Page 1

Status:

Positive or Neutral Judicial Treatment

*191 South Australia Asset Management Corporation Respondents v York

Montague Ltd. Appellants
United Bank of Kuwait Plc. Respondents v Prudential Property Services Ltd.
Appellants
Nykredit Mortgage Bank Plc. Respondents v Edward Erdman Group Ltd.
(Formerly Edward Erdman (An Unlimited Company)) Appellants
House of Lords
20 June 1996

[1996] 3 W.L.R. 87
[1997] A.C. 191
Lord Goff of Chieveley , Lord Jauncey of Tullichettle , Lord Slynn of Hadley , Lord Nicholls of
Birkenhead and Lord Hoffmann
1996 Jan. 29, 30, 31; Feb. 1, 5, 6; June 20
[On Appeal from Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd.]
DamagesMeasure of damagesSurveyor's reportPlaintiffs lending money on basis of surveyor's
negligent valuationSubsequent general fall in property market and default by borrowers in
repayment of loansPlaintiffs obtaining possession and selling properties at price below
valuationWhether loss attributable to market fall recoverable
In the three cases the subject of the appeals the defendants, as valuers, were required by the
plaintiffs to value properties on the security of which they were considering advancing money on
mortgage. In each case, the defendants considerably overvalued the property. Following the
valuations, the loans were made, which they would not have been if the plaintiffs had known the
true values of the properties. The borrowers subsequently defaulted, and in the meantime the
property market had fallen substantially, greatly increasing the losses eventually suffered by the
plaintiffs. The plaintiffs brought actions against the defendants for damages for negligence and
breach of contract. In the first case, the defendants had valued the property at 15m. and the
plaintiffs had advanced 11m. to the borrower. The judge found that the actual value of the
property at the time of valuation had been 5m. Following the borrower's default, the plaintiffs
had sold it for 2,477,000. The plaintiffs claimed as damages the outstanding amount of the loan
less net recovery from realisation of the security plus unpaid interest. The judge gave judgment
for the sum claimed less 25 per cent. in respect of the plaintiffs' contributory negligence. In the
second case, the defendants had valued the property at 25m. and the plaintiffs had advanced
175m. to the borrower. The judge found that the correct value *192 had been between 18m.
and 185m. Following the borrower's default, the property had been sold for 950,000. The
judge gave judgment for the plaintiffs for damages to be assessed on the basis that they were
entitled to recover all losses, including that attributable to market fall, sustained by reason of
having made the advance to the borrower on the security of the property valued by the
defendants. In the third case, the defendants had valued the property at35m. and the plaintiffs
had advanced 245m. to the borrower. The judge found that the property had been worth 2m.
or at most 2,375,000. Following the borrower's default, the plaintiffs had sold it for345,000. The
judge gave judgment for the plaintiffs for a sum including damages in respect of their loss
attributable to market fall. In the first case, leave was given by the judge for appeal direct to the
House of Lords. In the second and third cases, the Court of Appeal dismissed appeals by the

Page 2

defendants.
On appeals by the defendants: Held, dismissing the appeal in the first case and allowing the appeals in the second and third
cases, that the duty of the defendants in each case, which was the same in tort as in contract,
had been to provide the plaintiffs with a correct valuation of the property, namely the figure that a
reasonable valuer would have considered it most likely to fetch if sold on the open market; that
where a person was under a duty to take reasonable care to provide information on which
someone else would decide on a course of action he was, if negligent, responsible not for all the
consequences of the course of action decided on but only for the foreseeable consequences of
the information being wrong; that the measure of damages was the loss attributable to the
inaccuracy of the information suffered by the plaintiff through embarking on the course of action
on the assumption that the information was correct; that in the first case the consequence of the
valuation being wrong had been that the plaintiffs had had 10m. less security than they had
thought; that if they had had that margin they would have suffered no loss and the whole loss had
therefore been within the scope of the defendants' duty; that in the second case the
consequences of the valuation being wrong had been that the plaintiffs had had 700,000 or
650,000 less security than they had thought; that the defendants had not been asked to advise
on the risk of the borrower defaulting and any increased risk of default consequent on their
overvaluation did not affect the scope of their duty to the plaintiffs; and that the damages should
be reduced to the difference between their valuation and the correct valuation; and that in the
third case the damages should similarly be reduced to the difference between the defendants'
valuation and the true value of the property at the date of valuation (post, pp. 209G-210B, 211G,
214C-D, 216D, 221G-H, 222B-C, D-F, 223H).
Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd. [1991] 2 A.C. 249 , H.L.(E.)
applied.
Decision of May J. in South Australia Asset Management Corporation v. York Montague Ltd.
(unreported), 6 April 1995 affirmed.
Decision of the Court of Appeal [1995] Q.B. 375; [1995] 2 W.L.R. 607; [1995] 2 All E.R. 769
reversed.
The following cases are referred to in the opinion of Lord Hoffmann:
Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd. [1990] 1 Q.B. 665 ; [1987]
2 W.L.R. 1300; [1987] 2 All E.R. 923 ; [1991] 2 A.C. 249; [1990] 3 W.L.R. 364; [1990] 2 All
E.R. 947, H.L.(E.) *193
Baxter v. F.W. Gapp & Co. Ltd. [1938] 4 All E.R. 457; [1939] 2 K.B. 271; [1939] 2 All E.R. 752,
C.A.
British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways
Co. of London Ltd. [1912] A.C. 673, H.L.(E.)
Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605; [1990] 2 W.L.R. 358; [1990] 1 All E.R.
568, H.L.(E.)
County Personnel (Employment Agency) Ltd. v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916;
[1987] 1 All E.R. 289, C.A.
Downs v. Chappell [1997] 1 W.L.R. 426; [1996] 3 All E.R. 344, C.A.
Doyle v. Olby (Ironmongers) Ltd. [1969] 2 Q.B. 158; [1969] 2 W.L.R. 673; [1969] 2 All E.R.
119, C.A.

Page 3

Empire Jamaica, The [1955] P. 259; [1955] 3 W.L.R. 385; [1955] 3 All E.R. 60, C.A.
Gorris v. Scott (1874) L.R. 9 Ex. 125
Hayes v. James & Charles Dodd [1990] 2 All E.R. 815, C.A.
Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145; [1994] 3 W.L.R. 761; [1994] 3 All
E.R. 506, H.L.(E.)
Lion Nathan Ltd. v. C. C. Bottlers Ltd., The Times, 16 May 1996, P.C.
Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, H.L.(Sc.)
Lowenburg, Harris & Co. v. Wolley (1894) 3 B.C.R. 416; (1895) 25 S.C.R. 51
McElroy Milne v. Commercial Electronics Ltd. [1993] 1 N.Z.L.R. 39
Oropesa, The [1943] P. 32; [1943] 1 All E.R. 211, C.A.
Robinson v. Harman (1848) 1 Exch. 850
Swingcastle Ltd. v. Alastair Gibson [1990] 1 W.L.R. 1223; [1990] 3 All E.R. 463 , C.A.; [1991]
2 A.C. 223; [1991] 2 W.L.R. 1091; [1991] 2 All E.R. 353, H.L.(E.)
Waddell v. Blockey (1879) 4 Q.B.D. 678, C.A.

The following additional cases were cited in argument:

Alexander v. Cambridge Credit Corporation Ltd. (1987) 9 N.S.W.L.R. 310
Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd. [1995] 2 All E.R. 769
Close v. Steel Co. of Wales Ltd. [1962] A.C. 367; [1961] 3 W.L.R. 319; [1961] 2 All E.R. 953,
H.L.(E.)
Corisand Investments Ltd. v. Druce & Co. [1978] 2 E.G.L.R. 86
Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004; [1970] 2 W.L.R. 1140; [1970] 2 All
E.R. 294, H.L.(E.)
Eagle Star Insurance Co. Ltd. v. Gale & Power (1955) 166 E.G. 37
Evans (J.) & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. [1976] 1 W.L.R. 1078; [1976] 2 All
E.R. 930, C.A.

Page 4

First National Commercial Bank Plc. v. Humberts [1995] 2 All E.R. 673, C.A.
Ford v. White & Co. [1964] 1 W.L.R. 885; [1964] 2 All E.R. 755
Galoo Ltd. v. Bright Grahame Murray [1994] 1 W.L.R. 1360; [1995] 1 All E.R. 16, C.A.
Iron and Steel Holding and Realisation Agency v. Compensation Appeal Tribunal [1966] 1
W.L.R. 480; [1966] 1 All E.R. 769, D.C.
Jobling v. Associated Dairies Ltd. [1982] A.C. 794; [1981] 3 W.L.R. 155; [1981] 2 All E.R. 752,
H.L.(E.)
Johnson v. Agnew [1980] A.C. 367; [1979] 2 W.L.R. 487; [1979] 1 All E.R. 883, H.L.(E.)
Kilgollan v. William Cooke & Co. Ltd. [1956] 1 W.L.R. 527; [1956] 2 All E.R. 294, C.A.
Kingsway, The [1918] P. 344, C.A. *194
Koch Marine Inc. v. D'Amica Societa di Navigazione A.R.L. [1980] 1 Lloyd's Rep. 75
Kwei Tek Chao v. British Traders and Shippers Ltd. [1954] 2 Q.B. 459; [1954] 2 W.L.R. 365;
[1954] 1 All E.R. 779
Lee (Paula) Ltd. v. Robert Zehil & Co. Ltd. [1983] 2 All E.R. 390
McKew v. Holland & Hannen & Cubitts (Scotland) Ltd. [1969] 3 All E.R. 1621, H.L.(Sc.)
Malhotra v. Choudhury [1980] Ch. 52; [1978] 3 W.L.R. 825; [1979] 1 All E.R. 186, C.A.
Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384; [1978] 3 W.L.R. 167;
[1978] 3 All E.R. 571
Morgan Crucible Co. Plc. v. Hill Samuel & Co. Ltd. [1991] Ch. 295; [1991] 2 W.L.R. 655 ;
[1990] 3 All E.R. 330
Perry v. Sidney Phillips & Son [1982] 1 W.L.R. 1297; [1982] 3 All E.R. 705, C.A.
Philips v. Ward [1956] 1 W.L.R. 471; [1956] 1 All E.R. 874, C.A.
Pilkington v. Wood [1953] Ch. 770; [1953] 3 W.L.R. 522; [1953] 2 All E.R. 810
Quinn v. Burch Bros. (Builders) Ltd. [1966] 2 Q.B. 370; [1966] 2 W.L.R. 1017; [1966] 2 All E.R.
283, C.A.
Rumsey v. Owen White & Catlin [1978] E.G.D. 730, C.A.

Page 5

Scholes v. Brook (1891) 63 L.T. 837; 64 L.T. 674, C.A.

Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd. [1994] 1
W.L.R. 1271; [1994] 4 All E.R. 225, C.A.
Stansbie v. Troman [1948] 2 K.B. 48; [1948] 1 All E.R. 599, C.A.
Suleman v. Shahsavari [1988] 1 W.L.R. 1181; [1989] 2 All E.R. 460
Watts v. Morrow [1991] 1 W.L.R. 1421; [1991] 4 All E.R. 937, C.A.
William Sindall Plc. v. Cambridgeshire County Council [1994] 1 W.L.R. 1016; [1994] 3 All E.R.
932, C.A.
Wroth v. Tyler [1974] Ch. 30; [1973] 2 W.L.R. 405; [1973] 1 All E.R. 897

SOUTH AUSTRALIA ASSET MANAGEMENT CORPORATION V. YORK MONTAGUE

LTD.
APPEAL from May J.
This was an appeal by the defendants, York Montague Ltd., by leave of the judge pursuant to section
12 of the Administration of Justice Act 1969 and leave given pursuant to section 13 by the Appeal
Committee of the House of Lords (Lord Goff of Chieveley, Lord Slynn of Hadley and Lord Hoffmann)
on 5 July 1995 from the judge's order, on 24 April 1995, giving judgment for the plaintiffs, South
Australia Asset Management Corporation (formerly State Bank of South Australia), for 7,336,80224
inclusive of agreed interest, with costs, in their action for breach of contract, breach of duty and
negligence.
The facts are stated in the opinion of Lord Hoffmann.

UNITED BANK OF KUWAIT PLC. V. PRUDENTIAL PROPERTY SERVICES LTD.

APPEAL from the Court of Appeal.
This was an appeal by the defendants, Prudential Property Services Ltd., by leave of the Court of
Appeal (Sir Thomas Bingham M.R., Rose and Morritt L.JJ.) from their judgment given on 20 February
1995 dismissing an appeal by the defendants from the judgment of Gage J., who on 10 December
1993 had entered judgment for the plaintiffs, United *195 Bank of Kuwait Plc., for damages to be
assessed, with costs, in their action against the defendants for damages for breach of contract and
negligence.
The facts are stated in the opinion of Lord Hoffmann.

NYKREDIT MORTGAGE BANK PLC. V. EDWARD ERDMAN GROUP LTD.

APPEAL from the Court of Appeal.
This was an appeal by the defendants, Edward Erdman Group Ltd. (formerly Edward Erdman, an
unlimited company), by leave of the Court of Appeal (Sir Thomas Bingham M.R., Rose and Morritt
L.JJ.) from their judgment given on 20 February 1995 dismissing an appeal by the defendants from
the judgment of Judge Byrt Q.C. sitting as a judge of the Queen's Bench Division, who on 1 October
1993 had given judgment for the plaintiffs, Nykredit Mortgage Bank Plc., for 2,105,000 damages and
953,55552 interest, with costs, in their action against the defendants for damages for breach of duty

Page 6

and negligence.
The facts are stated in the opinion of Lord Hoffmann.
Jonathan Sumption Q.C. and Marion Egan for York Montague Ltd. The distinction, as regards the
measure of damages, between 'successful transaction' cases and 'no-transaction' cases is practically
unsatisfactory, legally irrelevant and unjust in its application. In any event, the Court of Appeal's
approach to the assessment of damages in a 'no-transaction' case was wrong. The central feature of
its reasoning was that it assumed that, once it was established that the lender would not have entered
into the transaction at all but for the negligent valuation, every misfortune that the plaintiffs would
have avoided by staying out of it gave rise to a recoverable loss, subject only to the limitation that it
must be foreseeable. A fall in the property market might reasonably have been foreseen as being 'not
unlikely,' or 'a serious possibility,' or a 'real danger,' but that is not the whole, or the only, test.
The starting-point for any assessment of damages must be the nature of the duty broken and the
risks against which the plaintiff was entitled to be protected, so far as reasonable skill could do it. The
risk of a future fall in the value of the property generally is not a risk against which a professional
valuation can protect the lender. It is an ordinary business risk associated with the field of commercial
activity in which the lender has chosen to engage, namely, lending on assets of fluctuating value. He
would be exposed to that risk whether any particular valuation was right or wrong, careful or
negligent. [Reference was made to Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd.
[1990] 1 Q.B. 665 .]
The law distinguishes between a mere precondition or occasion for a loss and an effective cause of it:
see Galoo Ltd. v. Bright Grahame Murray [1994] 1 W.L.R. 1360 . Both may be regarded as causes,
but only the latter is legally relevant. The 'but for' test is a necessary, but not a sufficient, condition for
the defendant's liability. Questions of causation cannot always be answered simply by reference to
the concept of foreseeability. *196 The defendant is not liable for anything that was unforeseeable,
but that is not to say that he is liable for everything that was foreseeable: see McKew v. Holland &
Hannen & Cubitts (Scotland) Ltd. [1969] 3 All E.R. 1621 and Dorset Yacht Co. Ltd. v. Home Office
[1970] A.C. 1004 . The question is whether the defendant ought to have contemplated it by reason of
the responsibilities that he assumed by his contract: see Caparo Industries Plc. v. Dickman [1990] 2
A.C. 605 ; McGregor on Damages, 15th ed. (1988), p. 139, para. 236 and Banque Keyser Ullmann
S.A. v. Skandia (U.K.) Insurance Co. Ltd. [1991] 2 A.C. 249 .
In the three cases under appeal the reason for the non-recovery of a substantial part of the loans was
the decline of the market value of the security owing to a factor, namely, the collapse of the property
market, that was independent of the valuer's breach of duty and would have occurred in any event.
The most that can be said, therefore, is that 'but for' that breach of duty the lenders would not have
been exposed to that risk of the property lending business, at any rate in relation to these
transactions. They should not, therefore, be recoverable: see Banque Keyser Ullmann S.A. v.
Skandia (U.K.) Insurance Co. Ltd. , at p. 277F-H.
The correct measure of damages compensates the plaintiff for what he should be compensated for,
namely, the overpayment resulting from the defendant's negligence, and excludes from the
assessment what he should not be compensated for, namely, the impact of extraneous subsequent
events. The broad object of the exercise is to assess the amount by which the surveyor's negligence
has caused the lender to overpay for the value that he has received, not the amount that, for
whatever reason, he has been unable to recover on the loan account between himself and the
borrower. What the lender pays is the amount of the advance. What he receives in return is a bundle
of rights, comprising principally the personal covenant of the borrower to repay and the right to
enforce the security if he defaults. [Reference was made to Pilkington v. Wood [1953] Ch. 770 ; Ford
v. White & Co. [1964] 1 W.L.R. 885 ; Perry v. Sidney Phillips & Son [1982] 1 W.L.R. 1297 ; Eagle Star
Insurance Co. Ltd. v. Gale & Power (1955) 166 E.G. 37 ; Baxter v. F.W. Gapp & Co. Ltd. [1938] 4 All
E.R. 457; [1939] 2 K.B. 271 ; Scholes v. Brook (1891) 63 L.T. 837; 64 L.T. 674 ; Lowenburg, Harris &
Co. v. Wolley (1895) 25 S.C.R. 51 and Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223 .]
The whole premise of the 'cushion' argument is that it is in some way wrong for the negligent valuer to
benefit by a provision that the lender has made to protect himself from risks other than the valuer's
negligence. This is an unsatisfactory premise, because it depends not simply on the fact that there is
a margin between the valuation and the advance but also on the reasons for that margin as far as the
lender is concerned. The assumption that the cushion is intended as a protection against a fall in the
market is always crude and often wrong. It may be intended to protect against a variety of other risks,

Page 7

such as the risk of obtaining less than the open market value on a forced sale, the risk of the
accumulation of unpaid interest and the costs of realisation. The cushion reflects an internal
commercial judgment of the lender about the protection that he considers appropriate in respect of
risks inherent in the business of lending, on *197 which the valuer has not been asked to advise and
for which he has assumed no responsibility.
As to the 'cap' theory, it is inappropriate to select a measure of damages that is likely to be excessive
in a high proportion of cases and then to provide for a limitation designed a correct an error that ought
to have led to the rejection of that prima facie measure in the first place.
Ronald Walker Q.C. and Vincent Moran for Prudential Property Services Ltd. The first and paramount
consideration is the nature and extent of the responsibility assumed by the valuer, for this will
determine not only the question of whether he has been in breach of duty but also whether any
particular category of damage suffered by the plaintiff can properly be attributed to such breach,
because it can only be so attributed if it is sustained as a result of the plaintiff's reliance on the
defendant to discharge the particular responsibility assumed. The scope of the responsibility assumed
is determined, in tort, according to the facts of the individual case, and in contract by the express or
implied terms of the retainer. The starting-point is to determine, from the facts, the extent of any
tortious liability and then to inquire whether or not that liability is excluded by the contract: Henderson
v. Merrett Syndicates Ltd. [1995] 2 A.C. 145 , 192-193.
In cases, such as the present, where the lender has, prior to instructing the valuer, already decided to
make an advance to the borrower, the valuation being required solely for the purpose of determining
the amount of the advance, the lender relies on the valuer for the purpose of deciding how much to
advance, not whether to make a loan. Concomitantly, the valuer does not assume a duty of care to
safeguard the lender against losses due to a fall in the market, as opposed to losses due to
overvaluation of the security. It is for the lender to take his own precautions to safeguard himself
against loss due to a fall in the market, by lending only a proportion of the valuation figure. It follows
that, if the valuer negligently overvalues a proposed security for a loan, his liability should be limited to
such part of the lender's loss as is directly attributable to the excessive valuation and not extend to
that part of the loss sustained in consequence of the decision to lend at all. The principle is that
damages for negligence are limited to losses caused by the defendant's failure to discharge the
particular responsibility that he assumed to the plaintiff, and against which the plaintiff relied on the
defendant to protect him. The principle can be formulated as a proposition either that the valuer owes
no duty of care in respect of the loss in question or that such loss is not to be regarded as having
been caused by the valuer's breach of duty. The first formulation was adopted in Caparo Industries
Plc. v. Dickman [1990] 2 A.C. 605 , 627, 651-652. The overvaluation here did not increase the risk of
the borrower defaulting. [Reference was made to Fleming, The Law of Torts, 8th ed. (1992), pp.
194-195, 215-216; Clerk & Lindsell on Torts, 17th ed. (1995), pp. 564-566, para. 11-10 and Professor
A. M. Dugdale, 'A Purposive Analysis of Professional Advice: Reflections on the B.B.L. Decision'
(1995) J.B.L. 533, 543-547.]
*198
The submission of the lenders in the Court of Appeal [1995] Q.B. 375 , 407B was, in effect, that
where the loss was one that they would not have sustained 'but for' the defendants' negligence, they
were entitled to damages in respect of that loss unless the loss was: (i) not reasonably foreseeable,
or (ii) attributable to a new intervening cause, or (iii) caused by the plaintiffs' own failure to mitigate.
That submission was accepted by the Court of Appeal, at pp. 420-421. It denies the existence of any
restrictions on the scope of the liability of the contract breaker or tortfeasor by reference to the scope
of his assumed responsibility. Such an approach leads to arbitrary and implausible consequences.
Furthermore, the approach of the Court of Appeal, in the words of Lord Templeman in Banque Keyser
Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd. [1991] 2 A.C. 249 , 279, 'confuses the cause of the
advance and the cause of the loss of the advance.' The valuer's negligence does not cause the loss
of the advance; it merely causes the lender to have an inadequate security against that loss. A
subsequent decline in the value of the security (for whatever reason) is irrelevant.
Where the responsibility assumed by the professional adviser extends to safeguarding the client
against the risks inherent in entering into the transaction at all, so that the latter reasonably relies on
the adviser in deciding to enter into that transaction, the position is entirely different. In such cases the
plaintiff is entitled to recover damages in respect of all losses sustained as a result of manifestation of
the risks (subject to proof of causation and to such losses not being regarded in law as too remote).
This readily explains decisions such as Rumsey v. Owen White & Catlin [1978] E.G.D. 730 ; County

