSARY TO IDENTIFY THE PARTICULAR COURSE OF ACTION IN QUESTION. WHERE THE QUESTION IS WHETHER TO ENTER INTO A PARTICULAR TRANSACTION, IT IS NECESSARY TO IDENTIFY THE RELEVANT TRANSACTION, FOR THE DEFENDANT IS NOT RESPONSIBLE FOR LOSS ARISING FROM ANY OTHER TRANSACTION. THE WARNING GIVEN BY LORD ROSKILL IN CAPARO V DICKMAN TO WHICH I HAVE ALREADY REFERRED IS PARTICULARLY APPOSITE WHEN THERE ARE SEPARATE BUT INTERDEPENDENT TRANSACTIONS AS IN SKANDIA AND THE SUPERHULLS COVER CASES. IN THE FORMER, IT WOULD HAVE MADE NO DIFFERENCE TO THE RESULT IF THE BROKER HAD ADVISED GENERALLY IN RELATION TO THE CREDIT INSURANCE, SO LONG AS HE HAD LEFT THE DECISION WHETHER TO ACCEPT THE FRAUD EXCLUSION TO HIS PRINCIPALS, SINCE THE LOSS AROSE ON THE TRANSACTION OF LOAN. IN THE LATTER, THE CONCESSION WOULD BE CORRECT ONLY IF THE BROKER HAD ASSUMED RESPONSIBILITY FOR ADVISING WHAT ACTION SHOULD BE TAKEN IN RELATION TO THE UNDERLYING INSURANCE. IT IS NEVER ENOUGH TO SAY: THE DEFENDANT WAS RESPONSIBLE FOR ADVISING THE PLAINTIFF WHAT ACTION HE SHOULD TAKE. IT IS NECESSARY TO ASK: IN RELATION TO WHAT? HIS LIABILITY IS LIMITED TO LOSSES ARISING FROM THE PARTICULAR TRANSACTION IN RELATION TO WHICH THE ADVICE WAS GIVEN. WHERE THE DEFENDANT GAVE PROFESSIONAL ADVICE, HIS PROFESSION WILL USUALLY SUPPLY THE ANSWER.LORD HOFFMANN OBSERVED, AT P 223, THAT IS NOT THE BASIS OF THEIR LIABILITY. THEY ARE NOT LIABLE FOR THE LOSS WHICH IS DUE TO THE FACT THAT THEY FAILED TO GIVE CORRECT VALUATIONS, BUT FOR THE LOSS WHICH IS DUE TO THE FACT THAT THE TRUE VALUES WERE NOT AS THEY REPRESENTED THEM TO BE. SECONDLY, THE DETAILED FIGURES HAD BEEN REQUESTED MERELY AS COMPONENT ELEMENTS IN THE VALUATION OF THE SECURITY. IN OTHER WORDS, THE VALUERS HAD BEEN ASKED TO ADVISE ON THE VALUE OF THE SECURITY AND NOT ON THE VIABILITY OF THE PROJECT. AS ALWAYS, IN LORD ROSKILL'S WORDS IN CAPARO, [1990] 2 AC 605, 628 IT IS NECESSARY TO DETERMINE "FOR WHAT PURPOSES AND IN WHAT CIRCUMSTANCES THE INFORMATION IN QUESTION IS TO BE GIVEN".LORD HOFFMANN GAVE AN IMAGINARY EXAMPLE OF A DOCTOR. IN BRISTOL AND WEST BUILDING SOCIETY V FANCY & JACKSON [1997] 4 ALL ER 582 IT WAS APPLIED TO A NUMBER OF CASES AGAINST SOLICITORS WHO ACTED FOR PROPOSED MORTGAGE LENDERS. IN SOME CASES THEY WERE HELD RESPONSIBLE FOR THE WHOLE OF THE LOSS ON THE TRANSACTION; IN OTHERS THEY WERE NOT. IN FANCY & JACKSON ITSELF THEY WERE HELD NOT TO BE RESPONSIBLE FOR ANY PART OF THE LOSS. THEY OUGHT TO HAVE REPORTED THAT THEY DID NOT HAVE AN OFFICIAL SEARCH CERTIFICATE. IF THEY HAD DONE SO, THE SOCIETY WOULD NOT HAVE AUTHORISED THE ADVANCE. BUT THE LOSS WHICH THE SOCIETY SUFFERED WAS NOT DUE TO THE ABSENCE OF A SEARCH CERTIFICATE, FOR THE TITLE WAS CLEAR. THE SOCIETY OBTAINED WHAT IT INTENDED TO OBTAIN WHEN IT DECIDE TO ENTER INTO THE TRANSACTION. THE LOSS WHICH OCCURRED WOULD HAVE OCCURRED EVEN IF THE SOLICITOR WAS IN POSSESSION OF AN OFFICIAL SEARCH CERTIFICATE, AS HE SAID HE WAS.LORD NICHOLLS OF BIRKENHEAD SAID IN NYEKREDIT