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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 >> Gordon v Wheatley & Co (A Firm) [2000] EWCA Civ 173 (24 May 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/173.html
Cite as: [2000] PNLR 755, [2000] Lloyd's Rep PN 605, [2000] EWCA Civ 173
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Case No: QBENI 2000/0166/A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE BUCKLEY
Royal Courts of Justice
Strand, London, WC2A 2LL
Wednesday 24th May 2000
LORD JUSTICE KENNEDY
and
LORD JUSTICE KAY
ROBERT MARK GORDON |
Respondent | |
- and - |
||
|
J. B. WHEATLEY & Co (a firm) |
Appellant |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Alan Steinfeld QC (instructed by Messrs Ince & Co for the appellant)
Alexander Hill-Smith (instructed by Messrs McGoldricks, Croydon for the respondent)
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE KENNEDY:
1. On 25th November 1999 Master Foster ordered that the claimant's claim against the first defendant be struck out and dismissed. The claimant appealed against that order, and on 13th January 2000 Buckley J allowed the appeal and set aside the Master's order. The first defendant now appeals against the judge's order to this court.
2. Material Facts
From about 1980 the claimant, through various companies, operated a private mortgage scheme. Until 1991 the lenders (or investors) and borrowers were identifiably matched, and the security was often if not always a second mortgage.
Both defendants are firms of solicitors. The first defendant acted for the claimant until 20th March 1992, and the second defendant acted for the claimant thereafter. It is the claimant's case that the first defendant was retained by him to attend to the legal formalities of the scheme and to advise him generally on it.
On 28th April 1988 the Financial Services Act 1986 came into force. By virtue of section 3 of that Act no one may carry on investment business in the United Kingdom unless he is an authorised person, and section 6(2) provides that if a court is satisfied that a person has entered into any transaction in contravention of section 3 the court may order that person "and any other person who appears to the court to have been knowingly concerned in the contravention to take such steps as the court may direct for restoring the parties to the position in which they were before the transaction was entered into." The words which I have just quoted identify what might be said to be the position of the claimant if any of his companies were to enter into any transaction in contravention of section 3, and a "collective investment scheme" as defined by section 75 of the Act would be such a transaction. So when in 1991 the claimant changed his business practice by ceasing to match lenders and borrowers and beginning to pool it was appropriate for him, if properly advised, to consider whether any company of his was entering into a collective investment scheme which might attract the attention of the Securities Investment Board. It is his case against the first defendant that the first defendant was negligent and in breach of duty in that at the material time, that is to say whilst still instructed, the first defendant failed to advise the claimant that his scheme could be considered to be a collective investment scheme within the meaning of the 1986 Act and what he should do to safeguard himself (i.e. obtain the necessary authorisations under the Act, or match lenders to borrowers and cease pooling). At least for present purposes it seems to be common ground that no such advice was tendered.
On 15th May 1992, about two months after the first defendant ceased to act for the claimant, the SIB began an investigation of the claimant's operations. The claimant promptly, on 18th May 1992, consulted the second defendant, who advised him to consent to the proposed investigation. The SIB then alleged that the scheme was a collective investment scheme within the meaning of section 75 of the Act, which was being operated without authorisation.
On 29th May 1992 the second defendant advised the claimant to sign a Deed of Undertaking and Indemnity which rendered him liable to underwrite investors' losses under the scheme and to put the companies through which the scheme was operated into liquidation. The claimant accepted that advice, and thus by September 1992 rendered himself liable to the companies in liquidation in the sum of £676,215.50. It was a sum he could not pay and he was later declared bankrupt.
3. These proceedings
The claimant began this action on 28th May 1998, six years and two months after the first defendant ceased to act for him. I have already outlined his case against the first defendant. As against the second defendant the claimant contends that his scheme did not contravene the 1986 Act and that he should not have been advised to sign the Deed which led to his bankruptcy. Nevertheless he pursues his claim against the first defendant on the basis that it was the negligence of the first defendant which led to a situation in which both the SIB and the second defendant were liable to conclude, albeit wrongly, that he was operating in breach of the 1986 Act. Furthermore if the claimant's case against the second defendant were to fail, on the basis that the advice given by the second defendant was correct, then the claimant could only recover if at all against the first defendant.