Page 8

Personnel (Employment Agency) Ltd. v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916 and Hayes v.
James & Charles Dodd [1990] 2 All E.R. 815 . J. Evans & Son (Portsmouth) Ltd. v. Andrea Merzario
Ltd. [1976] 1 W.L.R. 1078 is of no assistance since the dispute appears to have been limited to the
question of what were the terms of the contract, causation not being in issue.
The terminology of 'no-transaction' and 'successful transaction' cases is imprecise. The Court of
Appeal was wrong to regard the distinction as central to the approach to be adopted to the
assessment of damages. Even if that were right, the Court of Appeal erred in regarding all
no-transaction cases as being in the same category. The present was a no-transaction case only
because the borrower would not in fact have accepted an offer of a lower advance. That, from the
point of view of both the defendants and the plaintiffs, was adventitious. It would be strange if the
extent of the valuer's liability depended on the state of mind of the borrower, or a third party, in
relation to facts outside the contemplation of either the valuer or the lender. There is in fact no valid
distinction to be drawn in principle between no-transaction and successful-transaction cases. The
quantum of damages may, of course, vary according to whether or not, absent the defendant's
negligence, the plaintiff would or might have entered into some other transaction, pursuant to which
he would or might have suffered some financial loss. This, however, depends on findings of fact
rather than the application of principle.
*198
It cannot be the law that the court's approach to the assessment of damages in a particular case may
vary according to the time at which the action is brought: see Malhotra v. Choudhury [1980] Ch. 52
and Jobling v. Associated Dairies Ltd. [1982] A.C. 794 , 807-808, 810E-F. The starting-point is the
general rule that damages for breach of contract and in tort should be assessed as at the date when
the cause of action arose (the 'breach-date rule').
Damages should be assessed on the basis of the highest value that the valuer could have advised
had he carried out his valuation with proper skill and care. To hold otherwise would be to make the
valuer liable for a part of the loss in respect of which he was not negligent (the difference between the
'correct' and the highest non-negligent valuations): see Corisand Investments Ltd. v. Druce & Co.
[1978] 2 E.G.L.R. 86 , 97-98.
In so far as Baxter v. F.W. Gapp & Co. Ltd. [1939] 2 K.B. 271 is authority for the approach adopted by
the Court of Appeal in the instant case it was wrongly decided and should be overruled. Swingcastle
Ltd. v. Alastair Gibson [1991] 2 A.C. 223 is not authority against the defendants because the ratio was
confined to the question of what interest was recoverable. The qualification adumbrated by Sir John
Megaw [1990] 1 W.L.R. 1223 , 1236E was quoted by Lord Lowry [1991] 2 A.C. 223 , 232 without
dissent.
Michael de Navarro Q.C. and Jonathan Ferris for Edward Erdman Group Ltd. In the case of a
valuation for mortgage purposes, the duty of the valuer to the lender is to take reasonable care to give
a correct valuation of the security at the date of the valuation, the purpose of the valuation being to
enable the lender to make a sensible judgment as to the adequacy of the security for a loan as at that
time. Thus, the consequences for which he is liable if he is in breach of that duty should be limited to
safeguarding the lender against the consequences of lending on a security that was inadequate at the
date of the advance, namely, the inadequacy of the security at that date. Yet, if the decision of the
Court of Appeal is upheld, the effect will be to make a negligent valuer not only liable for the
inadequacy of the security at the date of the advance but also a guarantor that the market will remain
stable for the whole period of the loan. The valuer is not, nor should he be, an insurer of the value of
the security property for an indefinite period after the date of valuation. The risk that the value of the
security may fall is the risk of the adventure that any lender takes and in respect of which he does not
usually seek to rely on the valuer's advice.
In the present case, the defendants were expressly instructed to advise the plaintiffs as to the
adequacy of the security at the time when the loan was made. The plaintiffs made their own
independent assessment of risk of a future drop in the market and the degree of protection that they
required against such a drop. They relied on their own judgment as to what future movement there
might be in the market and only relied on the defendants to advise them as to the current value of the
security. In effect, they took on themselves the risk of a fall in the market value of the security
property. In those circumstances, the plaintiffs and not the defendants should bear that part of the
plaintiffs' loss occasioned by the drop in the market. Thus, the defendants' liability for negligent *200
overvaluation should not exceed the extent of that negligent overvaluation and should not extend to
subsequent falls in the market value; such falls are insufficiently linked to the breach of the particular

Page 9

duty to merit recovery: see McElroy Milne v. Commercial Electronics Ltd. [1993] 1 N.Z.L.R. 39 , 41, 44
and Hayes v. James & Charles Dodd [1990] 2 All E.R. 815 , 824.
The correct approach to the assessment of damages is to assess them at the date of breach
(contract) or at the date when the lender suffers a loss (tort), namely, when he makes an advance
that is inadequately secured (see Philips v. Ward [1956] 1 W.L.R. 471 ; Perry v. Sidney Phillips & Son
[1982] 1 W.L.R. 1297 ; Watts v. Morrow [1991] 1 W.L.R. 1421 and Corisand Investments Ltd. v.
Druce & Co. [1978] 2 E.G.L.R. 86 ), or at the latest when the lender's outlay together with the cost of
borrowing or his notional profit becomes less than the value of the security: see First National
Commercial Bank Plc. v. Humberts [1995] 2 All E.R. 673 .
The defendants' negligence was not an effective cause in law of that part of the loss attributable to
subsequent events affecting the value of the security: see Banque Keyser Ullmann S.A. v. Skandia
(U.K.) Insurance Co. Ltd. [1991] 2 A.C. 249 , 272C-D, 277D-280A; Galoo Ltd. v. Bright Grahame
Murray [1994] 1 W.L.R. 1360 , 1374G-1375B; Quinn v. Burch Bros. (Builders) Ltd. [1966] 2 Q.B. 370 ;
Alexander v. Cambridge Credit Corporation Ltd. (1987) 9 N.S.W.L.R. 310 and Lowenburg, Harris &
Co. v. Wolley (1895) 25 S.C.R. 51 , 57. It is particularly important to set realistic limits to the
consequences of liability for an act or omission for which a wrongdoer will be held liable in cases of
professonal advisers, who may be individuals who may not be able to take out sufficient insurance
cover and would then face personal ruin: see Banque Keyser Ullmann S.A. v. Skandia (U.K.)
Insurance Co. Ltd. [1990] 1 Q.B. 665 , 718C-D and Morgan Crucible Co. Plc. v. Hill Samuel & Co. Ltd.
[1991] Ch. 295 , 302H.
The Court of Appeal, as exemplified by their reliance on cases such as Robinson v. Harman (1848) 1
Exch. 850 , wrongly approached this case as principally involving the measure of damages for breach
of contract or negligence, whereas the proper analysis is of the consequences of the breach of duty
and/or causation of an element of loss. The 'restitutionary principle' only arises once the duty and
causation hurdles have been overcome. Further, in their analysis of causation the Court of Appeal
placed too great a weight on the foreseeability of loss. Foreseeability of loss does not of itself provide
an adequate answer to the question whether the valuer's negligence was an effective cause of the
part of the loss resulting from market fall.
There is no binding English authority that compels the view that in the case of a professional adviser
damages for fall in market value should be ordinarily recoverable; the issue should thus be
approached as a matter of principle rather than precedent: see Baxter v. F.W. Gapp & Co. Ltd. [1939]
2 K.B. 271 and Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223 ; [1990] 1 W.L.R. 1223 ,
1235C-1236E; no question of market fall arose in *201 either case. The former case was wrongly
decided, whilst the ratio of the latter was confined to the element of ancillary expenses. Cases such
as Rumsey v. Owen White & Catlin [1978] E.G.D. 730 ; County Personnel (Employment Agency) Ltd.
v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916 ; Hayes v. James & Charles Dodd [1990] 2 All E.R. 815
and McElroy Milne v. Commercial Electronics Ltd. [1993] 1 N.Z.L.R. 39 can properly be distinguished
on the basis that it was part of the very purpose of the duty breached by the negligent adviser to
prevent the client suffering the type of losses held to be recoverable. The Court of Appeal failed to
consider at all, or adequately, the purpose of the valuation. It was not to persuade the plaintiffs to
make a loan but to protect them from having inadequate security as at the date of the loan if they
decided to make the loan. It was not to protect them against future changes in the value of the
security.
The nature of the defendants' duty (whether contractual or tortious) was only to take reasonable care.
Thus, cases involving breaches of strict contractual duties (e.g. J. Evans & Son (Portsmouth) Ltd. v.
Andrea Merzario Ltd. [1976] 1 W.L.R. 1078 ) have no application. The scope of duties to take
reasonable care, particularly to avoid economic loss, is frequently limited by considering the purpose
of the particular duty. So too should be the consequences of breach of such a duty. Where the
purpose of the duty is to enable the lender to have adequate security at the date of the loan, damages
should be limited to a maximum of the inadequacy of the security at that time.
The judgment of the Court of Appeal ignores the reality that the plaintiffs might have entered into a
different or alternative transaction and have been similarly exposed to market fall: see Paula Lee Ltd.
v. Robert Zehil & Co. Ltd. [1983] 2 All E.R. 390 . The consequence of upholding its decision would be
to make alleged 'no-transaction' cases more complex rather than simpler, as the valuer seeks
alternative means of limiting his liability by exploring issues such as contributory negligence, failure to
mitigate and potential loss in alternative transactions. The proposed distinction between
'no-transaction' and 'transaction' cases will, in many cases, depend on the attitude of those not party

