Top 10 cases of 1997

Ian Hammond puts forward his selection of last year's crop of leading professional negligence cases. Ian Hammond is a solicitor at Simmons & Simmons.

1 National Home Loans Corporation v Giffen Couch & Archer

Giffen Couch acted for borrower and lender in relation to a re-mortgage.

Prior to completion, it discovered that the existing mortgagee was threatening proceedings for arrears. Although this cast doubt on the borrower's ability to pay, Giffen Couch did not pass the information on to NHL.

Distinguishing Mortgage Express v Bowerman, the Court of Appeal held that there was no breach of duty. The extent of a solicitor's duty depends on the terms of his retainer and the trial judge should have taken into account that:

Giffen Couch's primary role was to ensure that NHL received a good and marketable title by way of security, which it did.

NHL was an experienced lender, which gave clear guidance to its panel solicitors on the areas where it required advice. These did not include the borrower's credit-worthiness.

Daniel Serota QC for Giffen Couch; Nicholas Davidson QC for NHL.

2 Omega Trust Co v Wright Son & Pepper

Omega obtained a valuation in respect of a commercial loan, but did not reveal that the loan was to be syndicated. The valuation, which was addressed solely to Omega, contained a disclaimer.

The trial judge ruled that the valuers owed other banks in the syndicate a duty of care because they should have foreseen the possibility that Omega would syndicate the loan.

The Court of Appeal did not rule on the duty of care point but said that the disclaimer met the standard of "reasonableness" under the Unfair Contract Terms Act 1997 and was therefore effective.

A significant factor in this was that the syndicate bank could easily have obtained its own valuation, or asked for permission to rely on this one (probably for the payment of an additional fee).

Rupert Jackson QC for the valuers; Roger Smith for the syndicate bank.

Nykredit Mortgage Bank v Edward Erdman

The House of Lords had to assess statutory interest on the damages awarded in South Australia.

To do this, the Lords first had to establish when the cause of action arose. This, they decided, is whenever a relevant and measurable loss (calculated as stipulated in South Australia) is first recorded.

Frequently this will be the date of default of the borrower, but it may be sooner if the lender can show that it suffered actual loss at an earlier date.

Michael De Navarro QC for Edward Erdman; Michael Briggs QC for Nykredit.

Platform Home Loans v Oyston Shipways

The Court of Appeal reaffirmed, overturning the trial judge's decision, that the imprudence of a lender in deciding to lend can amount to contributory negligence in a surveyor's negligence claim.

Damages against the negligent valuers were reduced because Platform had been contributorily negligent in advancing such a high percentage of the valuation figure in the particular circumstances.

The Court of Appeal also had to apply Nykredit on the question of interest. The methodology of this proved so com- plicated that the court added that the party requiring full calculation in such cases should pay for it unless that party can show that it makes so significant a difference to the result as to justify the costs involved.

Simon Berry QC for the valuers; Nicholas Patten QC for Platform.

5. Three Rivers District Council and BCCI v Bank of England

Deloitte & Touche, as liquidators of BCCI, argued the Bank of England should not have granted it a banking licence.

The Bank cannot be sued in negligence as such. The liquidators therefore ran a claim of "Misfeasance in public office".

The judge decided that dishonesty was a pre-requisite to such a claim and struck it out. The decision set new standards in terms of a court's willingness to intervene in the early stages of a dispute: the strike-out application took just 12 days.

Sir Patrick Neill QC for the liquidators; Nicholas Stadlen QC for the Bank of England.

6 BCCI (Overseas) & ors v Price Waterhouse & ors and Barings v Coopers & Lybrand

These decisions, both arising from banking crashes, considered the duties owed by auditors of one company within a group to other group members.

In the first, it was claimed that the affairs of BCCI Holdings, BCCI SA (both audited by Ernst & Whinney), and BCCI (Overseas) (audited by Price Waterhouse) were so closely linked that Ernst & Whinney owed a duty of care not only to the holding company and the subsidiary which they actually audited, but also to BCCI (Overseas).

Mr Justice Laddie held that BCCI (Overseas) had failed to establish an arguable case that Ernst & Whinney knew it would be relying on its audit report. However, the Court of Appeal overturned the decision, saying the banks had operated as one unit and that the duty of care point was at least arguable.

Michael Crystal QC for BCCI; Christopher Clarke QC for Ernst & Whinney.

In the second case, Barings claimed that it had relied on information provided by Coopers & Lybrand (Singapore) in its capacity as auditors of its subsidiary, Barings Futures (Singapore). On its face, the claim looked stronger than that in BCCI, because Coopers (Singapore) was supplying information for use higher up the group audit chain.

The claim was held to be arguable and Coopers failed in its attempt to set service of the proceedings aside.

Stanley Burton QC for Barings; Sydney Kentridge QC for Coopers & Lybrand.

7 Peach Publishing v Slater & Co & ors

In buying a company called ASA, Peach claimed it had relied on an oral assurance as to the reliability of ASA's management accounts. In fact, these overstated ASA's profitability.

At the trial, Peach was successful, but the Court of Appeal held that the purpose of the assurance was not to reassure Peach that the accounts were "right", but to indicate to Slater & Co's own client, ASA, that it could give a warranty. It was that warranty, rather than the oral assurance, on which Peach had relied in deciding to proceed.

Alan Byle QC for Peach Publishing; Edmund Lawson QC for Slaters.

8 Woodward v Wolferstans

Woodward's father guaranteed her mortgage and instructed Wolferstans to deal with the conveyancing.

Wolferstans knew Woodward was the purchaser, but she was not its client and there was little contact between them. The house was subsequently repossessed, causing Woodward loss.

The court held that, although Woodward was not Wolferstans client, the firm had assumed responsibility to her for carrying out specific tasks. A duty of care had therefore arisen. However, these did not extend to explaining the details of the mortgage. As such , there was no liability.

James Ramsden for Woodward; and Jane Miscan for Wolferstans.

9 NM Rothschild v Berensons

Berensons was instructed by Cavendish Funding, which provided bridging loans financed by a consortium of banks.

A funding request from Berensons to the banks certified, wrongly, that a particular loan complied with guidelines established by Cavendish. The banks provided the funds, but the purchaser was unable to complete and the deposit was forfeited. Cavendish went out of business and the banks sued Berensons for negligence.

The Court of Appeal held that, although Berensons knew enough about the banks' involvement to realise that it would rely on their certificates, it had not owed them any duty.

Nicholas Patten QC for Rothchilds; Richard Seymour QC for Berensons.

10 Fawkes-Underwood v Hamiltons & Hereward Phillips

The court had to interpret wording in Hamiltons' bills in order to determine the scope of its retainer.

It construed the words "general advice and assistance concerning your Lloyd's underwriting activities…" to include a review of the choice of syndicates on which its client, Mr Fawkes-Underwood, had been placed.

The decision highlights the importance of using letters of engagement which set out, in very clear language, precisely what is and is not to be done.

John McKenzie SA for Fawkes-Underwood; John Powell QC for Hamiltons.