4. The Issue
The first defendant contends that any claim against the first defendant is out of time and statute-barred. It was common ground before the judge, and before us, that were the claim framed in contract it would be statute-barred, but a cause of action in tort only arises when loss or damage is sustained, and so the question is when loss or damage was sustained in this case. Did it happen before or after 28th May 1992 (which was six years before the issue of the writ)? Mr Steinfeld QC, for the first defendant, contends that a loss occurred every time an investor made an investment into the pooled scheme, and all of the relevant investments were made before the SIB investigation began on 15th May 1992, and thus more than six years before the issue of the writ. In addition Mr Steinfeld points to the costs of the legal advice which the claimant incurred when he instructed the second defendant on 18th May 1992 as a loss directly attributable to the alleged negligence of the first defendant. There are therefore two types of loss to be considered - those said to arise from the conduct of the investors, and the claimants own liability for the second defendant's fees. I must consider them separately.
5. Losses on transactions
As Mr Hill-Smith, for the claimant, submits, an actual loss is not the same as a serious risk of loss, and he submits that until at the earliest the claimant signed the Deed of Undertaking and Indemnity (which was within the six year period) there was no more than a serious risk of loss.
This issue of what constitutes a sufficient loss to complete the cause of action has been considered by the courts on many occasions and we were taken through the leading authorities by counsel on both sides.
In Foster v Outred and Co [1982] 1 WLR 86 the plaintiff executed a mortgage in the presence of the defendants, her solicitors, charging her freehold property as security for a loan made by a company to her son, who subsequently went bankrupt. Having repaid the loan she claimed damages for negligence and/or breach of contract by the defendants in failing properly to advise her when the mortgage was executed. As to when the cause of action in negligence accrued it was held by this court that by entering into a burdensome bond, or contract, or mortgage she sustained immediate economic loss. Her valuable freehold was encumbered with a charge, and its value to her was diminished because she had merely the equity of redemption. At 94 C - D Stephenson LJ accepted counsel's submission that actual damage -
"Is any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; ...... `actual' is really used in contrast to `presumed' or `assumed'. Whereas damage is presumed in trespass and libel, it is not presumed in negligence and has to be proved. There has to be some actual damage."
Mr Steinfeld points to the inclusion of liabilities which may arise on a contingency - such as a decision by the SIB to investigate - whereas Mr Hill-Smith submits that in Foster's case there was immediate damage to a discernible asset, the plaintiff's equity of redemption, not merely a risk of damage to her assets as a whole. That, however, was not the position in Milton v Walker and Stanger [1981] 125 Sol. Jo. 861. In that case the defendant solicitors when preparing an agreement in 1967 allegedly failed to protect the plaintiff as they had been instructed in relation to possible future liabilities including capital gains tax, which would arise if there was to be a sale of a farm in which he had an interest. Nourse J expressly followed the decision of the Court of Appeal in Foster saying -
"If shortly after executing the agreement the plaintiff had issued a writ against the defendants, however difficult or even speculative the process might have been, the court would have awarded damages."
In D W Moore & Co v Ferrier [1988] 1 WLR 267 the plaintiffs were insurance brokers who on two occasions sought advice from their solicitors, the defendants, as to covenants intended to restrict the activities of a proposed employee should he leave the plaintiffs' service. The covenants proved ineffective, and the question arose as to when actual damages to the plaintiffs had been done. At 278 F Neill LJ said -
"In the present case the judge rightly rejected the notion that where a solicitor gives negligent advice, damage is presumed to occur at the time when the advice is acted upon. I am satisfied that there is no such presumption. It is a question of fact in each case whether damage has been established. In the present case .... the plaintiffs suffered damage `because (they) did not get what (they) should have got'. The plaintiffs rights under the two agreements were demonstrably less valuable that they would have been had adequate restrictive covenants been included."