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to the litigation and makes no allowance for 'alternative transaction' cases. It is likely to create
significant problems in the areas of contributory negligence and mitigation of loss and of contribution
where more than one professional adviser is involved.
The lender should not recover more than the difference between the valuer's valuation and the
highest 'non-negligent' valuation of the security property at the time of the valuation (the 'cap'). The
lender's decision to protect itself against some fall in the market by giving itself a 'cushion' by only
lending a percentage of valuation can be reflected in the method adopted of calculating damages, so
as to produce the result most closely reflecting the inadequacy of the security to the lender at the time
of the advance.
Michael Briggs Q.C. and David Blayney for Nykredit Mortgage Bank Plc. There is no principle in
English law that an adviser is not liable for harm occasioned to his client by the occurrence of an
event, as to the risk of which it was not his function to advise, even if the client would not have acted
in such a way as to expose himself to that risk had he been *202 competently advised. The
introduction of such a principle would not only conflict with the established principles governing the
quantum of damages in contract and tort but also prove impossible to apply. In any event, even were
it to find a place in English law, it would not exclude recovery of compensation for any part of the
plaintiffs' loss. Whether that part of lender's loss that is attributable to the fall in the property market
should be excluded from the damages is entirely to be determined in accordance with the principles
relating to causation of loss: see Swingcastle Ltd. v. Alastair Gibson [1990] 1 W.L.R. 1223 ,
1230C-1231E; [1991] 2 A.C. 223 , 229E-G, 237A; Robinson v. Harman, 1 Exch. 850 , 855 and
Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25 , 39. [Reference was also made to Alexander
v. Cambridge Credit Corporation Ltd., 9 N.S.W.L.R. 310 ; Hart and Honor, Causation in the Law, 2nd
ed. (1985), pp. 168-170 and Stansbie v. Troman [1948] 2 K.B. 48 .] In the present case, the 'effective
cause' requirement is clearly satisfied, since the defendants' negligence materially increased the risk
to the plaintiffs of being damaged by exposure to a falling property market in a number of respects.
As to the principle of novus actus interveniens and the 'acquisition date rule' that it underlies, see Iron
and Steel Holding and Realisation Agency v. Compensation Appeal Tribunal [1966] 1 W.L.R. 480 ,
491-492; Quinn v. Burch Bros. (Builders) Ltd. [1966] 2 Q.B. 370 , 391G; Waddell v. Blockey (1879) 4
Q.B.D. 678 , 681; Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd.
[1994] 1 W.L.R. 1271 , 1280H; Philips v. Ward [1956] 1 W.L.R. 471 ; Watts v. Morrow [1991] 1 W.L.R.
1421 ; County Personnel (Employment Agency) Ltd. v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916 ;
Wroth v. Tyler [1974] Ch. 30 ; Johnson v. Agnew [1980] A.C. 367 , 399-401; Hayes v. James &
Charles Dodd [1990] 2 All E.R. 815 , 820A, 822 and Scholes v. Brook, 64 L.T. 674 . The choice of the
transaction date in an acquisition case is simply a convenient means of excluding from the damages
any harm occasioned to the victim by his free choice, after that date, to hold rather than sell the
property. Any attempt to apply the acquisition date rule to a mortgagee's loss would lead to
insuperable difficulties. Conversely, a 'transaction date' assessment would require departing from
Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223 , for two reasons: (at the transaction date; (b) a
transaction date assessment would require interest to be payable on the assessed loss from the date
of the transaction rather than, as Swingcastle provides, on the advance from the date of the
transaction, credit being given against actual receipts if and when they are received. In a case such
as First National Commercial Bank Plc. v. Humberts [1995] 2 All E.R. 673 (see p. 679B-G), the
acquisition date rule would produce the absurd result that damages would fall to be assessed at a
date prior to the accrual of the cause of action. Accordingly, the differences in the *203 established
rules for quantifying damages as between the 'no-transaction' purchasers cases ( Philips v. Ward ;
Waddell v. Blockey ) and the 'no transaction' loan cases ( Baxter v. F.W. Gapp & Co. Ltd. [1939] 2
K.B. 271 and the Swingcastle case) arise from the application of sound conventional principles, in
which the novus actus principle plays a primary part. Even in the absence of a novus actus, there is
an overriding limitation imposed by the general remoteness principle that loss of the relevant type
should have been foreseeable.
The defendants invited the Court of Appeal to apply a new principle derived from the judgment of the
Phillips J. in Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd. [1995] 2 All E.R. 769 ,
806H-807B by seeking to ascertain the risks in respect of which it had been their function to provide
protection and to limit the plaintiffs' damages to losses resulting from the eventuation of those specific
risks. This proposed principle should not be added to the existing canon of causation principles since
(a) it is irreconcilable with the restitutionary principle; (b) it is based upon a misunderstanding of the
role that advice plays in decision-making; in effect, it confuses advice with insurance; and (c) it is
unworkable. As to (a), see Kilgollan v. William Cooke & Co. Ltd. [1956] 1 W.L.R. 527 ; Gorris v. Scott
(1874) L.R. 9 Ex. 125 ; J. Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. [1976] 1 W.L.R.

Page 11

1078 ; Stansbie v. Troman [1948] 2 K.B. 48 and Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605
, 619. Gorris v. Scott and J. Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. make it clear that
the functional test does not apply outside the field of statutory duty. [Reference was also made to
Rumsey v. Owen White & Catlin [1978] E.G.D. 730 .] In application, the proposed principle is simply a
variant on the warranty fallacy rejected in Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223 ,
238F-H. The proposed principle also conflicts with the law's approach to compensation for loss of use
of money.
As to (b), the proposed principle assumes a compartmentalised decision-making process. In reality,
lenders weigh all the risks and benefits together in order to reach a commercial decision. Negligent
advice about one aspect of the decision vitiates the whole decision, not just part of it. That is
especially true in a case, such as Nykredit's, where advice about factors such as demand, viability
and the existence of a basement had a direct bearing on the likely duration and extent of the lender's
exposure to the risk of a fall in the property market.
As to (c), the infinite complication of the task of giving the lender fair credit for the protection with
which he has sought to provide himself by allowing a 'cushion' illustrates that the proposed principle is
unworkable unless reduced to a rule of thumb that has no logical connection with the arguments said
to justify its introduction.
Where the court finds as a fact that, competently advised, the plaintiff would have decided not to enter
into the transaction that in fact occurred (and thereby to expose himself to its consequential risks), it is
implicit in that finding of fact that his decision to enter into the transaction was vitiated by the
defendant's negligent advice. Numerous cases illustrate that, on such a finding, all losses that
naturally flow (causation and remoteness being taken into account) from the plaintiff's entry into that
*204 transaction are recoverable by way of damages. That result is the inevitable consequence of
the application of the restitutionary principle.
The defendants' 'cap' or 'warranty' approach should not be adopted. There is no justification for it in
law, it is unworkable in practice, it makes capricious and unjust distinctions between the victims of the
negligent conduct of different classes of defendant, and it ignores what the lender would actually have
done had he known the true state of the property. Nowhere in the common law is there a rule that
damages for a negligent misstatement are limited by the amount that would have been recoverable if
the truth of the statement had been warranted. [Reference was made to William Sindall Plc. v.
Cambridgeshire County Council [1994] 1 W.L.R. 1016 , 1037-1038.] The very concept that damages,
once ascertained by the application of the restitutionary principle to a breach of a duty to take care,
can then be reduced by reference to the liability that might have been incurred by the notional breach
of a promise that was never made is inherently irreconcilable with the restitutionary principle itself.
The concept is nothing other than a limitation of liability. The expression of a warranty limit by
reference to an acquisition date quantification (the amount of the overvaluation when the loan was
made) is also contrary to principle for essentially the same reasons as is an acquisition date of
assessment of damages for the breach of duty: see McGregor on Damages, 15th ed., pp. 512-513,
para. 796 and Suleman v. Shahsavari [1988] 1 W.L.R. 1181 . Application of a warranty limit in a
valuation case would require the court to determine whether, if the property had been the same in all
respects as that described by the valuer, it would have fallen in value to the same extent as the actual
property. It cannot be assumed in the present case that a hypothetical property development, which
was viable and for which there would be good demand (as Erdman reported), would have fallen in
value by the same extent (more than 80 per cent.) as the property actually valued. If the supposed
warranty-based limit of liability were to be recognised by the law, it would be difficult to conceive why
it should not also apply (at the very least) to the victims of negligent undervaluations, the clients of
valuers who have been instructed also to report and the clients of other negligent professionals
whose advise is supposed to have been relied on in connection with some rather than all of the risks
of a contemplated venture. On any view, the concept of a cap defined by the amount of the
overvaluation is inapplicable to anyone other than a negligent overvaluer. As to what the lender would
actually have done, it does not follow from the fact that he reserved only a particular cushion on the
negligent advice received that he would have limited himself to the same cushion on careful advice.
Roger Toulson Q.C. and Daniel Pearce-Higgins for United Bank of Kuwait Plc. The Court of Appeal
was right in its reasoning and conclusions.
By accepting the plaintiffs' instructions the defendants engaged to carry them out and to exercise
reasonable care and skill in doing so. They also owed the bank a similar duty of care in tort:
Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145 . It is turning that case on its head to

Page 12

ascertain the contractual duty by first considering what the liability would be in tort. As to Caparo
Industries Plc. v. Dickman [1990] 2 A.C. 605 , if *205 there is to be liability in tort for putting a
careless statement into circulation some controls have to be found. That is ex hypothesi not a
problem in contract, where the terms of the contract define the duty: see p. 619C. It is a misuse of
authority to treat what was said in Caparo not in relation to contractual duty as if it had been.
[Reference was also made to Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384 .]
It would be wrong to assess damages as at the date of the loan, because the plaintiffs' loss cannot
sensibly be regarded as having crystallised at that date. The plaintiffs were not buying a readily
saleable commodity, and at the date of the loan they did not suffer quantifiable loss; alternatively,
trying to quantify their loss as at that date would be an artificial exercise: see Kwei Tek Chao v. British
Traders and Shippers Ltd. [1954] 2 Q.B. 459 , 495-496. The defendants' argument for loan date
assessment is contradictory: the exclusion of the consequences of market fall for which they argue
has to be on some basis other than the logical consequence of an assessment at the loan date.
Assessment at a date before the plaintiff knows of or is in a position to do anything about the situation
is inconsistent with the principle identified in the Kwei Tek Chao case and Koch Marine Inc. v.
D'Amica Societa di Navigazione A.R.L. [1980] 1 Lloyd's Rep. 75 (which underlines the breach date),
etc. [Reference was also made to The Kingsway [1918] P. 344 ; County Personnel (Employment
Agency) Ltd. v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916 and Watts v. Morrow [1991] 1 W.L.R. 1421
.] The proper approach is, as held by the Court of Appeal [1995] Q.B. 375 , 404H, 405B, 419 (general
conclusion 3), that the plaintiffs should recover the amount of their actual loss suffered as a result of
entering into the transaction, calculated in similar fashion to that approved by the House of Lords in
Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223 .
As to whether the assessment ought to exclude the consequences of market fall, the Court of Appeal
was right in its general conclusions 4 to 8, at pp. 419-422. Lending against an overvalued property
carried with it not only a foreseeable risk but a foreseeably increased risk (a) of the borrower's default
and (b) of inability of the plaintiffs to recover in the event of the borrower's default, with resulting loss
to them. In the very nature of things, whether or not that happened, and, if so, the amount of the loss,
would depend not solely on the amount of the overvaluation but also on the state of the property
market at the material time. There is, however, no rule that a defendant's act or omission must be the
sole cause of the plaintiff's loss (and it seldom is). Nor can market fluctuation be regarded as so out of
the ordinary as to constitute a novus actus interveniens. There is sufficient causal nexus between the
defendants' negligent overvaluation and the losses claimed by the plaintiffs. To attempt to distinguish
in the present case between the cause of the advance and the cause of the loss of the advance is
unsound. It would be different if there had been some intervening unforeseeable act. The fall of the
market is not strictly a head of loss, but rather a circumstance that affects the measurement of the
plaintiffs' loss by reducing the amount for which credit is to be given under the 'no-transaction'
method. Whichever way it is regarded, there is no requirement that the plaintiffs should have foreseen
its extent. In calculating their loss in accordance with the method approved *206 in Swingcastle Ltd.
v. Alastair Gibson credit should be given for the amount for which the property was actually sold
(where, as is undisputed, they acted reasonably in their attempts to market it), rather than the
hypothetical price for which it would have been sold if the market had remained static.
It is relevant to consider the situation if the market had risen instead of fallen. It would be wrong to say
that the lender in such a case suffered a loss due to the valuer's negligence equal to the amount of
the original overvaluation and that the amount of the appreciation of the value of the property due to a
rise in the market was a separate matter that the lender need not take into account in his action
against the valuer. That would produce a windfall for the plaintiff. Logic compels that rise and fall in
the market should be treated consistently, and the authorities show that they are: compare Rumsey v.
Owen White & Catlin [1978] E.G.D. 730 and Hayes v. James & Charles Dodd [1990] 2 All E.R. 815 .
The reliance that the plaintiffs had to establish was that they acted on the defendants' valuation in
entering into the loan. The recoverability of their resulting losses does not depend on some additional
'reliance' requirement as propounded by Phillips J. and applied to each (supposedly) separate part of
the risk. There is no injustice in holding the negligent adviser liable for the consequences of the
adventure that should reasonably have been within the parties' contemplation as liable to occur in the
ordinary course of events in circumstances where, if properly advised, the plaintiff would not have
entered into the transaction.
The plaintiffs' 'cushion' was a matter between themselves and the borrower, and had nothing to do
with the defendants. If the plaintiffs had lent a higher proportion, their loss would have been that much
greater, and to that extent they have benefited from the cushion (as, in a sense, have the defendants,

