Riyad Bank & Ors v Ahli United Bank (UK) Plc

A contractual chain does not automatically prevent a specialist adviser from owing a concurrent duty of care in tort to the ultimate beneficiary of the advice. The court must ask whether the adviser assumed responsibility and whether the contractual arrangements were intended to exclude that responsibility. Where an adviser holds itself out as able to provide an independent assessment, reasonable care may require a critical analysis rather than a cursory review of information supplied by another party. In valuation cases, negligence must ordinarily be assessed transaction by transaction. If the valuation falls outside the permissible range, that may establish that the advice was wrong and provide evidence of negligence. Damages must compensate the loss actually caused and must avoid double recovery.

The claimants established and operated a Sharia-compliant leasing fund. The defendant provided technical services, including advice on leases, residual values and renewal assumptions. The Fund, together with Riyad Bank and RBE, alleged that the defendant negligently approved over-optimistic valuations and unsuitable leases.

The principal issues were whether the defendant owed the Fund a common-law duty of care despite the contractual structure, the scope and standard of that duty, the principles for valuing the leases, the recoverability of dividends and fees, and the alternative claims for reputational loss and recovery of the Fund’s loss by its shareholders.

1. Duty of care. The Fund was entitled to pursue a common-law claim. Applying the principles in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465 and Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, the defendant had assumed responsibility for the soundness of its specialist advice. A contractual chain does not itself exclude tortious liability. The relevant question is whether the parties intended the contracts to provide the only source of legal rights and obligations. Here the nature of the fund and the defendant’s participation in board meetings were inconsistent with such an exclusion (paras [56]-[67]).
2. Standard of care. The defendant was not required to duplicate the asset managers’ work, but it had to conduct an independent critical analysis of residual values and renewal assumptions. Its contractual expertise and its representations about its experience informed the scope of the common-law duty. A general check against the asset managers’ previous performance was insufficient (paras [69]-[73], [148]-[154]).
3. Valuation. The appropriate residual-value basis was orderly liquidation value in exchange, without a further haircut. Renewal income was to be treated as a means of realising residual value, rather than as an additional source of income. Replacement cost new had to reflect ordinary discounts available to purchasers generally, but not special discounts. Competent appraisers could differ by up to 15 per cent on either side of the mid-point, so breach had to be assessed separately for each lease (paras [92]-[105], [124]-[128], [147]).
4. Loss and alternative claims. The Fund’s recoverable loss was the difference between the price paid and the true value at acquisition. Separate recovery of dividends or excess management fees would over-compensate the claimants. The reputational-loss claim would in any event have failed because the evidence did not establish that the buy-out was a reasonable mitigation of recoverable financial loss. The claims seeking to recover the Fund’s loss on its behalf were unnecessary to decide (paras [155]-[173]).
5. Other issues. The indemnity clause did not protect the defendant against claims by the Fund or Fund Adviser, and in any event did not apply to liability arising from breach of the agreement. Neither the novation nor termination of the agreement waived accrued claims. The contributory-negligence defence was unsupported by the evidence (paras [174]-[186]).
6. Final liability and quantum were not determined. Further directions were required for the remaining issues (para [187]).

First-instance decision of the High Court (Commercial Court). The judgment determined the governing legal principles but left final liability and quantum for further directions.