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Cite as: [2001] NPC 59, [2001] EWCA Civ 366, [2001] Lloyd's Rep PN 452, [2001] 12 EGCS 167, [2001] PNLR 34, [2001] Lloyds Rep PN 452

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		Neutral Citation Number: [2001] EWCA Civ 366
		Case No: A3 1999 1225

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR JUSTICE EVANS-LOMBE)

Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 16th March 2001

B e f o r e :

LORD JUSTICE POTTER
LORD JUSTICE SEDLEY
and
LORD JUSTICE JONATHAN PARKER
____________________

	CROSSE & CROSSE (A FIRM)	Appellants
	- and -
	LLOYDS BANK PLC	Claimant/ Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr Michael Pooles QC and Mr Julian Picton (instructed by Messrs. Bond Pearce for the Appellants)
Mr Simon Berry QC and Miss Katharine Holland (instructed by Messrs. Rosling King for the Claimant/Respondent)
____________________

HTML VERSION OF JUDGMENT
____________________

LORD JUSTICE JONATHAN PARKER

INTRODUCTION

This is an appeal by Messrs Crosse & Crosse ("CC"), solicitors, the second defendants in the action, against an order made by Evans-Lombe J on 7 July 1999 whereby he entered judgment in favour of the claimant in the action, Lloyds Bank plc ("the Bank"), against CC for damages for professional negligence in the full amount of the Bank's claim. The judge dismissed the Bank's claim against the first defendants in the action, Messrs Burd Pearce ("BP"), another firm of solicitors. There are no contribution proceedings as between CC and BP. Accordingly BP are not involved in this appeal.

CC appear on this appeal by Mr Michael Pooles QC and Mr Julian Picton; the Bank appears by Mr Simon Berry QC and Miss Katharine Holland.

The judge found that CC were negligent, and there is no appeal against that finding. In awarding damages against CC, however, the judge rejected a limitation defence pleaded by CC. On this appeal CC contends the judge was in error in so doing ("the limitation issue"). Alternatively, if the Bank's claim against it is not statute-barred, CC contends that the judge adopted the wrong measure of damage, in that only part of the pleaded loss was caused by CC's negligence ("the measure of damage issue").

FACTUAL BACKGROUND

The action arises out of the purchase by a company called Sharland Developments Ltd ("SDL") on 31 March 1989 of a vacant building plot adjoining The Haven, Marley Road, Exmouth, in Devon ("the Plot"). SDL was owned and controlled by Mr John Sharland and his wife, and carried on a building business. Mr and Mrs Sharland also carried on a building business in partnership together. SDL banked with the Bank, with whom it had (at all material times) a running overdraft. Its continuing indebtedness to the Bank was guaranteed by Mr and Mrs Sharland, their liability as guarantors being secured on certain of their personal assets. The purchase price of the Plot was £105,000, £95,983.75 of which (92 per cent) was funded by an advance by the Bank. The Bank took a first charge over the Plot in the form of an "all monies" legal charge, securing SDL's continuing indebtedness. CC acted for the Bank on this transaction ("the 1989 transaction").

Immediately before the 1989 transaction SDL was overdrawn on its account with the Bank to the extent of some £183,000. On completion, the indebtedness increased to some £280,500 (an increase of some £97,500).

It is common ground that CC's instructions in relation to the 1989 transaction were in the terms set out in a letter from the Bank dated 24 January 1989 relating to an earlier proposed purchase of another building plot by SDL which did not in the event proceed. Since, for reasons which will appear later, the terms of CC's instructions are of central importance in considering what is the correct measure of damage in this case, I quote the material part of that letter:

"We should be obliged if you would furnish the Bank with a report stating whether or not the mortgagor has a good and marketable unencumbered title, carry out all necessary searches and usual enquiries and report whether they disclose any matters which could affect the value or saleability of the property."

The Plot was subject to two restrictive covenants, the cumulative effect of which was (substantially) to limit the developable area of the Plot. On 15 March 1989 CC wrote to the Bank confirming that they had investigated the title to the Plot and that they considered that on completion SDL would obtain a good and marketable title to it. CC failed to advise the Bank of the existence of the restrictive covenants, and hence of any effect which they might have on the value or saleability of the Plot.

At the time of the 1989 transaction neither the Bank nor Mr and Mrs Sharland knew of the existence, let alone the terms, of the restrictive covenants. Mr Sharland's evidence (which the judge accepted) was that had he been aware of the effect of the restrictive covenants in restricting the developable area of the Plot he would not have gone ahead with the purchase of the Plot but would have looked for some other more suitable site for SDL to purchase. So far as the Bank was concerned, the manager (Mr Lamb) gave evidence to the effect that had the Bank been alerted to the effect of the restrictive covenants it would have asked Mr Sharland to go back and renegotiate a lower price for the Plot based on its true value, and that, depending on the outcome, the Bank might either have made a reduced advance or have declined to make any advance on the security of the property. As he put it in evidence (transcript Day 2 p.29C):

"[I]f we could not have found that there was sufficient added security against added lending and if Sharland could not have put in whatever the differential would have been we would ... I can tell you quite categorically, we would not have gone ahead with the advance and we would have said to Mr Sharland try to find another property if you are interested in doing another development."

In 1992 SDL (which was by then in financial difficulties) sold the Plot to Mr and Mrs Sharland for £80,000. Mr and Mrs Sharland took over SDL's indebtedness to the Bank, and the Bank's existing charge was replaced by a first charge over the Plot granted by Mr and Mrs Sharland. BP acted for the Bank on this transaction ("the 1992 transaction").

The judge took the view that the 1992 transaction, being "cash neutral" so far as the Bank was concerned, did not affect the issue as to the correct measure of damage to be awarded against CC, and the contrary has not been suggested on this appeal. The 1992 transaction was, however, central to the Bank's claim against BP. As against BP, the Bank contended before the judge that it had retained BP on a similar basis to its retainer of CC in relation to the 1989 transaction, and that BP had negligently failed to alert it to the existence and/or effect of the restrictive covenants. On that basis, should its claim against CC fail (e.g. by reason of limitation), the Bank claimed damages against BP on the footing that had the Bank been made aware of the effect of the restrictive covenants in 1992, CC's negligence would then have come to light and it would at that stage have commenced proceedings against CC. However, the judge found that BP's retainer was not as wide as that of CC, and in particular that BP was required to do no more than ensure that whatever title SDL had acquired under the 1989 transaction passed to Mr and Mrs Sharland under the 1992 transaction. He accordingly dismissed the Bank's claim against BP.

