The top 10 cases of 1996

1 South Australia Asset Management Corp v York Montague [1996] 3 WLR 87.

In a landmark decision, the House of Lords overturned the Court of Appeal’s judgment in BBL v Eagle Star Insurance Co [1995] 2 All ER 769. Lord Hoffmann said the level of damages payable by a negligent valuer will depend on the scope of his duty of care.

Where the valuer assumed a wide duty (for example, to provide advice on whether to lend), he must pay all the lender’s losses, including those resulting from a fall in the market. Where he agreed only to supply information about the property’s value, his liability will be limited to the lower of (a) the lender’s actual losses and (b) the difference between the actual value and the stated valuation (the “limit on damages”).

The decision has rightly been welcomed by the professions. Attention may now focus on the scope of the duties owed by professionals in different contexts and the effectiveness of contractual exclusions in limiting those duties.

2 Platform Home Loans v Oyston Shipways [1996] EGCS 14In South Australia, the Lords did not address the impact of interest on the “limit on damages”. In Platform Home Loans, another valuer’s liability case, it was accepted that interest should be added, but the parties disagreed on the starting date. The lender sought interest from the date of valuation; the valuer from the date of sale. Mr Justice Jacob opted for the former. On the other hand, interest on the lender’s actual loss ran from the date of sale.

The longer period of interest turned the “limit on damages” from a lower to a higher figure than the actual loss. Platform Home Loans therefore gives lenders back some of what was denied them by South Australia.

3 Theodore Goddard v Fletcher King Services [1996, unreported]

Fletcher King had overall responsibility for a commercial letting. Theodore Goddard, which drafted the lease, accidentally deleted the upwards-only rent review clause. A surveyor at Fletcher King saw the draft lease but did not notice the error. The judge concluded that, although Theodore Goddard was primarily responsible, the mistake was “so obvious… and of such vital importance” that Fletcher King must take a share of the blame. He assessed that share at 20 per cent.

This decision has potentially wide-ranging consequences for professionals who work together on a transaction and have some input in one another’s drafting. But as a demonstration of proportionality in action, it is to be welcomed.

4 Bristol & West Building Society v Mothew [1996] 4 All ER 69Mothew was acting for both lender and borrower. In response to Bristol & West’s usual enquiries, Mothew said there was no second charge on the property. Subsequently, he became aware of a charge but, due to an oversight, failed to tell Bristol & West. The Court of Appeal (reversing the decision by Mr Justice Chadwick, who had given summary judgment) held that, while this might allow a claim in negligence, it was an insufficient basis for a breach of trust action.

The Court of Appeal’s decision emphasises that the existence of the fiduciary relationship between solicitor and client will not turn every negligence action into a breach of trust claim. Something more than oversight will now be needed to plead breach of trust.

5 Downs v Chappell [1996] 3 All ER 34Mr and Mrs Downs bought a bookshop, relying on representations from the sellers and their accountants about its turnover and profitability. The representations were held to have been misleading and, in the case of the sellers, made fraudulently. The Downs recovered the difference between what they paid for the business and the (much lower) amount which they were subsequently offered for it.

The interesting feature of Downs is the way in which Lord Justice Hobhouse’s judgment was subsequently applied in the context of solicitors’ negligence by Lord Justice Millett in Mothew. He took Downs to mean that the position regarding causation in negligence claims will vary as follows:

Where a client has been given incorrect advice by his solicitor, he need only prove that he relied on that advice.

Where a client claims that his solicitor failed to give proper advice, he must show (a) what advice should have been given and (b) that, if such advice had been given, he would have acted differently in reliance on that advice.

