Lingham & Company v Lonnkvist

An adviser retained for the limited purpose of obtaining finance must respond accurately to relevant questions from the lender. That duty does not extend to advising on the wisdom of the underlying purchase or protecting the client against losses arising from the purchase itself. Recoverable contractual loss must be caused by the breach and must be loss of the kind the contractual duty was intended to guard against. The loss of an opportunity to reconsider a transaction is not recoverable where the adviser owed no duty to provide that opportunity. A breach which causes no more than nominal loss does not justify remission for damages assessment.

The purchasers of a butcher’s shop brought third-party proceedings against their accountant, who had agreed to assist them only in obtaining finance. The accountant supplied the bank with a misleading response concerning turnover and failed to obtain or communicate up-to-date trading information. The Recorder of Cardiff found breach of contract and held that the purchasers were entitled to damages to be assessed, although their tort claim failed.

The accountant appealed. The Court of Appeal dismissed the challenge to the finding of breach but reconsidered whether the breach caused recoverable loss and whether the claimed losses were too remote. The central issue was whether the purchasers had any prospect of recovering more than nominal damages.

1. Appeal allowed. The finding of breach of contract was upheld, but judgment was entered for the third party because the breach could not cause recoverable loss of the kind claimed.
2. The accountant’s retainer was limited to advising and assisting with finance. It required him to answer relevant questions from the bank carefully and accurately. It did not require him to advise whether the purchase was commercially wise, disclose the vendor’s trading position for that purpose, or prevent the bank from making an unwise loan.
3. Applying the principles illustrated by Galoo Ltd. v. Bright Grahame Murray [1994] 1 WLR 1360 and Swindle v. Harrison [1997] 4 All ER 705, it was insufficient that the breach created an opportunity for loss. The breach had to be the effective cause of the loss.
4. The further requirement identified in the Banque Bruxelles case [1997] AC 191 was also decisive: the claimant had to show that the duty was owed in respect of the kind of loss suffered. The duty breached was a duty to give the bank reliable information about the business. The claimed loss was the purchase of premises containing a business which later failed. That loss arose from the purchase decision, not from the matter which made the accountant’s omission wrongful.
5. The possibility that accurate enquiries might have alerted the purchasers or the bank to the downturn did not establish the required contractual nexus. It would effectively impose the wider advisory duty that the Recorder had correctly rejected.

Thorpe LJ adopted Sedley LJ’s analysis. Evans LJ agreed that the breach finding was sound but would have allowed the damages issues to proceed. The majority ordered judgment for the third party. No order for costs was made, and permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal from the judgment of the Recorder of Cardiff, sitting as a High Court judge in the Queen’s Bench Division. The breach finding was upheld, but the order for damages to be assessed was set aside and judgment entered for the third party.