Mr and Mrs Sharland were never in a financial position to develop the Plot, and in early 1995 they placed it on the market with the benefit of full planning permission. However, a prospective purchaser who had originally offered £65,500 for the Plot withdrew when he discovered the restrictive covenants. It was at that stage that Mr and Mrs Sharland became aware of the terms of the restrictive covenants, and of their effect in limiting the developable area of the Plot.

The Bank (as the judge found) first learned of the terms of the restrictive covenants on 7 July 1995.

The Plot was eventually sold in February 1998 (after the commencement of proceedings) for only £32,000, leaving the Bank with a substantial shortfall on the advance which it was unable to recover. In the meantime Mr and Mrs Sharland had entered into a voluntary arrangement with their creditors.

THE ACTION

The writ was issued on 17 July 1996.

By its Statement of Claim, the Bank alleges that CC breached its contractual and tortious duty of care in failing to advise the Bank as to effect of the restrictive covenants, and it claims damages representing the difference between the amount lent to purchase the Plot (with interest and costs) and the net proceeds of realisation of its security. It is common ground that this calculation produces a net claim of £185,536.12, together with accruing interest. In the alternative, as explained earlier, the Bank claims an indemnity against BP, alleging that BP were negligent in failing to alert the Bank to the existence of the restrictive covenants when acting for it in the 1992 transaction.

By its Defence, CC denies negligence, does not admit that the Bank has suffered loss and damage by reason of any negligence on the part of CC, and alleges that any loss or damage the Bank may have suffered by reason of CC's negligence is attributable to its own contributory negligence in failing to obtain a valuation of the Plot before accepting it as security and/or in failing to realise its security earlier. CC also alleges that the Bank failed to mitigate its loss by not realising its security earlier. By paragraph 8 of its Defence CC pleads a limitation defence, as follows:

"(1) If, which is denied, the Plaintiff has suffered loss and damage as alleged by reason of the breaches of duty alleged against the Second Defendant, the Plaintiff's claim in respect of the same is statute-barred by reason of the provisions contained in sections 5 and 14A of the Limitation Act 1980.

(2)The starting date for the purposes of section 14A(4)(b) of the Limitation Act 1980 was December 1992 at the latest."

It is to be noted that the Defence does not expressly plead section 2 of the Limitation Act 1980 ("the Act"), which provides for a 6-year limitation period for actions founded on tort, but no point has been taken in relation to that.

BP also denied negligence, alleging (correctly, as the judge held) that under the terms of its retainer it was under no duty to advise the Bank as to the existence or effect of the restrictive covenants.

THE JUDGE'S DECISION ON THE BANK'S CLAIM AGAINST CC

As noted earlier, the judge held that CC were negligent and in breach of duty in failing to advise the Bank of the terms of the restrictive covenants, and there is no appeal from that part of his decision.

The Bank's contractual claim against CC being indisputably statute-barred (the cause of action having arisen more than 6 years before the commencement of the action), the remaining issues for decision were (a) whether the Bank's claim against CC in tort was statute-barred (that is to say, the limitation issue), and (b), if not, the amount of damages to which it was entitled (that is to say, the measure of damage issue).

At a relatively early stage in the trial, the judge indicated to counsel that he proposed to deal first with all issues relating to liability, and to deliver judgment on those issues before addressing the remaining issues (including issues as to contributory negligence and mitigation). It seems that there may have been some confusion as to the precise scope of any further hearing, due no doubt to the fact that (as will appear) the limitation issue overlaps to some extent with the measure of damage issue. At all events, the judge proceeded to hear the entirety of the oral evidence (including expert evidence as to the value of the Plot), and the parties thereafter addressed submissions to him on, it appears, all the relevant issues except those relating to contributory negligence and mitigation. The judge then reserved judgment. In the event, the judge's judgment contains no findings on the valuation evidence he had heard; indeed he made no reference to that evidence in the course of his judgment. Moreover, at the conclusion of his judgment the judge rejected CC's case on contributory negligence and mitigation, "if it is being pursued", notwithstanding that he had not as yet heard submissions on those issues.

The fact that, contrary to the parties' expectations, the judge proceeded to adjudicate on the issues of contributory negligence and mitigation was initially the basis of one of CC's grounds of appeal. However, in the course of his closing submissions on this appeal Mr Pooles informed us that the allegations of contributory negligence and mitigation were no longer being pursued. It is accordingly unnecessary to consider this aspect of the matter any further.

The absence of any findings on the valuation evidence is no doubt explained by the fact that the valuation evidence was not material to the conclusions which the judge reached on the limitation issue and on the measure of damage issue. Thus, on the limitation issue he held that by virtue of section 14A of the Act time did not start to run until 7 July 1995, with the consequence that the Bank's claim would not be statute-barred even on the footing that its cause of action had accrued more than six years before the commencement of the action; and on the measure of damage issue he concluded (as noted earlier) that the Bank was entitled to recover from CC the entirety of its loss on the transaction. Nevertheless, if the judge's conclusion on either the limitation issue or the measure of damage issue should be wrong, further questions will arise to which the valuation evidence may well be material.

It is in these circumstances that Mr Pooles submits, as his primary and general submission, that the absence of findings on the valuation evidence is a fundamental flaw in the judgment which vitiates the judge's conclusions on both the limitation issue and the measure of damage issue, and which leads inevitably to the conclusion that there must be a retrial. I will return to this submission later.

I must now turn to the limitation issue and the measure of damage issue in greater detail.