Page 13

because they are only liable to the extent that the plaintiffs have suffered loss); but there is no sound
reason for cutting off the damages recoverable from the defendants at a point representing 70 per
cent. of the true value of the property unless the plaintiffs would in fact have lent 70 per cent. on a
true valuation.
There is no reason in contract or in tort for imposing the 'cap' for which the defendants contend. The
measure of damages for breach of a contractual promise that a statement is made with reasonable
care and skill is that the plaintiff is entitled to be put in the same position as he would have been in if
he had not been misled, i.e., as if the defendant had performed the relevant bargain. A plaintiff may
suffer greater loss by not being properly advised than by the facts not being as advised: see Doyle v.
Olby (Ironmongers) Ltd. [1969] 2 Q.B. 158 . To hold that damages for a breach of the first kind cannot
exceed damages for a breach of the second kind would be to introduce a major change into the law. It
would be illogical and contrary to principle. Damages for breach of a warranty that the facts were as
stated in the valuer's report would not as a matter of logic necessarily be limited to the difference
between the reported valuation and the sum advanced, and there is no finding in the present case
that that would have been so. Therefore, if damages for breach of contract in advising carelessly were
to be subject to a 'cap' equivalent to the damages that would have been recoverable if the valuer had
warranted the *207 correctness of his report (but not been under any duty to advise carefully), a
question of burden of proof would arise. Would it be for the plaintiff to prove what his damages would
have been on a basis on which he is not claiming, or would it be for the defendant to establish the
cap? The plaintiff does not need to establish the figure in order to prove his loss resulting from the
defendant's breach of duty, and, accordingly, the burden should not be on him. Either way, however,
it would require the court to conduct a hypothetical inquiry not directly relevant to the basis of the
claim. It would be odd if the parties were to be taken silently to imply a cap contrary to the ordinary
provisions of the law as established for over half a century and as stated in the standard textbooks. In
sum, these terms cannot be read into the contract on any of the normal tests for the implication of
terms. The defendants argue for two radically different implied terms, inconsistent with each other.
There is no conceptual difficulty about a court determining the true open market value of a property
on a given date at a particular figure. The superficially attractive concept of a 'highest non-negligent
valuation' is unsound and liable to give rise to substantial practical difficulties in application. The
phrase suggests that there is a highest non-negligent figure, whereas the negligence lies not in the
figure but in the way in which the valuer arrives at it. If the valuer had taken proper care, there is no
more reason to suppose that he would have arrived at a figure so high as to be on the absolute verge
of raising an inference of negligence than that he would have arrived at a figure so low as to be on the
verge of an inference of negligence in the other direction. It has been said that questions of damage
are to be decided as matters of fact by applying common sense. The common-sense approach is that
if the valuer had acted carefully he would have arrived at the true value, the likelihood of his having
been on the 'high' or the 'low' side being self-balancing. The principle in such cases as Paula Lee Ltd.
v. Robert Zehil & Co. Ltd. [1983] 2 All E.R. 390 has no application to the present case. Corisand
Investments Ltd. v. Druce & Co. [1978] 2 E.G.L.R. 86 , 97-98, 100-101 provides no authority for the
wider proposition advanced by the defendants.
Mark Hapgood Q.C. and Charles Douthwaite for South Australia Asset Management Corporation.
Where on competent advice a lender would have concluded that the prospect of profit was insufficient
to justify acceptance of the identifiable risks, he establishes that he would have rejected those risks,
which include fall in the market if he had received competent advice. It is irrelevant that the lender
was willing to accept the risks on the assumption that the valuation was correct. The plaintiff is
entitled to be restored to the position that he would have occupied if the advice had been competent.
This has been a fundamental principle of the law of damages since at least Robinson v. Harman, 1
Exch. 850 . The valuer does not warrant his valuation figure and is not to be treated as if he had.
What would have happened if the advice actually given had been correct is pure speculation.
The valuer's opinion will be central to the lender's assessment of the transaction because his opinion
of the market value of the units is the basis for assessing the developer's estimated income. The
valuation goes not merely to the value of the security but also, fundamentally, to the *208 borrower's
ability (or inability) to service and repay the loan. Where the lender is providing bridging finance to
fund the acquisition of a development site, a negligent error in the valuation of the site may leave the
lender locked into a development for which the developer is unable to raise construction finance.
In the present case, a competent valuation would have made it apparent to the plaintiffs that they
were being asked to lend more than twice the value of the security. The prospect of a reward of less
than 05m. could not conceivably have justified entering into a loan transaction in which they would

Page 14

be making a notional loss of 6m. at the moment of making the advance. As the judge found, they
would have rejected the loan proposal if the valuers had reported the true value of the site. The
defendants' negligence was not merely an effective cause, but the sole cause, of the plaintiffs
exposing themselves to the risk of market fall.
Alternatively, the plaintiff establishes the requisite causal link in relation to a particular risk if the
defendant's negligent advice increases the likelihood that the plaintiff will suffer loss from that risk:
Stansbie v. Troman [1948] 2 K.B. 48 . This test is satisfied on the facts of this case. The essential
reason is that the defendants' negligent view about market demand increased to a point of near
certainty the risk of default by the borrowers and the need for a forced sale of the property.
'Purpose' is not a relevant concept in resolving the issue of causation in this case. If that be wrong,
one of the main functions of the defendants, and one of the main purposes of their report, was to
inform the plaintiffs about the level of demand for the 422 units. The defendants' negligence in
assessing the level of demand materially increased the risk of loss from market fall.
One of the plaintiffs' purposes in creating a 'cushion' of 4m. was to provide them with protection
against a fall in the market value of the property. However the wider points of principle are resolved, it
would be wrong in principle and unjust for the courts to apply a measure of damages that deprives the
lender of the benefit of any intended cushion fixed by reference to a negligent valuation: see
Professor A. M. Dugdale, 'A Purposive Analysis of Professional Advice: Reflections on the B.B.L.
Decision' (1995) J.B.L. 533, 546. One of the purposes of a valuation is to enable a lender to fix his
loan at a level that gives him a cushion. In terms of the value of the rights obtained by the plaintiffs,
the defendants' negligence caused the plaintiffs to believe their rights as mortgagee to be worth
15m. when in fact those rights were worth only 5m. If they had known the true value, they would
not have lent 11m. (or anything). In terms of risk allocation, even if the plaintiffs' earlier submissions
are not accepted, it cannot be said that they knowingly and intentionally accepted the full risk of fall in
market value. The most that can be said is that they accepted the risk of any fall in market value over
and above 4m. In terms of causation, they relied on the defendants' valuation to fix a level of lending
that would give them a cushion of 4m. In the event, they had no cushion at all. The loss of the
cushion was caused by the defendants' negligence. There is no basis for saying that the plaintiffs
would have lent *209 3,650,000 if the valuation had been 5m. It is illogical to determine their rights
as if that were the position.
The 'no cushion' approach is flawed because it is blind to the commercial value of security rights. It
treats the rights of a first mortgagee of property whose value is 15m. as no more valuable than the
rights of a first mortgagee of property whose value is 5m. It is in reality a device for relieving valuers
of any liability for negligent over-valuation in excess of the loan amount.
Sumption Q.C. in reply. Assessment of damages as at the breach date is usually the best way of
excluding that which is extraneous or coincidental. In particular cases, the court may decline to apply
the breach date rule because it would have the effect of excluding that which was not extraneous or
coincidental but has been effectively caused by the breach of duty. These appeals are not cases of
that kind. [Reference was made to Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd.
[1991] 2 A.C. 249 , 279B-D.]
Walker Q.C. in reply. The so-called 'restitutionary principle' is in reality no more than an expression of
the 'but for' test. It is the starting-point for the assessment of damages and begs the question of
whether it is subject only to the exceptions acknowledged by the Court of Appeal [1995] Q.B. 375 ,
407B, 420-421 or to the additional restrictions contended for by the defendants. That the law
recognises further restrictions is apparent from, e.g., the breach of statutory duty cases ( Gorris v.
Scott, L.R. 9 Ex. 125 and Close v. Steel Co. of Wales Ltd. [1962] A.C. 367 ); Caparo Industries Plc. v.
Dickman [1990] 2 A.C. 605 and Galoo Ltd. v. Bright Grahame Murray [1994] 1 W.L.R. 1360 .
On the approach for which the defendants contend, interest should only be awardable on the
excessive (as opposed to the entire) advance and the reasoning in Swingcastle Ltd. v. Alastair
Gibson [1991] 2 A.C. 223 is inconsistent with this approach. There are two answers to this: (i) the
point in that case was not argued and went by concession; (ii) Swingcastle was a true 'no-transaction'
case, in that on a proper valuation the lender's decision would have been to make no advance (see
[1990] 1 W.L.R. 1223 , 1227) so that it could contend that its decision to make the whole of the
advance was attributable to the valuer's negligence.
de Navarro Q.C. in reply referred to Caparo Industries Plc. v. Dickman , pp. 627D-E, 630A-C,

Page 15

651-652 and Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd. , pp. 277D-H,
279-280.
Their Lordships took time for consideration. 20 June. LORD GOFF OF CHIEVELEY.
My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend,
Lord Hoffmann. For the reasons he gives, and with which I agree, I would make orders in the terms
proposed by him.
LORD JAUNCEY OF TULLICHETTLE.
My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend,
Lord Hoffmann. For the reasons he gives, and with which I agree, I would make orders in the terms
proposed by him.
*210
LORD SLYNN OF HADLEY.
My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned
friend, Lord Hoffmann. For the reasons he gives I, too, would make the order in each appeal as
proposed by him.
LORD NICHOLLS OF BIRKENHEAD.
My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend,
Lord Hoffmann. For the reasons he gives, and with which I agree, I would make orders in the terms
proposed by him.
LORD HOFFMANN.
My Lords, the three appeals before the House raise a common question of principle. What is the
extent of the liability of a valuer who has provided a lender with a negligent overvaluation of the
property offered as security for the loan? The facts have two common features. The first is that if the
lender had known the true value of the property, he would not have lent. The second is that a fall in
the property market after the date of the valuation greatly increased the loss which the lender
eventually suffered.
The Court of Appeal ( Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd. [1995] Q.B.
375 ) decided that in a case in which the lender would not otherwise have lent (which they called a
'no-transaction' case), he is entitled to recover the difference between the sum which he lent, together
with a reasonable rate of interest, and the net sum which he actually got back. The valuer bears the
whole risk of a transaction which, but for his negligence, would not have happened. He is therefore
liable for all the loss attributable to a fall in the market. They distinguished what they called a
'successful transaction' case, in which the evidence shows that if the lender had been correctly
advised, he would still have lent a lesser sum on the same security. In such a case, the lender can
recover only the difference between what he has actually lost and what he would have lost if he had
lent the lesser amount. Since the fall in the property market is a common element in both the actual
and the hypothetical calculations, it does not increase the valuer's liability.
The valuers appeal. They say that a valuer provides an estimate of the value of the property at the
date of the valuation. He does not undertake the role of a prophet. It is unfair that merely because for
one reason or other the lender would not otherwise have lent, the valuer should be saddled with the
whole risk of the transaction, including a subsequent fall in the value of the property.
Much of the discussion, both in the judgment of the Court of Appeal and in argument at the Bar, has
assumed that the case is about the correct measure of damages for the loss which the lender has
suffered. The Court of Appeal began its judgment, at pp. 401-402, with the citation of three well
known cases ( Robinson v. Harman (1848) 1 Exch. 850 , 855; Livingstone v. Rawyards Coal Co.
(1880) 5 App.Cas. 25 , 39; British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground
Electric Railways Co. of London Ltd. [1912] A.C. 673 , 688-689) stating the principle that where an
injury is to be compensated by damages, the damages should be as nearly as possible the sum
which would put the plaintiff in the position in *211 which he would have been if he had not been
injured. It described this principle, at p. 403, as 'the necessary point of departure.'
I think that this was the wrong place to begin. Before one can consider the principle on which one