Bingham LJ at 279 H followed the approach adopted by Nourse J in Milton's case, saying -
"If the quantification of the plaintiff's damage had fallen to be considered shortly after the execution of either agreement, problems of assessment would undoubtedly have arisen. It might have appeared that Mr Fenton was unlikely to leave, taking much of the first plaintiff's business with him, to establish a competing business. If so, the plaintiff's damage would have to be assessed at a modest figure. But the risk of his doing so could not have been eliminated altogether, and so long as there was any risk that one of the first plaintiff's two directors might leave, taking much of the first plaintiff's business with him, to establish a competing business, there must necessarily have been a depressive effect on the value of the first plaintiff's business and on that of the second and third plaintiff's derivative interests. In making his assessment the judge would have had to attach a money value to a possible future contingency; but judges do this every day in awarding claimants damages for the risk of epilepsy, the risk of osteoarthritis, the risk of possible future operations, the risk of losing a job and so on. The valuation exercise is, of course, different, but the difference is one of subject matter, not of kind.
The matter may be tested. It is common ground, on the assumption that the plaintiffs' pleaded case is correct, that the defendants were in breach of contract when they negligently advised and settled documents in 1971 and 1975. A cause of action then arose. Suppose, per impossible, that the plaintiffs had sued at once and before the later difficulties with Mr Fenton arose. They would have been bound to succeed. If of opinion that the plaintiffs had suffered no damage, the judge would have awarded them nominal damages. But it seems to me plain that the judge would not have done that on these facts. ........ If, in a contractual claim for negligence, the court would have awarded other than nominal damages, I do not see how it can be said that an action in tort based on the same negligence would have been bound to fail for want of any damage as an essential ingredient of the cause of action."
Mr Steinfeld submits that the contractual test envisaged by Bingham LJ can be applied in the present case. If in April 1992, after the first defendant ceased to act for the claimant but before the SIB began to investigate, the claimant had been advised by the second defendant that the advice which he had received from the first defendant was negligent and wrong, and that he might suffer financially as a result, then he could have sued the first defendant in contract with the expectation that he would obtain more than nominal damages. Mr Hill-Smith, however, submits that the Moore case is just another example of demonstrable damage being done at the time of the negligence to two identifiable assets. So far as the employer was concerned the employees' contracts were less valuable than they should have been because of the ineffectiveness of the restriction, and that in turn depressed the value of the employer's business. I confess that I find it difficult to see in this context any logical distinction between the value of the business and the wealth of an individual. Either could be insured against the risk of the circumstances arising in which it would be appropriate for the ineffective restriction to be relied on, and the premium would be the same.
In Bell v Peter Browne & Co [1992] 2 QB 495 the defendant solicitors advised the plaintiff husband after the breakdown of his marriage. It was agreed that the matrimonial home be transferred to the sole name of the wife, but that should it be sold at some future date he would receive one sixth of the gross proceeds of sale. However when the plaintiff executed the transfer the defendants took no steps, whether by declaration of trust, entry on the register, or otherwise, to safeguard his interests. Eight years later his former wife sold the house and spent the whole of the proceeds. The plaintiff the sued the defendant but it was held that damage was sustained and so the limitation period began to run from the date of the execution of the transfer. Dealing with the claim in tort Nicholls LJ said at 502 D -
"So when did the plaintiff first sustain damage by reason of his solicitor's negligence? On this it is necessary to distinguish between (a) the solicitor's failure to see that the parties' agreement was recorded formally in a suitable declaration of trust or other instrument and (b) their failure to protect the plaintiff's interest in the house or the proceeds of sale by lodging a caution. As to failure (a) clearly the damage, such as it may have been, was sustained when the transfer was executed and handed over. At that point the plaintiff parted with title to the house, and he became subject to the practical inconveniences which might flow from his not having his wife's signature on a formal document. If the wife thereafter chose to deny his entitlement to one sixth of the proceeds of sale, the plaintiff would have to rely on the correspondence between the solicitors coupled with part performance. To the extent that this was less satisfactory than a formal document recording the deal, the plaintiff suffered prejudice. He suffered that prejudice when the transaction was implemented without his having the protection of a formal document. .........