THE LIMITATION ISSUE

CC's pleaded limitation defence raises two issues. The first issue is whether the Bank's cause of action in tort is statute-barred by virtue of section 2 of the Act, on the ground that the cause of action accrued more than 6 years before the commencement of the action ("the section 2 issue"). The second issue is whether, if so, the running of time is nevertheless postponed by section 14A of the Act to a date within three years before the commencement of the action, with the consequence that, regardless of the decision on the section 2 issue, the claim is not statute-barred ("the section 14A issue").

The section 2 issue

Section 2 of the Act is in the following terms:

"An action founded on tort shall not be brought after the expiration of six years after the date on which the cause of action accrued."

Where the claim is for financial loss caused by a tort, the claimant's cause of action accrues at the point in time when the claimant first suffers "actual damage", that is to say "loss falling within the measure of damage applicable to the wrong in question" (see Nykredit plc v. Edward Erdman Ltd [1997] 1 WLR 1627 ("Nykredit") at p.1630F-G per Lord Nicholls).

Thus, the relevant inquiry for the purposes of the section 2 issue is when the Bank first suffered actual damage (in the above sense) as a result of CC's alleged negligence.

The judge began his consideration of the section 2 issue by referring to Nykredit (and in particular to the speech of Lord Nicholls between pages 1631 and 1633) and to the admitted existence of C&C's duty of care in tort. He continued:

"The Bank's cause of action in tort arose only when the Bank suffered damage resulting from CC's breach of duty. Notwithstanding that the Bank would not have made the 1989 advance to SDL had CC's report on title disclosed the restrictive covenants, it did not follow that the Bank would suffer damage as a result of making the advance. The Bank's security, notwithstanding the existence of the restrictive covenants, might in the end prove sufficient to repay the debt, alternatively, SDL's covenant to repay or the covenants of the Sharlands as guarantors of SDL's debt might be sufficient to repay the amount advanced when demanded. Only when the court can be satisfied that the sources to which a lender can look to obtain repayment of its advance will prove deficient will the court find the lender's cause of action against his incompetent adviser accrues in respect of defective advice leading to the making of the loan.

The burden of pleading and proving a limitation defence is placed on the party seeking to advance it, in this case CC. In my judgment CC have not discharged that burden. No attempt was made on behalf of CC to put before me a comprehensive estimate of the value from time to time of the sources to which the Bank could look for repayment of its 1989 advance. Whereas it may well have been the case that the value of the Plot declined after March 1989 this was not the sole asset of SDL. Internal documents also show that the Sharlands owned property and shares which were charged to the Bank or which would otherwise have been available to the Bank for repayment of the amount advanced. There is no evidence that at any material time either SDL or the Sharlands defaulted in making any repayments due to the Bank."

In effect, therefore, having addressed himself to the relevant question the judge decided the section 2 issue by reference to the burden of proof, holding that CC had failed to discharge the burden of proving that the Bank's cause of action arose more than 6 years before the commencement of the action.

Without prejudice to his primary submission that the absence of any findings on the valuation evidence means that there must be a retrial, Mr Pooles submits that in the absence of such findings it is impossible to identify the point of time at which, on Nykredit principles, the Bank's cause of action in tort against CC arose; that is to say the point of time at which the Bank first suffered damage by reason of CC's negligence.

Mr Pooles further submits that the judge misdirected himself in any event as to the burden of proof where a limitation defence has been pleaded, and that this misdirection vitiates the judge's conclusion on the section 2 issue. Mr Pooles submits, relying on Cartledge v. E. Jopling & Sons Ltd [1962] 1 QB 189 and London Congregational Union Inc v. Harriss & Harriss [1988] 1 All ER 15, that it was for the Bank to prove that its loss accrued within an available limitation period.

Mr Berry accepts that the burden of proof in relation to the limitation defence lies on the Bank, in the sense that it is for the Bank to prove that its cause of action accrued within the relevant limitation period. On the other hand, he submits, the Bank having adduced evidence suggesting that the cause of action did not accrue until a date less than six years before the commencement of the action, it was then for CC to adduce evidence to counter that suggestion. He submits, in other words, that the evidential burden of proof shifted to CC, and that the judge's reference to the burden of proof must be read in that context.

In support of that submission Mr Berry relies on evidence (which was before the judge) that in the period from March 1989 to July 1990 some £278,000 was paid into SDL's account with the Bank, during which time the interest charged on the account only amounted to some £55,000; that (according to the evidence of Mr Sharland and of Mr Lamb) SDL was throughout 1989 and 1990 in a healthy financial position; that SDL's overdraft was guaranteed by the Sharlands; that their liability as guarantors was secured on certain of their personal assets; that the Bank had other securities for SDL's indebtedness; and that even in 1992 the Bank was sufficiently confident about the Sharlands to consider further lending to enable them to build on the Plot.

Mr Berry submits that the judge plainly had all this evidence in mind, when considering the issue under section 2 of the Act. He relies in this connection on the judge's description of SDL's business early in his judgment as "a well-established property development business". This, he says, is to be contrasted with the judge's later observation that "[b]y late 1992 the property market had reversed and SDL was in financial difficulties". Accordingly, submits Mr Berry, it is apparent that it was the judge's view that it was not until 1992 that questions could have arisen about the ability of SDL to repay its indebtedness to the Bank and about the adequacy of the Bank's security for that indebtedness.

Having regard to such matters, submits Mr Berry, the judge was correct to approach the section 2 issue on the basis that the burden of proof had shifted to CC, and that CC needed to produce at least something in the nature of a comprehensive estimate of the value from time to time of the various sources to which the Bank could look for repayment of SDL's indebtedness. In the event, as the judge said, CC had wholly failed to produce any such evidence.

On that basis, Mr Berry invites us to uphold the judge's decision on the section 2 issue.

For my part, I am unable to accept Mr Pooles' primary submission that the absence of findings on the valuation evidence is in itself enough to justify a retrial, without inquiring further as to the materiality which such evidence might have to the limitation issue or the measure of damage issue.

Turning to the section 2 issue, however, I conclude that the judge's decision on that issue cannot stand. I reach this conclusion for three reasons.

