Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd (BNP Mortgages Ltd v Goadsby & Harding Ltd, BNP Mortgages Ltd v Key Surveyors Nationwide Ltd, United Bank of Kuwait Plc v Prudential Property Services Ltd, South Australia Asset Management Corpn v York Montague Ltd)

A professional who negligently supplies information to assist another person’s decision is generally liable only for the foreseeable consequences of the information being wrong. The professional does not assume every foreseeable risk of the transaction which the recipient would otherwise have avoided.

In a negligent valuation claim, the lender must prove both its actual loss and that the loss fell within the valuer’s duty. The recoverable amount is ordinarily limited by the difference between the negligent valuation and the property’s true value, although other losses attributable to the inaccuracy remain possible. Subsequent events may be considered when assessing that loss.

The distinction between “no-transaction” and “successful transaction” cases does not define the duty’s scope. A correct valuation for damages is the most probable figure a reasonable valuer would have given, rather than the highest figure within the non-negligent range.

Three conjoined appeals concerned negligent valuations supplied to mortgage lenders. In each case the lender would not have made the actual loan had the property been correctly valued. A subsequent fall in the property market substantially increased the lender’s loss.

The Court of Appeal in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] Q.B. 375 held that, in a “no-transaction” case, a negligent valuer was liable for the lender’s entire loss from the transaction, including loss caused by the market fall. The valuers appealed.

The individual appeals were South Australia Asset Management Corporation v York Montague Ltd, United Bank of Kuwait Plc v Prudential Property Services Ltd and Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd. The common question was whether a valuer who negligently overvalued mortgage security assumed liability for all loss which would have been avoided had accurate information been supplied, or only loss attributable to the valuation’s inaccuracy.

The House unanimously dismissed the appeal in South Australia Asset Management Corporation v York Montague Ltd and allowed the appeals in United Bank of Kuwait Plc v Prudential Property Services Ltd and Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd. Lord Hoffmann delivered the leading speech. Lord Goff, Lord Jauncey, Lord Slynn and Lord Nicholls agreed with his reasons and proposed orders.

1. Per Lord Hoffmann, the court must identify the kind of loss against which the defendant’s duty protected the claimant before measuring damages. A claimant must prove both actual loss and that the loss fell within the duty’s scope. The purpose and commercial setting of the undertaking determine that scope. This reflected the approach in Caparo Industries Plc v Dickman [1990] 2 AC 605.

2. A person retained to provide information for another’s decision is generally responsible only for the foreseeable consequences of that information being wrong. Such a person does not ordinarily assume every risk of the course of action which the recipient selects. By contrast, an adviser retained to recommend whether a course should be taken must consider its potential consequences and may be responsible for all foreseeable loss caused by taking it. Lord Hoffmann regarded the information principle as implicit in, and decisive under, Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1991] 2 A.C. 249.

3. For negligent information, actual loss is assessed by comparing the claimant’s position with the position had the transaction not occurred. The court then identifies the part attributable to the information’s inaccuracy. This differs from a warranty measure, which compares the actual position with the position had the information been true. A lender’s recoverable loss will ordinarily be limited by the overvaluation, although a different kind of loss caused by the error may be recoverable. Reasonable efforts to deal with the predicament caused by the breach do not interrupt causation.

4. The Court of Appeal’s distinction between “no-transaction” and “successful transaction” cases was irrelevant to the scope of duty and should be abandoned. Evidence about an alternative transaction remains relevant when calculating whether the lender suffered actual loss. Subsequent events may also be considered. Once negligence is established, the correct comparator is the most likely valuation a reasonable valuer would have supplied, ordinarily the mean of the permissible range, rather than the highest non-negligent valuation.

5. In the South Australia appeal, the overvaluation exceeded the lender’s loss. The entire quantified loss therefore fell within the duty, and the appeal was dismissed. In the United Bank of Kuwait appeal, damages were reduced to the difference between the £2.5 million valuation and the property’s true value. In the Nykredit appeal, damages were reduced to the difference between £3.5 million and the true value. Each unresolved true-value figure was to be remitted to the trial judge unless agreed.

• House of Lords. In the judgment reported at [1997] AC 191, the House unanimously rejected the Court of Appeal’s approach. It dismissed the South Australia appeal and allowed the United Bank of Kuwait and Nykredit appeals, subject to possible remittals on true value.
• Court of Appeal. In Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] Q.B. 375, the court held that a negligent valuer in a “no-transaction” case was responsible for the lender’s entire transactional loss, including loss caused by a later market fall.
• First instance. May J awarded the South Australia lender its quantified loss, reduced by 25 per cent for contributory negligence. Gage J awarded the United Bank of Kuwait lender £1,309,876.46. Judge Byrt QC awarded the Nykredit lender £3,058,555.52.