Failure (b) comprised the solicitor's own omission to protect the plaintiff's interest by making an appropriate entry in the land register. This failure stands on a different footing from failure (a) in that it was within the plaintiff's own power to remedy failure (b) so long as the house continued to belong to his former wife......
Is this difference material? On the one hand the plaintiff in the case of failure (b) as much in the case of failure (a), did not receive the protection he ought to have received when he executed the transfer and parted with his title to the house. He was at risk, from the outset. His interest was vulnerable. On the other hand, so long as the plaintiff's wife did not sell the property, failure (b) could easily be put right and at little expense and, had it been remedied, the failure to lodge a caution promptly in 1978 would have caused no financial loss to the plaintiff.
I am unable to accept that remediability puts failure (b) on the other side of the line from failure (a). The solicitor's breach of duty in 1978 was remediable by the plaintiff, but that was only possible after he became aware that there had been a breach of duty........ Once the solicitors had closed their file, it was unlikely that failure (b) would come to the notice of the plaintiff or the defendants until the house was sold and it was too late ...... so his ability to remedy the breach before the house was sold was a matter of more theoretical interest than practical importance.
In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 the plaintiff had learned of his solicitor's default and brought an action for damages. Of course he would have taken steps to remedy the fault. But he would have been entitled at least to recover from the defendant the costs incurred in going to other solicitors for advice on what should have been done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible."
Mr Steinfeld relied on those last two sentences when dealing with the matter to which I will come later in this judgment, namely the claimant's liability for the second defendant's fees.
But Mr Hill-Smith submits that in Bell's case, as in the earlier cases, there was immediate damage to a definite proprietary interest other than the plaintiff's general wealth, and that, he submits, is important. There must be, as he put it, a tangible loss to a bank balance, or something you can point your finger to. In addition to the passages already cited he invited our attention to the judgment of Beldam LJ at 510 E where he said -
"Due to the defendant's negligence, the plaintiff parted with his legal estate in the property conveyed to his wife in exchange for an equitable interest in the proceeds of sale. That equitable interest until secured by charge or acknowledged by a deed of trust was clearly less valuable to the plaintiff. Unprotected against the interests of third parties by registration of a charge or a caution, it was less valuable still. I consider therefore that the plaintiff's cause of action arose when he parted with his property or at the latest at the time when a careful solicitor would have affected registration either of a charge or of a caution."
Similarly at 513 C Mustill LJ said -
"As to the claim in tort I have little to add. The transaction caused the plaintiff to change his valid legal estate for an equitable interest in the proceeds of sale which was dependant on the good will and solvency of the wife unless and until protected by a formal declaration of trust or the lodging of a caution. The failure to see that these steps were taken promptly meant that the plaintiff was actually, and not just potentially, worse off than if the solicitors had performed their task competently."
In Hopkins v Mackenzie [1995] 6 Med. L.R. 26 the plaintiff claimed damages for medical negligence. His action was not diligently pursued. On 11th October 1985 the hospital defendant issued a summons to strike out. The summons was served on 31st December 1985, and was heard on 4th February 1986, when the action was struck out. On 27th January 1992 the plaintiff issued fresh proceedings against the original solicitor. It was accepted that the cause of action in contract was statute-barred, but in this court it was held that the plaintiff's cause of action in tort did not accrue until 4th February 1986 because no actual loss or damage was sustained until the original action was struck out. In the court below the judge had accepted that the plaintiff's claim had an ascertainable value which was diminished by the negligence of the solicitors long before the action was struck out. Once it was at risk of being struck out without the possibility of revival then, apart from anything else, its settlement value was reduced. So there was it would seem an actual loss attributable to the negligence of the defendant solicitor, but, as Saville LJ said at page 30 -
"The overwhelming difficulty with this submission is that it simply ignores the fact that the plaintiff is not suing for any earlier diminution in the value of his claim, but the loss of his cause of action through his solicitor's negligence on February 4th 1986..... What on the plaintiff's case has been lost is the right to advance his medical negligence claim in a court of law. That loss was not sustained until the action was struck out. To my mind a cause of action for diminishing the value of a claim is not the same thing as a cause of action for losing the right to advance that claim in a court of law."