In the first place, before the judge could decide the section 2 issue on the burden of proof it was incumbent on him to make findings on such evidence as was before him relevant to that issue. I agree with Mr Pooles that this included the valuation evidence, since, on Nykredit principles, it is not possible to identify the date on which the Bank's cause of action against CC arose without knowing (among other things) the value of the security.

Secondly, I accept Mr Pooles' submission that the judge misdirected himself as to where the burden of proof lay. In my judgment it is clear from the relevant passage in the judgment (quoted above) that the judge was treating the burden of proof in relation to CC's limitation defence as lying on CC, and that he was not referring merely to what has been called the evidential burden of proof. This was, as Mr Pooles submits, a fundamental misdirection which undermines his conclusion on the section 2 issue.

Thirdly, I am in any event far from satisfied that in deciding the section 2 issue the judge had in mind the evidence relied on by Mr Berry. It seems to me that when he referred to SDL's business in 1989 as being "well-established" the judge was doing no more, at that early stage in his judgment, than setting out the non-contentious background facts. The same applies, in my judgment, to the judge's general references to the rise and fall in the property market.

For those reasons, I conclude that the judge's decision on the section 2 issue cannot stand. However, as explained earlier, the deficiencies in the judgment on the section 2 issue will be of no consequence should the judge's conclusion on the section 14A issue be correct.

I turn, therefore, to the section 14A issue.

The section 14A issue

Section 14A provides as follows (so far as material):

(1).....

(2).....

(3) An action to which this section applies [the instant action is such an action] shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.

(4) That period is either –

(a) six years from the date on which the cause of action accrued; or

(b) three years from the starting date as defined by section (5) below, if that period expires later than the period mentioned in paragraph (a) above.

(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action in damages in respect of the relevant damage and a right to bring such an action.

(6) In subsection (5) above "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both –

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current action mentioned in subsection (8) below.

(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8) The other facts referred to in subsection (6)(b) above are –

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire –

(a) from facts observable or ascertainable by him; or

(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.

Before returning to the judgment to see how the judge decided the section 14A issue, it is necessary to return briefly to the facts relevant to the Bank's claim against BP. As noted earlier, the judge found (and CC cannot challenge this finding on this appeal) that BP's retainer was limited to ensuring that SDL transferred to Mr and Mrs Sharland such title as it had acquired by virtue of the 1989 transaction: in other words, that BP was only concerned with dealings with the Plot which had taken place since the 1989 transaction. However, Mr Gregory of BP accepted in evidence that at the time of the 1992 transaction he knew of the existence, albeit not the terms, of the restrictive covenants. So much, indeed, is apparent from the fact that the 1992 Transfer refers expressly to them.

At the hearing before the judge, CC contended (in the event, unsuccessfully) that BP was negligent in failing to draw the Bank's attention to the terms of the restrictive covenants, and (on that basis) that the Bank was at that stage fixed with constructive notice of their terms and that December 1992 was accordingly the "starting date" for the purposes of section 14A(5). The judge rejected that contention, saying:

"The Bank are not to be fixed with constructive knowledge of facts which solicitors instructed by them might have discovered but did not."

Before the judge, CC also sought to rely on the fact that following completion of the 1989 transaction the Charge Certificate (which included the entries on the charges register reciting the terms of the restrictive covenants) was sent by CC to the Bank. However, this point was not pursued before us.

In the event, the judge resolved the section 14A issue by deciding that the relevant "starting date" was 7 July 1995, being the date when (as he found) the Bank first became aware of the terms of the restrictive covenants. In this connection he said:

"Before 7 July [1995] there was no reason why the Bank should have checked the documents of title of the Plot and thereafter have sought advice on the effect of the restrictive covenants disclosed on the Plot's value."

Given the judge's finding as to the limited nature of BP's retainer, CC's argument on the section 14A issue in this court has, of necessity, been somewhat modified.

In this court, Mr Pooles points once again to the absence of any findings on the valuation evidence. He accepts that the absence of such findings does not impact on the section 14A issue to the same extent as it impacts on the section 2 issue, but he submits that the value of the Plot might nevertheless be relevant to the section 14A issue. He gives as a hypothetical example a situation in which the value of the Plot had, to the knowledge of the Bank, fallen to a greater extent than could reasonably be attributed to a general fall in the market for development property. It would, he submits, be open to CC to rely on that fact in seeking to establish the requisite knowledge on the part of the Bank for the purposes of section 14A. Yet, he submits, until findings are made on the valuation evidence it cannot be known whether or not such an argument is available.

Apart from the absence of any findings on the valuation evidence, Mr Pooles relies (as junior counsel did before the judge) on the admission made by Mr Gregory of BP that he knew of the existence (albeit not the terms) of the restrictive covenants at the time of the 1992 transaction – that is to say, in December 1992. Mr Pooles points out that the judge did not refer to this admission in his judgment. Mr Pooles submits that BP's knowledge of the existence of the restrictive covenants, being knowledge acquired by BP when acting as agents for the Bank, falls to be imputed to the Bank as BP's principal; and that knowledge of the existence of the covenants is enough to start time running for the purposes of section 14A. It follows, he submits, that the Bank cannot rely on section 14A since it had the requisite knowledge more than 3 years before the commencement of the action.

In the alternative, Mr Pooles contends that the Bank is nevertheless fixed with constructive knowledge of the existence of the covenants. He points out (correctly) that the judge found that although the Bank had intended BP's retainer to be as wide as that of CC in relation to the 1989 transaction, it had framed its letter of instructions to BP in terms which BP could reasonably interpret, and did in the event interpret, as being limited in the manner I described earlier. Basing himself on that finding, Mr Pooles submits that the Bank is fixed with constructive notice of facts which would have come to light had its instructions to BP in fact been as wide as it had intended them to be, and had BP not been negligent in carrying out those instructions.

Mr Berry submits that the valuation evidence is not relevant to the section 14A issue. Further, he submits that mere knowledge of the existence of the covenants on the part of the Bank is not in any event enough to start time running under section 14A: for the section to apply, he submits, the Bank must also have knowledge that the covenants had had a significantly depreciatory effect on the value of the Plot which had led to the Bank sustaining loss. He reminds us that section 14A is concerned with knowledge of "the material facts about the damage in respect of which damages are claimed" (see ibid. subsection (6)(a)), and submits that before a person can have knowledge of damage, damage must first have been sustained.