Page 16

should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary
to decide for what kind of loss he is entitled to compensation. A correct description of the loss for
which the valuer is liable must precede any consideration of the measure of damages. For this
purpose it is better to begin at the beginning and consider the lender's cause of action.
The lender sues on a contract under which the valuer, in return for a fee, undertakes to provide him
with certain information. Precisely what information he has to provide depends of course upon the
terms of the individual contract. There is some dispute on this point in respect of two of the appeals,
to which I shall have to return. But there is one common element which everyone accepts. In each
case the valuer was required to provide an estimate of the price which the property might reasonably
be expected to fetch if sold in the open market at the date of the valuation.
There is again agreement on the purpose for which the information was provided. It was to form part
of the material on which the lender was to decide whether, and if so how much, he would lend. The
valuation tells the lender how much, at current values, he is likely to recover if he has to resort to his
security. This enables him to decide what margin, if any, an advance of a given amount will allow for a
fall in the market, reasonably foreseeable variance from the figure put forward by the valuer (a
valuation is an estimate of the most probable figure which the property will fetch, not a prediction that
it will fetch precisely that figure), accidental damage to the property and any other of the
contingencies which may happen. The valuer will know that if he overestimates the value of the
property, the lender's margin for all these purposes will be correspondingly less.
On the other hand, the valuer will not ordinarily be privy to the other considerations which the lender
may take into account, such as how much money he has available, how much the borrower needs to
borrow, the strength of his covenant, the attraction of the rate of interest or the other personal or
commercial considerations which may induce the lender to lend.
Because the valuer will appreciate that his valuation, though not the only consideration which would
influence the lender, is likely to be a very important one, the law implies into the contract a term that
the valuer will exercise reasonable care and skill. The relationship between the parties also gives rise
to a concurrent duty in tort: see Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145 . But the
scope of the duty in tort is the same as in contract.
A duty of care such as the valuer owes does not however exist in the abstract. A plaintiff who sues for
breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than
prove that the defendant has failed to comply. He must show that the duty was owed to him and that it
was a duty in respect of the kind of loss which he has suffered. Both of these requirements are
illustrated by Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605 . The auditors' failure to use
reasonable care in auditing the company's statutory accounts was a breach *212 of their duty of care.
But they were not liable to an outside take-over bidder because the duty was not owed to him. Nor
were they liable to shareholders who had bought more shares in reliance on the accounts because,
although they were owed a duty of care, it was in their capacity as members of the company and not
in the capacity (which they shared with everyone else) of potential buyers of its shares. Accordingly,
the duty which they were owed was not in respect of loss which they might suffer by buying its
shares. As Lord Bridge of Harwich said, at p. 627:
'It is never sufficient to ask simply whether A owes B a duty of care. It is always
necessary to determine the scope of the duty by reference to the kind of damage from
which A must take care to save B harmless.'
In the present case, there is no dispute that the duty was owed to the lenders. The real question in
this case is the kind of loss in respect of which the duty was owed.
How is the scope of the duty determined? In the case of a statutory duty, the question is answered by
deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874)
L.R. 9 Ex. 125 . In the case of tort, it will similarly depend upon the purpose of the rule imposing the
duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985
to ascertain the purpose of the auditor's duty to take care that the statutory accounts comply with the
Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the
term which the law implies. As in the case of any implied term, the process is one of construction of
the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and
the known purpose of that valuation compel the conclusion that the contract includes a duty of care.
The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that

Page 17

which the law regards as best giving effect to the express obligations assumed by the valuer: neither
cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor
extending them so as to impose on the valuer a liability greater than he could reasonably have
thought he was undertaking.
What therefore should be the extent of the valuer's liability? The Court of Appeal said that he should
be liable for the loss which would not have occurred if he had given the correct advice. The lender
having, in reliance on the valuation, embarked upon a transaction which he would not otherwise have
undertaken, the valuer should bear all the risks of that transaction, subject only to the limitation that
the damage should have been within the reasonable contemplation of the parties.
There is no reason in principle why the law should not penalise wrongful conduct by shifting on to the
wrongdoer the whole risk of consequences which would not have happened but for the wrongful act.
Hart and Honor, in Causation in the Law , 2nd ed. (1985), p. 120, say that it would, for example, be
perfectly intelligible to have a rule by which an unlicensed driver was responsible for all the
consequences of his having driven, even if they were unconnected with his not having a licence. One
might adopt such a rule in the interests of deterring unlicensed driving. *213 But that is not the
normal rule. One may compare, for example, The Empire Jamaica [1955] P. 259 , in which a collision
was caused by a 'blunder in seamanship of . . . a somewhat serious and startling character' (Sir
Raymond Evershed M.R., at p. 264) by an uncertificated second mate. Although the owners knew
that the mate was not certificated and it was certainly the case that the collision would not have
happened if he had not been employed, it was held in limitation proceedings that the damage took
place without the employers' 'actual fault or privity' ( section 503 of the Merchant Shipping Act 1894 )
because the mate was in fact experienced and (subject to this one aberration) competent. The
collision was not therefore attributable to his not having a certificate. The owners were not treated as
responsible for all the consequences of having employed an uncertificated mate but only for the
consequences of his having been uncertificated.
Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are
exceptional and need to be justified by some special policy. Normally the law limits liability to those
consequences which are attributable to that which made the act wrongful. In the case of liability in
negligence for providing inaccurate information, this would mean liability for the consequences of the
information being inaccurate.
I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal
by an example. A mountaineer about to undertake a difficult climb is concerned about the fitness of
his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the
knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had
told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence
of mountaineering but has nothing to do with his knee.
On the Court of Appeal's principle, the doctor is responsible for the injury suffered by the mountaineer
because it is damage which would not have occurred if he had been given correct information about
his knee. He would not have gone on the expedition and would have suffered no injury. On what I
have suggested is the more usual principle, the doctor is not liable. The injury has not been caused
by the doctor's bad advice because it would have occurred even if the advice had been correct.
The Court of Appeal [1995] Q.B. 375 summarily rejected the application of the latter principle to the
present case, saying, at p. 404:
'The complaint made and upheld against the valuers in these cases is. . . not that they
were wrong. A professional opinion may be wrong without being negligent. The
complaint in each case is that the valuer expressed an opinion that the land was worth
more than any careful and competent valuer would have advised.'
I find this reasoning unsatisfactory. It seems to be saying that the valuer's liability should be restricted
to the consequences of the valuation being wrong if he had warranted that it was correct but not if he
had only promised to use reasonable care to see that it was correct. There are of course differences
between the measure of damages for breach of warranty and for injury caused by negligence, to
which I shall return. In the case of liability for providing inaccurate information, however, it would
seem *214 paradoxical that the liability of a person who warranted the accuracy of the information
should be less than that of a person who gave no such warranty but failed to take reasonable care.

Page 18

Your Lordships might, I would suggest, think that there was something wrong with a principle which,
in the example which I have given, produced the result that the doctor was liable. What is the reason
for this feeling? I think that the Court of Appeal's principle offends common sense because it makes
the doctor responsible for consequences which, though in general terms foreseeable, do not appear
to have a sufficient causal connection with the subject matter of the duty. The doctor was asked for
information on only one of the considerations which might affect the safety of the mountaineer on the
expedition. There seems no reason of policy which requires that the negligence of the doctor should
require the transfer to him of all the foreseeable risks of the expedition.
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. A duty of care which imposes upon the informant responsibility for losses which would
have occurred even if the information which he gave had been correct is not in my view fair and
reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract
or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes 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. 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.
I think that this principle is implicit in the decision of this House in Banque Keyser Ullmann S.A. v.
Skandia (U.K.) Insurance Co. Ltd. [1991] 2 A.C. 249 . Some banks had lent a large sum of money on
the security of, first, property which the borrower had represented to be valuable, and, secondly,
insurance policies against any shortfall on the realisation of the property. When the borrower turned
out to be a swindler and the property worthless, the insurers relied upon a fraud exception in the
policies to repudiate liability. The banks discovered that the agent of their broker who had placed the
insurance had, by an altogether separate fraud, issued cover notes in respect of non-existent policies
for part of the risk. This had come to the knowledge of one of the insurers before a substantial part of
the advances had been made. The banks claimed that the insurers were under a duty of good faith to
disclose this information and that, if *215 they had done so, the banks would have so distrusted the
brokers that they would have made no advance and therefore suffered no loss.
Lord Templeman (with whom all the other members of the House agreed) dealt with the matter in
terms of causation. He said that assuming a duty to disclose the information existed, the breach of
that duty did not cause the loss. The failure to inform the lenders of the broker's fraud induced them to
think that valid policies were in place. But even if this had been true, the loss would still have
happened. The insurers would still have been entitled to repudiate the policies under the fraud
exception.
Lord Templeman could only have dealt with the case in this way if he thought it went without saying
that the insurers' duty to provide information made them liable, not for all loss which would not have
been suffered if the information had been given, but only for loss caused by the lender having lent on
a false basis, namely, in the belief that insurance policies had been effected. If that had not been the
principle which the House was applying, the discussion of whether the non-existence of the policies
had caused the loss would have been irrelevant. I respectfully think that the underlying principle was
right and that it is decisive of this case. The Court of Appeal distinguished Skandia on the ground that
the insurers could not have foreseen the borrower's fraud. No doubt this is true: it shows that the rule
that damages are limited to what was within the reasonable contemplation of the parties can
sometimes make arguments over the scope of the duty academic. But I do not think it was the way
the House actually decided the case. 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.
The principle that a person providing information upon which another will rely in choosing a course of
action is responsible only for the consequences of the information being wrong is not without