MORTGAGE BANK PLC V EDWARD ERDMAN GROUP LTD (NO 2) [1997] 1 WLR 1627, 1631, THE DEFENDANTLORDSHIPS COUNSEL FOR ANECO MADE TWO SIGNIFICANT BUT INEVITABLE CONCESSIONS. FIRST, HE ACCEPTED THAT MR CRAWLEY DID NOT SEEK TO USE THE MARKET'S REACTION TO THE REINSURANCE LAYERS AS "A BAROMETER" OF THE RISKS INHERENT IN THE BULLEN TREATY. SECONDLY, HE ACCEPTED THAT EVEN IF MR FORSTER HAD DISCOVERED THAT UNDERWRITERS WERE ALMOST UNIVERSALLY HOSTILE TO THE BULLEN TREATY - THEY "WOULDN'T TOUCH IT WITH A BARGE POLE" - BUT HAD NEVERTHELESS BEEN ABLE, ALBEIT WITH GREAT DIFFICULTY, TO PLACE THE REQUIRED LAYERS OF REINSURANCE WITH GOOD AND SUFFICIENT COUNTERPARTIES AND ON A FAIR PRESENTATION OF THE RISK, ANECO WOULD HAVE HAD NO COMPLAINT. COUNSEL FRANKLY ACKNOWLEDGED THAT MR FORSTER WAS UNDER NO OBLIGATION TO REPORT ANYTHING BEYOND THE BARE FACT THAT THE DESIRED REINSURANCE WAS AVAILABLE AND HAD BEEN OBTAINED (OR NOT AS THE CASE MIGHT BE). HE DID NOT SUGGEST THAT MR FORSTER UNDERTOOK ANY RESPONSIBILITY FOR ADVISING ANECO WHAT COURSE OF ACTION TO TAKE IN RELATION TO THE BULLEN TREATY.LORDSHIPS. NO SUCH DUTY WOULD HAVE ARISEN MERELY FROM THE FACT THAT, AS THE APPELLANTS KNEW, ANECO'S DECISION TO PARTICIPATE IN THE BULLEN TREATY WAS CONDITIONAL ON OBTAINING REINSURANCE (AND THEREFORE ON THE REINSURANCE BEING AVAILABLE). IT MAKES NO DIFFERENCE TO THE SCOPE OF THE APPELLANTS' DUTY WHETHER REINSURANCE WAS AVAILABLE OR NOT. THEY WERE BOUND TO REPORT CORRECTLY WHETHER REINSURANCE WAS AVAILABLE AND HAD BEEN OBTAINED OR NOT. BEYOND THIS THEY WERE NOT BOUND TO REPORT THE MARKET'S RESPONSE TO THE RISK. IT WAS ENOUGH FOR MR CRAWLEY THAT THE REINSURANCE HAD BEEN OBTAINED (OR NOT). HE DID NOT ASK TO BE INFORMED, AND WAS NOT CONCERNED TO KNOW, HOW EASY OR DIFFICULT IT WAS TO OBTAIN IT. AS PARA 84 OF HIS JUDGMENT DEMONSTRATES, EVANS LJ THOUGHT THAT A DUTY TO ADVISE ON THE CURRENT MARKET ASSESSMENT OF THE BULLEN TREATY FOLLOWED AUTOMATICALLY FROM A DUTY TO ADVISE IN REGARD TO THE AVAILABILITY OF REINSURANCE. BUT IT DOES NOT. THE TWO DUTIES ARE QUITE DISTINCT AND ARE CAPABLE OF GENERATING DIFFERENT MECHANISMS OF LOSS. AN EXPRESS REPRESENTATION THAT REINSURANCE HAS BEEN OBTAINED NECESSARILY INVOLVES AN IMPLICIT REPRESENTATION THAT IT IS AVAILABLE. BUT THE ONLY REASON MR CRAWLEY WANTED TO KNOW IN ADVANCE THAT REINSURANCE WAS AVAILABLE WAS THAT IT WOULD BE A WASTE OF TIME TO PROCEED ANY FURTHER IF IT WAS NOT; AND HIS ONLY INTEREST LATER WAS TO KNOW THAT IT HAD BEEN OBTAINED, AND THEREFORE IMPLICITLY THAT IT WAS AVAILABLE. BREACH OF THE DUTY TO REPORT IN ADVANCE THAT REINSURANCE WAS AVAILABLE WAS NOT IN ITSELF CAUSATIVE OF ANY ADDITIONAL LOSS BEYOND, PERHAPS, SOME TRIVIAL EXPENSES. BREACH OF THE REPRESENTATION THAT REINSURANCE WAS AVAILABLE WHICH WAS IMPLICIT IN THE REPRESENTATION THAT IT HAD BEEN OBTAINED WAS INCAPABLE IN ITSELF OF GENERATING ANY ADDITIONAL LOSS.LORD HOFFMANN'S REJECTION OF NYEKREDIT'S ARGUMENT IN SAAMCO [1997] AC 191, 223 TO WHICH I HAVE ALREADY REFERRED.