Mr Berry further submits that it would be contrary both to principle and authority that a principal should be treated as knowing something which had come to the knowledge of his agent in circumstances where (a) the principal was himself under no duty to inquire and (b) the agent was under no duty to pass the information on to his principal and had not done so. In support of this submission he relies on the decision of the Court of Appeal in El Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685, to which further reference is made below.

As to constructive knowledge, Mr Berry submits that there can be no question of constructive knowledge on the part of the Bank, given the restricted nature of BP's retainer (as found by the judge).

In my judgment, the absence of findings on the valuation evidence cannot serve to vitiate the judge's conclusion on the section 14A issue, given his specific finding that the Bank first became aware of the effect of the restrictive covenants on 7 July 1995. Nor, for the same reason, is his conclusion on the section 14A issue vitiated by the misdirection as to the burden of proof.

As to Mr Pooles' submission that the value of the Plot might be relevant as forming the basis for an inference that the Bank had the requisite knowledge at some earlier date, no such submission was made to the judge. Ironically, had such a submission been made it would have required the judge to make findings on the valuation evidence.

Nor can I accept Mr Pooles' submission that on the facts of this case BP's knowledge of the restrictive covenants is to be imputed to the Bank. In my judgment the El Ajou case is decisive authority on this point.

In the El Ajou case the plaintiff claimed recovery of moneys from the defendant company on the ground that the defendant had received the moneys with knowledge that they represented the proceeds of fraud and that it accordingly held them as constructive trustee. The plaintiff alleged that the defendant's knowledge arose from the fact that its chairman had actual knowledge that the moneys in question represented the proceeds of fraud and that the chairman was the directing mind and will of the defendant, alternatively that he acted as the defendant's agent in the relevant transaction. The Court of Appeal held on the facts that the chairman was the directing mind and will of the defendant and that accordingly his knowledge was to be imputed to the defendant, with the consequence that the claim based on constructive trust succeeded. That part of the decision is not material for present purposes. However, the court went on to deal with the alternative basis of agency, holding that the chairman's knowledge could not as a matter of law be imputed to the defendant on the basis that he had acted as its agent in the transaction, since the defendant was not itself under any duty to inquire as to the source of the moneys. On the agency aspect, Nourse LJ said this (at p.698f-g):

"It is established on the authorities that the knowledge of a person who acquires it as a director of one company will not be imputed to another company of which he is a director, unless he owes not only a duty to the second company to receive it, but also a duty to the first to communicate it."

Rose LJ dealt with the agency argument as follows (at p.700 e- f):

"[The] alternative submission based on agency is, in my view, doomed to fail. This court is, in my judgment, bound to hold, on the authority of Re David Payne & Co Ltd [1904] 2 Ch 608 that, qua agent, [the chairman] was under no obligation to disclose his knowledge to [the defendant], there being no duty on [the defendant] to inquire as to the source of the offered money." (My emphasis.)

Hoffmann LJ refers to what he calls "the agency theory" at p. 702 and following. He introduces this part of his judgment by saying:

"The circumstances in which the knowledge of an agent is to be imputed to the principal can vary a great deal and care is needed in analysing the cases. They fall into a number of categories which are not always sufficiently clearly distinguished."

Hoffmann LJ goes on to discuss four particular aspects of the authorities, only the second and fourth of which are relevant for present purposes. The second aspect identified by Hoffmann LJ is headed: "Principal's duty to investigate or make disclosure." Under that heading, Hoffmann LJ said this:

"Secondly, there are cases in which the principal has a duty to investigate or to make disclosure...... If the principal employs an agent to discharge such a duty, the knowledge of the agent will be imputed to him."

The fourth category is headed "Agent's duty to principal irrelevant". Hoffmann LJ begins this section of his judgment by saying:

"What it therefore comes to is that [the chairman], and agent of [the defendant], had private knowledge of facts into which [the defendant] had no duty to inquire. [Counsel] said that [the chairman] nevertheless owed [the defendant] a duty to disclose those facts. He then submits that because he had such a duty, [the defendant] must be treated as if he had discharged it."

Later in this section of his judgment, Hoffmann LJ says this (at p.703h):

"But [counsel's] submission that [the defendant] must be treated as if the duty had been discharged raises an important point of principle. In my judgment the submission is wrong. The fact that an agent owed a duty to his principal to communicate information may permit a court to infer as a fact that he actually did so. But this is a rebuttable inference of fact .... In some of the cases ... the fact that an agent with authority to receive a communication had a duty to pass the communication on to his principal is mentioned as a reason why the principal should be treated as having received it. I think, however, that the true basis of those cases is that communication to the agent is treated, by reason of his authority to receive it, as communication to the principal. I know of no authority for the proposition that in the absence of any duty on the part of the principal to investigate, information which was received by an agent otherwise than as an agent can be imputed to the principal simply on the ground that the agent owed his principal a duty to disclose it."

The words "otherwise than as an agent" in the last sentence of the above passage are plainly not to be read literally, given that later in the same sentence Lord Hoffmann LJ assumes the existence of an agency relationship. Read in context, "otherwise than an agent" must, I think, mean otherwise than as an agent who has been specifically authorised to receive the information in question; for example, an agent who has been authorised to receive a notice.

In the instant case, neither the Bank nor (given the limited terms of its retainer) BP was under a duty to inquire as to the existence of the restrictive covenants. Nor, in my judgment, can it be said that BP was in the position of an agent who was authorised to receive the information in question. Accordingly there is in my judgment no basis for imputing BP's knowledge of the restrictive covenants to the Bank.

So far as constructive notice is concerned, the limited nature of BP's retainer is in my judgment fatal to Mr Pooles' argument. Nor, in my judgment, can it make any difference that the Bank's intention (not carried into effect) was that BP's retainer should be wider terms.

In my judgment, therefore, the judge's conclusion on the section 14A issue must stand. On that footing it follows that, notwithstanding the deficiencies in his judgment on the section 2 issue, the judge was right to resolve the limitation issue in favour of the Bank.