6 National Home Loans Corporation v Giffen Couch & Archer (TLR, 6 December 1996)

In Mortgage Express v Bowerman & Partners [1996] 2 All ER 836, Lord Bingham ruled that solicitors acting for lenders were obliged to notify their clients of any facts which “… might have a material bearing on…some…ingredient of the lending decision”. By contrast, in Halifax Mortgage Services v Howes (unreported, 4 March 1996), the lender’s solicitors knew that the borrower was in arrears on an existing loan and that repossession proceedings were under way. However, they were held not to be liable because they were entitled to assume that the lender had made such investigations about the borrower as it thought necessary.

How could Howes be reconciled with Bowerman? It could not, said Graeme Hamilton QC, sitting as a deputy judge in National Home Loans. The facts were as in Howes: the solicitors knew that the prospective borrower was in default on an existing loan but did not tell the lender. Hamilton agreed with Lord Bingham’s view that “…any solicitor who gave it a moment’s thought…would know that [this] was a matter of the greatest interest to the lender”.

National Home Loans restores the position post-Bowerman. Howes must be regarded as an anomaly and is unlikely to be followed. Numerous further non-disclosure cases are due to be heard early in 1997.

7. Williams v Natural Life Health Foods (TLR, 09 January 1997)

The plaintiffs took a franchise in a health food shop in Rugby on the basis of inaccurate financial projections which they had received from the managing director of Natural Life. They clearly had a claim against Natural Life, but it was wound up before the action reached trial. The interesting point was whether or not they also had a claim against the managing director personally.

The Court of Appeal upheld the judge’s decision that the managing director had assumed responsibility to the plaintiffs for preparing the financial projections and that he, personally, should account for their loss.

The decision in Williams sends a warning to directors, particularly of smaller companies, that they must take care when drafting promotional material with a view to winning business.

8. Virgin Management v De Morgan Group & ors [1996] EGCS 1Virgin claimed that its solicitors had failed to warn of a potential VAT liability arising from the development and sale of some premises in London. The claim failed on the basis that Virgin was a “high-profile successful commercial entity” with considerable expertise in taxation matters. Moreover, there was no evidence to indicate that the solicitors had been instructed to advise on the VAT aspects of the transaction.

There are limits to this principle. In Hurlingham Estates v Wilde & Partners (TLR 03 January 1997), Hurlingham fell into a tax trap in the context of a conveyancing transaction. Wilde & Partners relied on an agreement that it should not be responsible for the tax aspects of the deal. The court held that, because Wilde & Partners could produce no evidence of such an agreement, it could not place reliance on it.

9 Smith New Court Securities v Scrimgeour Vickers (Asset Management) & ors (TLR, 22 November 1996)

Smith New Court was fraudulently induced to buy several million shares in Ferranti. Subsequently, the value of its holding fell, due to an earlier, unconnected, fraud. The House of Lords reviewed the authorities on damages arising from fraudulent misrepresentation and concluded:

Smith New Court could recover all losses flowing directly from the misrepresentations, whether or not foreseeable. Scrimgeour Vickers was therefore liable for the loss caused by the earlier fraud.

Smith New Court must give credit for any benefits received. Generally, this would mean the value of the shares at the date of purchase. However, it had bought the shares as a market-making risk (rather than for immediate resale). Therefore, it was entitled to retain the shares and need only give credit for the eventual sale proceeds.

Scrimgeour Vickers may give plaintiffs an incentive to allege fraud to recover all their losses, thereby escaping the consequences of the House of Lords’ decision in South Australia.

10 St Albans City District Council v ICL [1996] 4 All ER 48ICL supplied software to St Albans Council under a contract which limited the company’s liability to the lower of £100,000 or the contract price. The Court of Appeal struck down this clause as failing to meet the requirement of “reasonableness” under the Unfair Contract Terms Act 1977. Although some aspects of the contract had been subject to negotiation, the court held that the general conditions, including the limitation of liability clause, had been “effectively untouched” by those negotiations and therefore constituted ICL’s “written standard terms of business”.

Professionals are looking more closely at terms of engagement as a means of limiting liability. This decision demonstrates the need for care both in the content and negotiation of such terms.

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