Page 19

exceptions. This is not the occasion upon which to attempt a list, but fraud is commonly thought to be
one. In Doyle v. Olby (Ironmongers) Ltd. [1969] 2 Q.B. 158 , Lord Denning M.R. said, at p. 167:
'The defendant is bound to make reparation for all the actual damages directly flowing
from the fraudulent inducement. The person who has been defrauded is entitled to say:
'I would not have entered into this bargain at all but for your misrepresentation. . . .' '
Such an exception, by which the whole risk of loss which would not have been suffered if the plaintiff
had not been fraudulently induced to enter into the transaction is transferred to the defendant, would
be justifiable both as a deterrent against fraud and on the ground that damages for fraud are
frequently a restitutionary remedy.
The question of liability for fraud does not arise in this case and I therefore confine myself to two
observations. The first is that although I have said that fraud is commonly thought to be an exception,
Hobhouse L.J. seems to have expressed a contrary view in the recent case of Downs v. Chappell
[1997] 1 W.L.R. 426 , when he said that the damages recoverable for fraudulent misrepresentation
should not be greater than *216 the loss which would have been suffered 'had the represented, or
supposed, state of affairs actually existed.' In other words, the defendant should not be liable for loss
which would have been a consequence of the transaction even if the representation had been true.
This, as I have said, is what I conceive to be in accordance with the normal principle of liability for
wrongful acts. But liability for fraud, or under section 2(1) of the Misrepresentation Act 1967 for a
negligent misrepresentation inducing a contract with the representor, has usually been thought to
extend to all loss suffered in consequence of having entered into the transaction. We have received
written representations on Downs v. Chappell , which was decided after the conclusion of the oral
argument, but since the issue in that case is not before the House, I prefer not to express any
concluded view.
My second observation is that even if the maker of the fraudulent misrepresentation is liable for all the
consequences of the plaintiff having entered into the transaction, the identification of those
consequences may involve difficult questions of causation. The defendant is clearly not liable for
losses which the plaintiff would have suffered even if he had not entered into the transaction or for
losses attributable to causes which negative the causal effect of the misrepresentation.
The measure of damages in an action for breach of a duty to take care to provide accurate
information must also be distinguished from the measure of damages for breach of a warranty that
the information is accurate. In the case of breach of a duty of care, the measure of damages is the
loss attributable to the inaccuracy of the information which the plaintiff has suffered by reason of
having entered into the transaction on the assumption that the information was correct. One therefore
compares the loss he has actually suffered with what his position would have been if he had not
entered into the transaction and asks what element of this loss is attributable to the inaccuracy of the
information. In the case of a warranty, one compares the plaintiff's position as a result of entering into
the transaction with what it would have been if the information had been accurate. Both measures are
concerned with the consequences of the inaccuracy of the information but the tort measure is the
extent to which the plaintiff is worse off because the information was wrong whereas the warranty
measure is the extent to which he would have been better off if the information had been right.
This distinction was the basis of the decision of this House in Swingcastle Ltd. v. Alastair Gibson
[1991] 2 A.C. 223 . Simplifying the facts slightly, the plaintiffs were moneylenders who had advanced
10,000 repayable with interest at the rate of 3651 per cent., rising in the event of default to 45619
per cent., on the security of a house which had been valued at 18,000. The valuation was admittedly
negligent and the property fetched only 12,000. By that time arrears of interest had increased the
debt to nearly 20,000 and the lenders claimed 8,000 damages. This House held that the lenders
were not entitled to damages which represented the contractual rate of interest. That would be to put
them in the position in which they would have been if the valuation had been correct; a measure of
damages which could be justified only if they had given a warranty. In an action for breach of a duty of
care, they *217 could not recover more than what they would have earned with the money if they had
not entered into the transaction. As there was no evidence that they would have been able to obtain
the same exorbitant rate of interest elsewhere, the claim in respect of arrears of interest failed.
The Court of Appeal in this case referred to a large number of authorities but I think that, with the
exception of one decision of the Canadian Supreme Court, none of them is concerned with the
Caparo question ( Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605 ) of the kind of damage which

Page 20

falls within the scope of the duty of care. This is perhaps not surprising, because it is unusual to have
a case in which a plaintiff has suffered foreseeable loss in consequence of entering into a transaction
in reliance on inaccurate information where the loss is not a consequence of the inaccuracy of the
information. For example, in Baxter v. F.W. Gapp & Co. Ltd. [1938] 4 All E.R. 457 (Goddard L.J.);
[1939] 2 K.B. 271; [1939] 2 All E.R. 752 (Court of Appeal) a lender advanced 1,200 on the strength
of a 1,800 valuation. The property realised only 850 and, as MacKinnon L.J. subsequently pointed
out, there was no evidence that it had been worth any more at the date of the valuation. The
consequence of the valuation being wrong was that instead of having a contingency margin of 600,
the lender was from the start unsecured to the extent of 350. In those circumstances it is not
surprising that Goddard L.J. awarded him the whole of his loss, which was well within the 950
discrepancy in the valuation. In the Swingcastle case this House, for the reasons I have explained,
disapproved of the fact that Goddard L.J. and the Court of Appeal awarded the plaintiff interest at the
contractual rate instead of the return he could have obtained on some alternative use of his money.
But the decision to award the whole loss, however it might be calculated, did not on the facts offend
against the principle which I have stated. In the Court of Appeal, Mr. Heald K.C. for the valuers
argued, in my view correctly, that the measure of damages should be, as Sir Henry Strong C.J. said
in Lowenburg, Harris & Co. v. Wolley (1895) 25 S.C.R. 51 , 57, 'the loss occasioned by the
over-valuation.' This decision of the Canadian Supreme Court is the one exceptional case to which I
have referred in which the point had arisen. MacKinnon L.J. pointed out that since there was no
evidence that the overvaluation had been less than the whole loss suffered, the point was immaterial.
He made no adverse comment on the Lowenburg case.
The other cases cited by the Court of Appeal and counsel for the respondent plaintiffs fall into two
categories. The first comprises those cases concerned with the calculation of the loss which the
plaintiff has suffered in consequence of having entered into the transaction. They do not address the
question of the extent to which that loss is within the scope of the defendant's duty of care. The
calculation of loss must of course involve comparing what the plaintiff has lost as a result of making
the loan with what his position would have been if he had not made it. If for example the lender would
have lost the same money on some other transaction, then the valuer's negligence has caused him
no loss. Likewise if he has substantially overvalued the property so that the lender stands to make a
loss if he has to sell the security at current values, but a rise in the property market enables him to
realise enough to pay off the whole loan, *218 the lender has suffered no loss. But the question of
whether the lender has suffered a loss is not the same as the question of how one defines the kind of
loss which falls within the scope of the duty of care. The Court of Appeal [1995] Q.B. 375 , 421
justified its view on the latter question by an appeal to symmetry: 'If the market moves upwards, the
valuer reaps the benefit; if it moves downwards, he stands the loss.' This seems to me to confuse the
two questions. If the market moves upwards, it reduces or eliminates the loss which the lender would
otherwise have suffered. If it moves downwards, it may result in more loss than is attributable to the
valuer's error. There is no contradiction in the asymmetry. A plaintiff has to prove both that he has
suffered loss and that the loss fell within the scope of the duty. The fact that he cannot recover for
loss which he has not suffered does not entitle him to an award of damages for loss which he has
suffered but which does not fall within the scope of the valuer's duty of care.
The distinction between the 'no-transaction' and 'successful trans- action' cases is of course quite
irrelevant to the scope of the duty of care. In either case, the valuer is responsible for the loss
suffered by the lender in consequence of having lent upon an inaccurate valuation. When it comes to
calculating the lender's loss, however, the distinction has a certain pragmatic truth. I say this only
because in practice 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. But in principle there is no reason why the valuer should not be entitled to prove
that the lender has suffered no loss because he would have used his money in some altogether
different but equally disastrous venture. Likewise the lender is entitled to prove that, even though he
would not have lent to that borrower on that security, he would have done something more
advantageous than keep his money on deposit: a possibility contemplated by Lord Lowry in
Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223 , 239. Every transaction induced by a negligent
valuation is a 'no-transaction' case in the sense that ex hypothesi the transaction which actually
happened would not have happened. A 'successful transaction' in the sense in which that expression
is used by the Court of Appeal (meaning a disastrous transaction which would have been somewhat
less disastrous if the lender had known the true value of the property) is only the most common
example of a case in which the court finds that, on the balance of probability, some other transaction
would have happened instead. The distinction is not based on any principle and should in my view be

Page 21

abandoned.
The second category of cases relied upon by the plaintiffs concerns the question of whether the
plaintiff's voluntary action in attempting to extricate himself from some financial predicament in which
the defendant has landed him negatives the causal connection between the defendant's breach of
duty and the subsequent loss. These cases are not concerned with the scope of the defendant's duty
of care. They are all cases in which the reasonably foreseeable consequences of the plaintiff's
predicament are plainly within the scope of the duty. The question is rather whether the *219 loss can
be said to be a consequence of the plaintiff being placed in that predicament. The principle which they
apply is that a plaintiff's reasonable attempt to cope with the consequences of the defendant's breach
of duty does not negative the causal connection between that breach of duty and the ultimate loss.
This is the principle of which, in the sphere of physical damage, The Oropesa [1943] P. 32 is perhaps
the best known example.
I need mention by way of illustration only one such case. In McElroy Milne v. Commercial Electronics
Ltd. [1993] 1 N.Z.L.R 39 , a solicitor negligently failed to ensure that a lease granted by his developer
client contained a guarantee from the lessee's parent company. The result was that the developer,
who had intended to sell the property with the benefit of the lease soon after completion, found
himself in dispute with the parent company and was unable to market the property for more than two
years, during which time the market fell. The New Zealand Court of Appeal held that the developer
was entitled to the difference between what the property would have fetched if sold soon after its
completion with a guaranteed lease and what it eventually fetched two years later. The solicitor's duty
was to take reasonable care to ensure that his client got a properly guaranteed lease. He was
therefore responsible for the consequences of his error, which was producing a situation in which the
client had a lease which was not guaranteed. All the reasonably foreseeable consequences of that
situation were therefore within the scope of the duty of care. The only issue was whether the client's
delay in selling the property negatived the causal connection between that situation and the ultimate
loss. The Court of Appeal decided this question on orthodox lines by asking whether the client had
reacted reasonably to his predicament. County Personnel (Employment Agency) Ltd. v. Alan R.
Pulver & Co. [1987] 1 W.L.R. 916 and Hayes v. James & Charles Dodd [1990] 2 All E.R. 815 are
examples of similar principles of causation being applied by the Court of Appeal in England.
I turn now to the various theories suggested by the appellant defendants for defining the extent of the
valuer's liability. One was described as the 'cushion theory' and involved calculating what the plaintiff
would have lost if he had made a loan of the same proportion of the true value of the property as his
loan bore to the amount of the valuation. The advantage claimed for this theory was that it allowed the
lender to claim loss caused by a fall in the market but only to the extent of the proportionate margin or
'cushion' which he had intended to allow himself. But this theory allows the damages to vary
according to a decision which the lender made for a different purpose, namely, in deciding how much
he should lend on the value reported to him. There seems no justification for deeming him, in the
teeth of the evidence, to have been willing to lend the same proportion on a lower valuation.
An alternative theory was that the lender should be entitled to recover the whole of his loss, subject to
a 'cap' limiting his recovery to the amount of the overvaluation. This theory will ordinarily produce the
same result as the requirement that loss should be a consequence of the valuation being wrong,
because the usual such consequence is that the lender makes an advance which he thinks is secured
to a correspondingly greater extent. But I would not wish to exclude the possibility that other *220
kinds of loss may flow from the valuation being wrong and in any case, as Mr. Sumption said on
behalf of the defendants York Montague Ltd., it seems odd to start by choosing the wrong measure of
damages (the whole loss) and then correct the error by imposing a cap. The appearance of a cap is
actually the result of the plaintiff having to satisfy two separate requirements: first, to prove that he
has suffered loss, and, secondly, to establish that the loss fell within the scope of the duty he was
owed.
Mr. Sumption offered instead a more radical theory. He said that the court should estimate the value
of the rights which the lender received at the date of the advance. If, by reason of the negligent
valuation, they were worth less than the amount of the loan, the lender should be entitled to recover
the difference in damages. But the calculation should be unaffected by what happened afterwards.
This, he said (ante, p. 209B), was 'usually the best way of excluding that which is extraneous and
coincidental.' The trouble is that it throws out not only the bathwater of the extraneous and
coincidental but also the baby of the subsequent events which were the very thing against which the
lender relied upon the valuation to protect himself. Mr. Sumption was prepared to modify the rigour of
his theory to the extent of allowing a glance at a subsequent change in the value of the personal