THE MEASURE OF DAMAGE ISSUE

Turning to measure of damage, the judge accepted the evidence of Mr Sharland and of Mr Lamb that had they known of the terms of the restrictive covenants at the time of the 1989 transaction, the transaction would not have gone ahead. I referred earlier to the evidence on this aspect.

The judge went on to refer to a passage in Lord Hoffmann's speech in South Australia Asset Management Corporation v. York Montague & Ors [1997] AC 191 ("SAAMCO"), where he stated the general principle applicable in identifying the measure of damage in a case such as this. He did so in the following terms:

"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 upon 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."

The judge then turned to the decision of Chadwick J (as he then was) in the Bristol and West Building Society v. Fancy & Jackson and other cases [1997] 4 All ER 582 ("Bristol and West"), and quoted extensively from Chadwick J's judgment. In the result, he concluded that the Bank was entitled to recover the whole of its pleaded loss from CC, subject only to questions of contributory negligence and mitigation. He expressed his conclusion thus:

"I have held that CC were in breach of duty in not drawing the Bank's attention to the 1934/44 restrictive covenants. I have held that in making its advance in the 1989 transaction the Bank relied on CC's defective report on title. Accepting the evidence of Mr Lamb and Mr Sharland as I do I held that had the Bank (and Mr Sharland) known of the 1934/44 restrictive covenants they would not have made the advance which they made in 1989 on the security of the Plot. That is not because the presence of the covenants undermined their assumptions of the value of the property so that there was insufficient security to justify the advance being sought, though that may have been a contributory factor. Rather, it was because they would have known or would shortly have been told that Mr Sharland did not wish to proceed with the purchase. In these circumstances, in my judgment, subject to questions of mitigation and contributory negligence, the Bank is entitled to recover its whole loss arising from the advance."

It is apparent from the above passage that the judge founded his conclusion that the Bank's whole loss was recoverable from CC on the fact that the borrower would not have gone ahead with the transaction: that is to say, the borrower would not have purchased the particular property (the Plot) had he known about the covenants. On that footing, there was no question of the lender having lent less had it known about the covenants: it would not have made any advance on the security of that property, since the property would never have been offered as security. In reaching his conclusion that the whole of the Bank's loss was recoverable from CC the judge treated the instant case as on all fours with one of the cases decided by Chadwick J in Bristol and West, namely the case against Messrs Steggles Palmer, solicitors ("Steggles Palmer"). In Steggles Palmer, Chadwick J held that the solicitors were liable for the whole of the building society's loss on the advance on the ground that the solicitors' failure to advise the society that the transaction was by way of subsale had caused the entirety of the society's loss since had it known the true position the society would not have made any advance to that borrower: i.e. it was, literally, a "no transaction" case.

Mr Pooles submits that in holding CC liable for the entirety of the Bank's loss on the transaction the judge misapplied the principles set out and explained by the House of Lords in SAAMCO and Nykredit. In particular, he submits that the instant case does not fall within the same category as Steggles Palmer; rather, he submits, the position of CC in the instant case is to be equated with that of a valuer who negligently overvalues a security. It follows, he submits, that it is necessary to inquire what part of the Bank's loss was caused by CC's negligence – an inquiry which this court is unable to make in the absence of findings on the valuation evidence, and in particular in the absence of a finding as to the effect which the restrictive covenants had on the market value of the Plot in 1989. He accordingly invites us to remit the matter, or to direct an inquiry as to damages, so that the necessary findings can be made.

Mr Berry submits that Chadwick J's reasoning in Bristol and West, and in particular his identification of a category of cases in which the negligent professional will be liable for the full amount of the claimant's loss on the transaction, is correct. As authority for that proposition he relies on the decision of the Court of Appeal in Portman Building Society v. Bevan Ashford [2000] 7 EG 1.

In the Portman Building Society case the defendant solicitors negligently failed to advise the claimant building society that, contrary to what the borrowers had stated in their application for a mortgage advance, they were funding the balance of the purchase price with the aid of a second mortgage. The judge at first instance found that had the building society known the true facts it would have concluded that the borrowers were not persons to whom it would wish to make a loan since their overall borrowing exceeded the building society's lending guidelines. On that basis, the judge held that, as in Steggles Palmer, there would have been no lending by the building society to those borrowers, and that accordingly the solicitors were liable for the building society's entire loss on the transaction and no question of apportionment of the loss arose. The solicitors appealed. The leading judgment in the Court of Appeal was given by Otton LJ (with whom Schiemann LJ and Sir Stephen Brown agreed). After referring to SAAMCO, Otton LJ continued:

"Thus, in summary, the measure of damage is the loss attributable to the inaccuracy of the information that the plaintiff has suffered by reason of having entered into the transaction on the assumption that the information was correct. Thus, one must compare the loss actually suffered with what the position would have been if it had not entered into the transaction, and ask what element was attributable to the inaccuracy of the information. The application of the test of comparing the position as it was with the position as it was represented to be was considered by Chadwick J (as he then was) in [Bristol & West]. When the test was applied to the facts in Fancy & Jackson [one of the cases considered in Bristol & West], it led to the conclusion that the solicitor was not only not responsible for the whole of the loss suffered by the society; it was not responsible for any part of it. However, the position was different in Steggles Palmer, where the judge held that the solicitors were in breach of duty in failing, inter alia, to notify the society that they could not confirm that the borrower was to pay the balance of the purchase moneys from his own resources."

After quoting from Chadwick J's judgment relating to Steggles Palmer, Otton LJ recorded that counsel for the solicitors had submitted that although Chadwick J had stated the relevant principle correctly, his actual application of it in relation to Steggles Palmer was wrong and could not stand in the light of the subsequent decision of the House of Lords in Nykredit. After referring to Nykredit, and after summarising the opposing arguments, Otton LJ expressed his conclusion as follows:

"I consider that the answer to this issue is to be found in the particular facts of this case. As a result of the negligence of [the defendant], [the society] believed that there was no second charge, and indeed, that [the borrowers] were providing the balance of the purchase price from their own resources. ......... Thus, the consequence of the information provided by the [defendant] being wrong was that (1) the society thought that the transaction was viable, whereas, if it had been correctly advised, it would have concluded that the transaction was in fact not viable; (2) the society thought it had the covenants of honest solvent borrowers, whereas it had covenants of people guilty of fraud."