Mann LJ, whilst agreeing in the result reserved his position as to whether the diminution in value of a cause of action through its susceptibility to a strike out could constitute damage for the purposes of an action in negligence, adding at page 31 -
"A provisional view might be that it could, for the injurious affection represents an economic loss."
Nourse LJ, also agreeing, again pointed to the distinction made by both other members of the court, saying -
"The plaintiff sues in respect of the loss or damage suffered by him by reason of the striking out ... on February 4th 1986. He does not sue in respect of the loss or damage suffered by him by reason of some earlier depreciation in value of his right of action against the defendants in that action. It cannot be assumed that the value of the right at the date of striking out was the equivalent of, or less than, its value at the earlier date. So the plaintiff's cause of action against the present defendant did not fully mature until the later date. Since the plaintiff may rely on whatever cause of action is available to him how can it be defeated by a defence to a cause of action on which he does not rely? ...... thus if, before February 4th 1986, the plaintiff had here compromised (his) action .... on terms rendered disadvantageous by the risk of striking out, the limitation would have run from the date of the compromise and not from some later date."
Mr Hill-Smith placed considerable reliance upon the decision in Hopkins case, but in my judgment it is of limited assistance because, as all three judges made clear, so much turned on the precise nature of the plaintiff's cause of action in that case. As Mr Steinfeld said in reply, it is necessary to identify the loss claimed, and to measure it against the duty allegedly breached. Here the breach of duty relied upon is an alleged failure to advise the claimant how to operate in such a way as not to be likely to attract adverse criticism for the SIB, in consequence of which negligence vulnerable transactions were made which were all completed before the beginning of the six year period, and before the SIB began to investigate.
In First National Commercial Bank v Humberts [1995] 2 All E R 673 the plaintiff bank made advances on the basis of what was alleged to be a negligent valuation by the defendant valuer. It was held that the cause of action did not accrue until the bank's outlay together with the cost of borrowing, or the notional profits that would have been obtained elsewhere, was less than the security held in respect of the advance. At 679b Saville LJ said -
"At the hearing and in the judgment much reliance was placed on the cases where the claimant entered into a transaction which through a breach of duty owed to the claimant provided the claimant with less rights than should have been secured, or imposed liabilities or obligations on the claimant which should not have been imposed."
He then referred to Foster, Bell and one other case and continued -
"In all of those cases, however, the court was able to conclude that the transaction then and there caused the claimant loss, on the basis that if the injured party had been put in the position he would have occupied but for the breach of duty, the transaction in question would have provided greater rights, or imposed lesser liabilities or obligations than was the case; and that the difference between these two states of affairs could be quantified in money terms at the date of the transaction."
Mr Steinfeld contends that if the claimant had been in the position which he would have occupied but for the alleged breach of duty (by receiving and thus being able to act on advice to avoid pooling) the transactions (i.e. each investment) would have provided greater rights because they would have been free of the risk of having to be repaid, or being thought vulnerable to that risk. And, even though it might be difficult, the difference between those two states of affairs could if necessary be quantified in money terms before the six year period prior to the writ began to run.
At 680f in the Humberts case Neill L J said -
"Economic loss may take a variety of forms, and the answer to the question when a cause of action for negligence causing economic loss accrues may require a consideration of the precise interest infringed by the negligent act or omission. It may also require consideration of the nature of the interference to which the interest is subjected. Some of the cases to which we were referred in the course of argument, however, demonstrate that courts have been driven to draw narrow, and some would say unconvincing, distinctions between transactions where it has been held that the loss was measurable when the relevant transaction was entered into and transactions where it has been held that loss occasioned by the unsatisfactory bargain lay in the future."
I see no reason to add to that last telling comment.