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covenant. The court was not obliged to take the borrower to be the prosperous tycoon which
everyone thought him to be at the date of the valuation but could have regard to the fact that he had
afterwards been shown to be a fraudulent bankrupt. He allowed this concession on the ground that
the reason why the lender had taken security in the first place was in case the personal covenant
should turn out to be worthless. But Mr. Sumption was inflexible in excluding consideration of
subsequent changes in the value of the property. I think that this is inconsistent with the grounds upon
which the concession was made and that the obvious need for the concession undermines the whole
theory. A fall in the value of the property may also be something against which the lender relies upon
the valuer to protect him. A lender, for example, may advance 500,000 on property valued at 1m. to
allow an ample margin for a fall in the market and other contingencies. If the property was actually
worth only 550,000 it does not seem fair that he should have no remedy for the loss which he suffers
when its value subsequently falls to 350,000. If the valuation had been correct, a 200,000 fall in
market value would have caused him no loss at all.
Mr. Sumption attempted to justify a valuation at the date of breach of duty by saying that it would be
wrong if the damages could be different according to when the trial was held. Leaving aside the retort
that this is bound to be a consequence of his concession on the value of the personal covenant, I
think that there is no such general principle. On the contrary, except in cases in which all the loss
caused by the breach can be quantified at once, the calculation of damages is bound to be affected
by the extent to which loss in the future still has to be estimated at the date of the trial. In actions for
personal injury, it is common for a trial on the quantum of damages to be deferred until the plaintiff's
medical condition has stabilised and the damages can be more accurately assessed. There is
however a limit to the time for which the parties can wait. So the assessment of damages will often be
different from what it would have been if the trial *221 had taken place later. This result can be
avoided only by postponing the trial until the plaintiff is dead or (as Mr. Sumption's theory would
entail) confining the damages to the loss which at the time of the accident he appeared likely to suffer,
irrespective of what actually happened. Neither of these solutions has appealed to judges or
legislators.
It is true that in some cases there is a prima facie rule that damages should be assessed at the date
of the breach. For example, section 51(3) of the Sale of Goods Act 1979 provides that where there is
an available market for goods the measure of damages for non-delivery is prima facie the difference
between the contract price and the market price of the goods at the time when they should have been
delivered. But the purpose of this prima facie rule is not to ensure that the damages will always be the
same irrespective of the date of trial. It is because where there is an available market, any additional
loss which the buyer suffers through not having immediately bought equivalent goods at the market
price is prima facie caused by his own change of mind about wanting the goods which he ordered:
compare Waddell v. Blockey (1879) 4 Q.B.D. 678 . The breach date rule is thus no more than a prima
facie rule of causation. It is not concerned with the extent of the vendor's liability for loss which the
breach has admittedly caused.
As a matter of causation, however, it seems to me impossible to say that the loss was caused by any
decision of the lenders not to go into the market and realise the value of the rights which they had
acquired at the date of the advance. They did not know until some time afterwards that the valuations
were wrong and in any case there is no available market for single mortgages on development sites.
The actions of the lenders were, as in McElroy Milne v. Commercial Electronics Ltd. [1993] 1 N.Z.L.R.
39 , a reasonable response to the situation in which the lenders found themselves and did not
therefore negative the causal connection between the breach of duty and the ultimate loss.
Before I come to the facts of the individual cases, I must notice an argument advanced by the
defendants concerning the calculation of damages. They say that the damage falling within the scope
of the duty should not be the loss which flows from the valuation having been in excess of the true
value but should be limited to the excess over the highest valuation which would not have been
negligent. This seems to me to confuse the standard of care with the question of the damage which
falls within the scope of the duty. The valuer is not liable unless he is negligent. In deciding whether or
not he has been negligent, the court must bear in mind that valuation is seldom an exact science and
that within a band of figures valuers may differ without one of them being negligent. But once the
valuer has been found to have been negligent, the loss for which he is responsible is that which has
been caused by the valuation being wrong. For this purpose the court must form a view as to what a
correct valuation would have been. This means the figure which it considers most likely that a
reasonable valuer, using the information available at the relevant date, would have put forward as the
amount which the property was most likely to fetch if sold upon the open market. While it is true that

Page 23

there would have been a range of figures which the reasonable valuer might have put forward, the
figure most likely to have *222 been put forward would have been the mean figure of that range.
There is no basis for calculating damages upon the basis that it would have been a figure at one or
other extreme of the range. Either of these would have been less likely than the mean: see Lion
Nathan Ltd. v. C. C. Bottlers Ltd., The Times, 16 May 1996 .
I turn now to the facts of the three cases. In South Australia Asset Management Corporation v. York
Montague Ltd. the lenders on 3 August 1990 advanced 11m. on a property valued at 15m. May J.
found that the actual value at the time was 5m. On 5 August 1994 the property was sold for
2,477,000. May J. quantified the loss at 9,753,92799 and deducted 25 per cent. for the plaintiff's
contributory negligence. The consequence of the valuation being wrong was that the plaintiffs had
10m. less security than they thought. If they had had this margin, they would have suffered no loss.
The whole loss was therefore within the scope of the defendants' duty. It follows that the appeal must
be dismissed.
In United Bank of Kuwait Plc. v. Prudential Property Services Ltd. the lenders on 19 October 1990
advanced 175m. on the security of a property valued by the defendants at 25m. The judge found
that the correct value was between 18m. and 185m. It was sold in February 1992 for 950,000.
Gage J. quantified the lenders' loss (including unpaid interest) at 1,309,87646 and awarded this
sum as damages.
In my view the damages should have been limited to the consequences of the valuation being wrong,
which were that the lenders had 700,000 or 650,000 less security than they thought. The plaintiffs
say that the situation produced by the overvaluation was not merely that they had less security but
also that there was a greater risk of default. But the valuer was not asked to advise on the risk of
default, which would depend upon a number of matters outside his knowledge, including the personal
resources of the borrower. The greater risk of default, if such there was, is only another reason why
the lender, if he had known the true facts, would not have entered into the particular transaction. But
that does not affect the scope of the valuer's duty.
I would therefore allow the appeal and reduce the damages to the difference between the valuation
and the correct value. If the parties cannot agree whether on the valuation date the property was
worth 18m. or 185m. or some intermediate figure the question will have to be remitted to the trial
judge for decision on the basis of the evidence called at the trial.
In Nykredit Mortgage Bank Plc. v. Edward Erdman Group Ltd. the lenders on 12 March 1990
advanced 245m. on the security of a property valued by the defendants at 35m. The correct value
was said by Judge Byrt Q.C. sitting as a judge of the Queen's Bench Division to be 2m. or at most
2,375,000. The price obtained on a sale by auction in February 1993 was 345,000. The judge
quantified the loss (including unpaid interest) at 3,058,55552 and gave judgment for the plaintiffs in
this sum.
The lenders submit, as in the United Bank of Kuwait case, that they were misled not only as to the
value of the security but also as to the risk of default. They say the duty of the valuers according to
the terms of *223 the particular contract was not confined to advising on the price which the property
could be expected to fetch in the open market. The value of the property lay in its potential for
development and the usual method of calculating such value is to consider what the proposed
development would be worth when complete and to deduct the estimated cost of the work and a
reasonable profit for the developer. The difference is the value of the undeveloped land. The letter of
instructions to the valuers, dated 22 February 1990, said that the property was being considered as
security for a mortgage advance and then asked: 'Would you please provide a report and valuation as
to the open market value . . .' The letter was apparently in the bank's standard form, because it went
on to say:
'In preparing your report, please comment on the following, if applicable . . . 7. The
current rental value and its relationship with the present income, and give your opinion
as to the lettability of the property in the open market or, if unlet, please comment on the
viability of the proposed rental income. 8. The completed value (if a development
project) and a commentary regarding the potential saleability. . . . 10. The estimated
development costs, and a commentary as to whether the costs quoted are realistic.'
The proposed loan was for 'an initial term of 12 months:' the loan was to finance the purchase of the

Page 24

land and the lenders expected that they would be paid off when the borrower obtained finance to
carry out the development. The borrower was an off-the-shelf, single-asset company.
The reason why the valuation was wrong was that the valuers had overestimated the demand for the
property and underestimated the costs of the development. Thus the information which the report
provided under each of the heads I have quoted was also wrong. The lenders say that if the valuers
had not been negligent they would have appreciated that the proposed development was not viable.
As the borrower was a single-asset company, a default was virtually inevitable. The prospect of some
other lender refinancing the project was zero: the lenders were likely to be locked into the loan for an
indefinite period and therefore exposed to market fluctuations for longer than they had reason to
expect.
The main thrust of these submissions is also concerned with what would have happened if the valuer
had provided accurate information. This, as I have said, is not the basis of the valuer's liability. In any
case the comments requested in the bank's standard letter were not in my opinion, as a matter of
construction of the contract between bank and valuer, independent items of information on which the
bank was entitled to place reliance separately from the open market valuation. They amounted to an
exposure of the valuer's calculation, so as to enable the bank to form a view as to how accurate they
were likely to be. But the valuer would not in my view have incurred any liability if one or more of his
comments had been wrong but (perhaps on account of a compensating error) the valuation was
correct. The contract did not therefore impose a different liability from those in the other cases.
I would therefore allow the appeal and substitute for the judge's award of damages a figure equal to
the difference between 35m. and the true value of the property at the date of valuation. The judge
appears to have *224 been inclined to fix the latter figure at 2m. The reference to2,375,000. was
based upon a concession made by plaintiffs' counsel on the basis that for the purposes of calculating
the damages according to the principle adopted by the Court of Appeal it did not matter one way or
the other. However, if the parties cannot agree upon the figure, it will also have to be remitted to the
judge for determination on the evidence adduced at the trial.

Representation
Solicitors: Rowe & Maw ; Cameron Markby Hewitt ; Williams Davies Meltzer ; Clifford Chance ;
Clifford Chance ; Alsop Wilkinson .
Appeal in South Australia Asset Management Corporation v. York Montague Ltd. dismissed with
costs. Appeal in United Bank of Kuwait Plc. v. Prudential Property Services Ltd. allowed with costs in
Court of Appeal on issue of quantum and before House of Lords. Question of interest adjourned sine
die. Appeal in Nykredit Mortgage Bank Plc. v. Edward Erdman Group Ltd. allowed with costs in Court
of Appeal on issue of quantum and before House of Lords. Question of interest adjourned sine die.
(M. G. )

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