After referring to the findings of fact made by the judge at first instance, Otton LJ continued:

"Thus, I am satisfied that, in these circumstances, [the society] was entitled to recover the whole of its loss. [The judge at first instance] was correct to follow the reasoning of Chadwick J in the application of the SAAMCO principle, which has the effect that where a negligent solicitor fails to provide information which shows that the transaction is not viable or 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 property recoverable. I am also satisfied that far from being an incorrect application of the SAAMCO principle, the decision of Chadwick J is a proper application of the principle. If the whole of the loss suffered by the lender is within the scope of the relevant duty, he should be entitled to recover the whole of the loss." (My emphasis.)

It is clear from the above passages from Otton LJ's judgment that, as Mr Berry submits, he fully endorsed not only Chadwick J's reasoning in Bristol and West but also his conclusion on the particular facts of Steggles Palmer.

Mr Berry goes on to submit that on the facts as found by the judge the instant case falls fairly and squarely into the Steggles Palmer category. He relies in particular on the judge's finding that Mr Sharland would not have bought the Plot had he known of the restrictive covenants. He submits that it follows from that finding that the consequence of CC's negligence was that the Bank entered into a lending transaction in circumstances where, had CC not been negligent, there would have been no loan.

I turn first to the principles applicable in identifying the measure of damage in this case, as set out and explained by the House of Lords in SAAMCO and Nykredit, and as applied in the Portman Building Society Case. In my judgment the relevant principles are as follows.

The first step is to determine whether the Bank suffered any loss by reason of the 1989 transaction, for if it did not there is nothing in respect of which it can claim compensation from CC. To ascertain whether the Bank suffered loss by reason of the 1989 transaction it is necessary to compare what the Bank's position would have been had it not entered into the 1989 transaction with its position under the 1989 transaction. This is what Lord Nicholls referred to in Nykredit as "the basic comparison" (see ibid. p. 1631E-F). Should CC succeed in establishing that had the Bank not entered into the 1989 transaction it would have entered into some other equally, or even more, disastrous transaction (see per Lord Hoffmann in SAAMCO at p.218E)) then the Bank has suffered no loss on the 1989 transaction and one need inquire no further (see per Lord Nicholls in Nykredit at p.1631H). If, on the other hand, the basic comparison produces a positive figure representing the Bank's loss on the 1989 transaction, then "it is necessary to inquire further and see what part of the loss is the consequence of the deficiency in the security" (per Lord Nicholls in Nykredit at p.1632A).

It is common ground that the basic comparison in this case produces the pleaded figure of £185,536.12. I will refer to this as the overall loss.

The next step, as explained by Lord Nicholls (Nykredit p.1632A), is to determine whether CC is liable for the whole of the overall loss or only for some (and if so, what) part of it. In addressing this question it is necessary firstly to identify the kind of loss for which the Bank is entitled to be compensated by CC (see per Lord Hoffmann in SAAMCO at p.211B). This in turn will depend on the scope of CC's duty of care. Thus it is necessary to consider what it was that CC was required to do, in order to discharge its duty of care.

The fundamental importance of the scope of a defendant's duty of care in relation to his liability for loss is illustrated by the distinction which Lord Hoffmann makes in SAAMCO (at p.214E) 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."

Lord Hoffmann continued:

"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 potential 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."

The next step, having ascertained the scope of the defendant's duty of care, is to address the question of causation. The relevant inquiry for this purpose is not what the consequences would have been had the duty of care been fulfilled (in effect, a reprise of the basic comparison), but what are the consequences of the duty of care having been breached (see per Lord Hoffmann in SAAMCO at p.215E). The distinction between the two is made clear in the passage in Lord Hoffmann's speech in SAAMCO where he discusses Lord Templeman's speech in Banque Keyser Ullmann SA v. Skandia (UK) Insurance Co Ltd [1991] 2 AC 249, saying (at p.215E):

"Lord Templeman's speech puts the matter firmly on the ground of causation and the analysis makes sense only on the footing that he was concerned with the consequences to the lenders of having lent without knowing the true facts, rather than with what would have been the consequences of disclosure." (My emphasis.)

If CC's duty of care is to be equated with that of the adviser whose duty is to advise a claimant as to what course of action he should take, then it will follow that CC will be liable for the whole of the overall loss, since that will represent the foreseeable consequence of the breach of duty (cf. Steggles Palmer and the Portman Building Society Case). If, on the other hand, CC's duty of care is to be equated with that of the adviser whose duty is to provide information for the purpose of enabling the Bank to decide whether to enter into the 1989 transaction – in other words, if CC's duty of care is to be equated with that of a valuer – then it will follow that CC will be liable only for the foreseeable consequences of the information being wrong. As Lord Nicholls put it in Nykredit (at p.1631G):

".... 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 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. ..... The valuer is liable for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation."

Thus, if on a true analysis the scope of CC's duty of care (and hence the nature of the breach in respect of which damages are sought) is such that the entirety of the overall loss was caused by its negligence, it follows that the measure of damage is the entirety of the overall loss. If, on the other hand, on a true analysis CC's duty of care was of a more limited nature, with the consequence that the entirety of the overall loss is not attributable to its negligence, the next step is to identify that part of the overall loss which is attributable to (i.e. was caused by) CC's breach of duty. For this purpose, it is necessary to determine at the outset the extent to which the Plot was, in effect, over-valued. In other words, a comparison must be made as at the date of the 1989 transaction between the actual value of the Plot subject to the restrictive covenants and the value of the Plot as negligently represented by CC (i.e. the value of the Plot leaving the restrictive covenants out of account). The difference between the two values will represent the extent of the deficiency in the security taken by the Bank as a consequence of CC's breach of duty. On the face of it, the amount of the difference will also represent the maximum amount of damage which the Bank is entitled to recover from CC. However, as Lord Hoffmann explains in SAAMCO (see p.218E), the Bank is "entitled to prove that it would have done something more advantageous than keep [its] money on deposit". Conversely, as indicated earlier, CC is entitled to prove that the Bank suffered no loss by reason of the fact that it would have used its money "in some altogether different but equally disastrous venture". In practice, however, as Lord Hoffmann points out (see p.218D):

".... the alternative transaction which a defendant is most likely to be able to establish is that the lender would have lent a lesser amount to the same borrower on the same security. If this was not the case, it will not ordinarily be easy for the valuer to prove what else the lender would have done with his money."