In Knapp v Ecclesiastical Insurance [1988] PNLR 172 the plaintiffs had a fire at their home on 16th October 1996. They were insured with the first defendants and had renewed their policy on 12th April 1990 through their brokers, the second defendants, who, the plaintiffs claimed, knew all material matters and completed the proposal forms on their behalf. The first defendants alleged non-disclosure of material facts, and avoided the policy. On 16th October 1996 the plaintiffs issued a writ against both defendants. In this court it was held that, so far as the second defendants were concerned, on renewal of the voidable policy on 12th April 1990 the plaintiffs suffered actual loss. Hobhouse L J reviewed the authorities and concluded at 184 E -
"From these authorities it can be seen that the cause of action can accrue and the plaintiff have suffered damage once he has acted upon the relevant advice `to his detriment' and failed to get that to which he was entitled. He is less well off than he would have been if the defendant had not been negligent. Applying this to the present case the plaintiffs paid their renewal premium without getting in return a binding contract of indemnity from the insurance company. They had acted to their detriment: they did not get that to which they were entitled."
Mr Steinfeld submits that is precisely the situation in this case. Because the first defendant failed to advise, the plaintiff was deprived of that to which he was entitled, namely sound advice which would have enabled his company to avoid any investment which he was at risk of having to repay. Mr Hill-Smith, by contrast, points to the immediately identifiable damage in the Knapp case. For the premium the plaintiff did not get the contract he sought. At 184 F Hobhouse L J continued -
"The fact that how serious the consequences of the negligence would be depended upon subsequent events and contingencies does not alter this; such considerations go to quantification of the plaintiff's loss not to whether or not they have suffered loss. The risks of loss existed from the outset and in the absence of better evidence would have to be evaluated and assessed as a risk and damages awarded accordingly."
Again Mr Steinfeld submits that the words are appropriate. In Knapp the subsequent event or contingency was the fire which caused the plaintiffs to claim on their policy. here it was the investigation by the SIB.
As to the earlier case of Hopkins Hobhouse L J said at 187 D -
"The decision is difficult to reconcile with the earlier authorities and arguments similar to those which I have accepted in the present case were advanced on behalf of the solicitor defendants without success. However for the purposes of the present case it suffices to say that the Court of Appeal in Hopkins v Mackenzie were clearly of the view that they were applying the principles to be derived from the earlier authorities ...... I do not consider Hopkins v Mackenzie can be taken as qualifying the earlier decisions of the Court of Appeal or the principles to be derived from them."
At 189 to 190 Buxton L J cautioned against over-reliance on the latter part of the passage from the judgment of Bingham L J in Moore v Ferrier which is set out above, suggesting that it is not a general test, but -
"A reminder that if damage has been caused in, for instance, Foster v Outred terms, a negligence action is thereafter very unlikely to fail on the ground that that damage is unquantifiable."
Very soon after the Court of Appeal decided Knapp the House of Lords gave judgment in Nykredit plc v Edward Erdman Ltd [1997] 1 WLR 1627. The plaintiff bank in March 1990 advanced money in reliance on an over-valuation of property by the defendant valuer. The money would not have been advanced if the plaintiff had known the true value of the property. The borrower defaulted at once. The bank obtained possession of the property, and in February 1993 sold it for a relatively modest sum. As to when the cause of action accrued, Lord Nicholls at 1630 endorsed what had been said by Stephenson L J in Foster as to the meaning of actual damage, adding only -
"The cautionary reminder that the loss must be relevant loss. To constitute actual damage for the purpose of constituting a tort, the loss sustained must be loss falling within the measure of damage applicable to the wrong in question."
At 1631 C Lord Nicholls identified the difficulty of the case where -
"As a result of negligent advice, property is acquired as a security. In one sense the lender undoubtedly suffers detriment when the loan transaction is completed. He parts with his money, which he would not have done had he been properly advised. In another sense he may suffer no loss at that stage because often there would be no certainty he would actually lose any of his money: the borrower may not default. Financial loss is possible but not certain. Indeed, it may not even be likely. Further, in some cases, and depending on the facts, even if the borrower does default the over valued security may still be sufficient."
