Jackson & Anor v Royal Bank of Scotland

The Bank breached a contractual duty of confidence owed to Samson Lancastrian by disclosing documents (including the supplier's invoice) under a transferable letter of credit, thereby revealing the size of Samson's mark-up. The key legal principles applied were the rules on remoteness of damage in Hadley v Baxendale and the related test of reasonable contemplation at the time of contract formation, together with principles about causation and quantification of loss of opportunity. The House held that the loss of repeat business was not too remote and that damages for loss of the opportunity to earn future profits were recoverable. The Court of Appeal erred in imposing an ex post cut-off of one year based on what the Bank might have foreseen at the date of breach; the correct approach requires assessing foreseeability by reference to the parties' position at contract formation and then quantifying the claimant's loss until it becomes too speculative. The trial judge's four-year, decreasing award was restored as the best practical estimate of loss.

This was an appeal from the Court of Appeal concerning damages claimed by Samson Lancastrian (the claimants) against the Royal Bank of Scotland (the Bank) for breach of contract arising from disclosure of documents under a transferable letter of credit used in trade with the claimant's customer, Economy Bag.

Background and procedural posture

• Samson acted as first beneficiary under transferable letters of credit issued on Economy Bag's application and procured goods from Pet Products in Thailand. The arrangement concealed from Economy Bag the amount of Samson's mark-up.
• On 15 March 1993 the Bank mistakenly sent Pet Products' invoice to Economy Bag, revealing Samson's mark-up. Economy Bag then terminated dealings with Samson and bought directly from Pet Products; Samson ceased trading.
• At first instance HH Judge Kershaw QC found the Bank in breach of a duty of confidence and awarded damages for loss of the opportunity to earn future profits over four years. The Court of Appeal ([2000] EWCA Civ 203) accepted breach but limited recoverable loss to one year, reducing the award.

Nature of the claim

Claim for damages for loss of the opportunity to earn future profits resulting from the termination of a trading relationship (loss of repeat business) caused by the Bank's wrongful disclosure.

Issues framed

• Whether the Bank owed and breached a duty of confidence under the letter of credit arrangements.
• Whether the loss of repeat business was too remote under Hadley v Baxendale, i.e. whether such loss was within the reasonable contemplation of the parties when the contract was made.
• Causation and whether the claim was one for a quantifiable loss of chance or merely speculative.
• Quantum and the appropriate temporal horizon for assessing loss of future profits.

Court’s reasoning and conclusion

• The House affirmed that the Bank owed a duty to preserve the confidentiality of the information revealing Samson's profit margin; that duty was not negated by the fact that the supplier's identity was known to Economy Bag.
• The test of remoteness in contract focuses on what loss was within the reasonable contemplation of the parties when the contract was made; once that test is satisfied there is no arbitrary ex post cut-off absent contractual limitation of liability.
• The Court found errors in the Court of Appeal's approach which had introduced an unjustified one-year cut-off based on the Bank's limited knowledge at breach; that approach conflated the dates and misapplied Hadley. The correct approach is to apply the Hadley test and then assess quantum until loss becomes too speculative.
• Given evidential uncertainties and delay, the House restored the trial judge's four-year, diminishing award as the fairest and most practicable estimate of Samson's loss and dismissed the Bank's cross-appeal. Interest rate and exchange-rate conversion were left for the parties to agree.

Appeal allowed; cross-appeal dismissed. The House held that the Bank was in breach of a contractual duty of confidence and that the loss of repeat business was not too remote. The Court of Appeal erred in imposing a one-year cut-off based on the Bank's knowledge at breach; the trial judge's four-year, diminishing award was restored as the appropriate estimate of damages. Interest rate and exchange-rate conversion were left to the parties to agree.

First instance: trial before HH Judge Kershaw QC (trial, 1998). Court of Appeal: decision reported at [2000] EWCA Civ 203 (appeal allowed in part by limiting damages to one year). House of Lords: appeal allowed and Court of Appeal assessment set aside, reported [2005] UKHL 3.