It is, I think, of particular importance in the instant case to appreciate that Lord Hoffmann's discussion of the practicalities of proving or disproving recoverable damage does not in any way resurrect the "no transaction/successful transaction" distinction drawn by the Court of Appeal in SAAMCO for the purposes of determining the correct measure of damage. Indeed, Lord Hoffmann says in terms that that distinction must be abandoned (see p.218G). As Lord Nicholls points out in Nykredit (at p.1631E), most cases will be "no transaction" cases in the sense that:

".... the plaintiff would not have entered into the relevant transaction had the defendant fulfilled his duty of care and advised the plaintiff, for instance, of the true value of the property".

But, for reasons already given, that fact will not in itself be determinative of the measure of damage caused by the defendant's negligence.

I turn next to Bristol and West, and in particular to Steggles Palmer.

Chadwick J began the relevant passage in his judgment in Bristol and West as follows (at page 619d):

"In summary therefore, in four of the cases before me – Fancy & Jackson, Steggles Palmer, Cooke & Borsay and Colin Bishop – the society has satisfied me that, but for the defendants' breach of duty .... it would not have made the advance; and so would not have suffered the loss which it did suffer. I am not satisfied that the advance would not have been made in the other four cases ..... It follows that, in those four cases, the society has not established that it has suffered loss which it would not have suffered but for the breach; and it can recover no more than nominal damages."

In the above passage, Chadwick J was making the initial "basic comparison" in each of the eight cases. In the first group of four cases the basic comparison produced a loss; in the second group of four cases it did not. Accordingly, as explained earlier, it followed that in the second group of cases the claims for substantial damages failed, and no questions of causation arose.

In relation to the first group of cases, however, Chadwick J went on to address the SAAMCO question: "What part of the loss has been caused by the breach?" After considering SAAMCO (Nykredit had not yet been decided), he turned to a consideration of the position of the solicitors in each of the four cases, saying this:

"Where a loan is made on the basis of an incorrect and negligent valuation it is not difficult to find an answer to the question "what are the consequences of the valuation being wrong" by comparing the position as it was represented to be with the position as it actually was; and subtracting one valuation from the other. The position is, I think, potentially more complex where the negligence is that of a solicitor. The information provided (or which ought to be provided) by a solicitor carrying out his retainer in a domestic mortgage transaction goes beyond questions of value; although it may well be relevant to value. The information may simply go to title; in which case it may affect value directly, or it may affect the marketability of the property. The information may go to price; in which case it may affect value. The information may go to the borrower's intentions in relation to conditions in the offer of advance; in which case it may have no effect at all on the loss actually suffered by the lender.... But, although the test may be more difficult to apply in cases against solicitors, it is necessary to attempt to do so; that is to say, to answer the question "what are the consequences of the information provided by the solicitor being wrong or incomplete" by comparing the position as it was represented to be with the position as it actually was."

As Chadwick J points out in that passage, the position of a solicitor who is retained to advise in relation to a property transaction is not to be equated in all respects with that of a valuer, since in contrast to a valuer a solicitor will normally have many different duties to perform in relation to the transaction, and different consequences may flow depending on the nature of the particular breach of duty which he commits. Accordingly, as Chadwick J points out, in cases involving solicitors it is necessary to consider in every case (a) what is the particular breach of duty in respect of which damages are sought, and (b) what loss is attributable to that breach.

Adopting that approach, Chadwick J went on to consider the nature of the breach of duty in each of the four cases in the first group, and the loss attributable to that breach. In Fancy & Jackson he held that no loss was attributable to the solicitors' breach of duty (failure to inform the society that they did not have an official search certificate) since the title to the property taken as security was not in fact defective. In Colin Bishop he held that the particular breach of duty in that case (failure to notify the society that the transaction was proceeding by "back to back" or simultaneous transfers with a substantial uplift in price) had caused loss in that the society had taken a security which was of less value than it thought. He accordingly treated Colin Bishop as the equivalent of a valuation case, saying:

"The position seems to me to be indistinguishable from the valuer cases considered in SAAMCO itself".

Cooke & Borsay was a case of breach of warranty of authority, and is accordingly of no assistance in the instant case.

Chadwick J's decision in Steggles Palmer is to be found in the following passage in his judgment (at p.622b-f):

"The position is different in the case of Steggles Palmer. I have held that the defendants were in breach of duty in failing to notify the society that the transaction was by way of sub-sale; in failing to notify the society that they could not confirm that the borrower was to pay the balance of the purchase moneys from his own resources; and in breach of duty in failing to tell the society that they were also acting for the vendor. I have also held that if the society had known of those matter it would not have made the advance. But that is not, in my view, because the society would have been unwilling to lend what it did lend on the security of the property. In deciding how much to lend on the security of the property the society was relying on its own valuation; and there is no evidence that that valuation was wrong, or that it would have been affected by knowledge of the sub-sale or the relationship between vendor and purchaser. The reason why the society would not have made the advance is, in my view, because the society would have been unwilling to lend to that borrower in order to fund a purchase from that vendor. If the society had known what it should have known, it would [have] decided that Mr Whittaker was a borrower to whom it did not wish to lend. In those circumstances it seems to me fair, and in accordance with Lord Hoffmann's test, that the defendants should be responsible for the consequences of the society not being in the position to take the decision which it would have taken if the defendants had done what they should have done. That is to say, the defendants should be responsible for the loss suffered by the society as a result of lending to Mr Whittaker. That, subject to questions of mitigation and contributory negligence, is the whole loss arising from the advance."