At 1631 H he pointed out that -
"The valuer is liable for the adverse consequences, flowing from the entering into the transaction, which are attributable to the deficiency in the valuation."
At 1632 E he acknowledged that -
"To greater or lesser extent, quantification of the lender's loss is bound to be less certain and therefore less satisfactory, if the quantification exercise is carried out before, rather than after, the security is ultimately sold ..... but the difficulties of assessment at the earlier stage do not seem to me to lead to the conclusion that at the earlier stage the lender has suffered no measurable loss and has no cause of action, and that it is only when the assessment becomes more straightforward or final that loss first arises and with it the cause of action.
Indeed for the cause of action to arise only when the lender realises his security would be a highly unattractive proposition. ...... if disaster were evident and the lender were to sue his valuer for breach of contract without waiting until he had realised his security, it is inconceivable that the court would award only nominal damages. The court would do its best the assess the loss."
Lord Nicholls then cited with approval the "trenchant observation" of Bingham L.J. in Moore v Ferrier, which Buxton L J had qualified in Hopkins.
At 1639 Lord Hoffmann said that in a case such as Nykredit loss will be suffered "when the lender can show that he is worse off". Mr Hill-Smith submitted that in the present case when investments were made the claimant was not actually worse off as a result of the first defendant's alleged negligent failure to advise. He was only potentially worse off, but in my judgment that is not right. After the investments were made the plaintiff was exposed to the risk of being required by a court, pursuant to section 6(2) of the 1986 Act, to restore the parties (i.e. investors and borrowers) to the position in which they were before the transactions were entered into. That was a liability, albeit a contingent liability, a fetter on his assets, from which on his case he would have been protected if the first defendant had exercised proper care.
The final authority to which our attention was invited in relation to this aspect of the case is Bacon v Howard Kennedy [1999] PNLR 1, but I do not believe that it adds to the authorities set out above.
Despite the wealth of authority I do not find the question which I have sought to address an easy one, but in my judgment if the first defendant was negligent in the way that is alleged (i.e. by failing to advise the claimant how to set up his scheme so that it was not capable of being considered a collective investment scheme, or failing to advise him to seek authorisation pursuant to the 1986 Act) then, for the reasons I have given when reviewing the authorities, I must conclude that the claimant did sustain actual loss sufficient to complete his cause of action, as Mr Steinfeld submits, when each investment was made.
6. Second Defendant's fees.
Even if I were wrong as to the transactions giving rise to loss it seems to me to be absolutely clear that the claimant did sustain actual loss as a result of the first defendant's alleged negligence when he instructed the second defendants to advise in relation to the SIB investigation, and that was ten days before the start of the six year period which preceded the issue of the writ. As Mr Hill-Smith points out, the second defendants did not, it seems, require any payment on account, so the claimant did not, in accordance with normal practice, become liable to pay the second defendant until the second defendant sent its invoice. Mr Hill-Smith further submits that the second defendant's advice was worthless, so there was a total failure of consideration, and that any liability for fees incurred prior to 28th May 1992 must have been de minimis in the context of this case. In my judgment it is for present purposes of no consequence that the second defendant did not seek payment on account. The claimant knew that by instructing solicitors he was incurring a liability to pay the fees that those solicitors could properly and reasonably charge for their services on and from 18th May 1992, subject perhaps to the remote possibility of a total failure of consideration, and that, in my judgment, must be a sufficient actual loss to complete a cause of action in negligence. The amount of money concerned may not have been very large, but it can hardly have been insignificant.
It is only right to point out that this alternative way of putting the first defendant's case was not developed before Buckley J, but in my judgment it is unanswerable.
7. Conclusion.
I would therefore allow the appeal, and restore the order of Master Foster that the claim against the first defendant be struck out and dismissed. So far as costs are concerned the first defendant is, as it seems to me, entitled to recover the costs of the hearing before the judge in chambers, and the costs of this appeal, those costs to be subject to a detailed assessment, and, subject to any submission that counsel may wish to make, I would so order.
LORD JUSTICE KAY: I agree
(Order does not form part of the approved judgment)