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

A contractual chain does not automatically prevent a tortious duty of care between a specialist adviser and the ultimate recipient of its advice. The question is whether, in the contractual context and all the circumstances, the adviser assumed responsibility to that recipient and the advice was relied upon. Direct dealings, known transmission of advice through an intermediary, the intermediary’s lack of expertise and the adviser’s continuing involvement may establish that responsibility. Contractual terms can negate the duty, but they did not do so here. An appellate court should interfere with an expert-based valuation only for a material error of principle or a conclusion no reasonable judge could reach. For estimated residual value, the court upheld orderly liquidation value in exchange, without a haircut, with a 15 per cent permissible range.

Riyad Bank, RBE London Ltd and RBE Ijara Fund Plc brought proceedings against Ahli United Bank (UK) Plc, formerly the United Bank of Kuwait Plc. The Fund invested in operating leases of equipment. The claimants alleged that the bank negligently advised on the value of leases and breached its technical services obligations.

The Commercial Court, in [2005] EWHC 279 (Comm), held that the bank owed the Fund a tortious duty of care and gave guidance on valuation issues. The bank appealed on the duty of care issue and on the appropriate estimated residual value benchmark, discount rates and permissible valuation range. The appeal also raised, but did not require determination of, alternative claims concerning recovery of the Fund’s loss.

The appeal was dismissed unanimously. Longmore LJ, Neuberger LJ and Buxton LJ held that the bank owed the Fund a duty of care in tort.

1. The correct question was whether, considering the contractual context and all the circumstances, the bank had assumed responsibility to the Fund. Whether that question was expressed as one composite inquiry or as two stages was only a matter of presentation. A contractual chain did not automatically exclude tortious responsibility. The contractual arrangements would matter if they were inconsistent with, or excluded, the assumed responsibility.

2. The factual findings supported the duty. The bank held itself out as experienced in establishing and operating leasing funds. It knew that RBE lacked relevant expertise, that its advice would be passed to the Fund without independent qualification, and that the Fund would rely on it. The bank was directly involved in establishing the Fund, and its representative attended board meetings in an advisory capacity. Nothing in the Technical Services Agreement or Investment Advisory Agreement negated the assumption of responsibility. The reasoning was consistent with Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 and Henderson v Merrett Syndicates Ltd [1995] 2 AC 145.

3. Buxton LJ additionally observed that, once the requirements of the Hedley Byrne line of authority were satisfied, there was no separate further limitation based on whether imposing a duty was fair, just and reasonable. The bank’s failure to carry out the necessary evaluation of the leases established breach in principle. It was unnecessary to decide the alternative claim based on exceptions to the principle stated in The Albazero [1977] AC 774.

4. On valuation, the appellate court should be slow to interfere with an evaluative conclusion based on extensive expert evidence. No material error of principle or conclusion outside the range open to a reasonable judge had been shown. The principle in Maynard v West Midlands Regional Health Authority [1984] 1 WLR 634 did not assist the bank because the bank had adopted no proper valuation practice, rather than choosing one of several accepted practices.

5. The court upheld orderly liquidation value in exchange as the appropriate estimated residual value benchmark, without a haircut, with a permissible range of 15 per cent either side of the midpoint. Renewal income was treated as part of the estimated residual value, so adding it separately would involve double-counting. The court also upheld the judge’s discount-rate conclusions, including single rates of 9 per cent and later 8 per cent and a 2 per cent allowance for expenses.

6. Because the bank was specifically engaged to analyse estimated residual values, it could not rely on the overall lease valuation falling within a permissible bracket. Damages could be recovered where the estimated residual value advice was outside the permissible range. The appeal was therefore dismissed on all valuation issues.

• Court of Appeal (Civil Division). The appeal by Ahli United Bank (UK) Plc was dismissed unanimously.
• High Court of Justice, Queen’s Bench Division, Commercial Court. Moore-Bick J held that the bank owed the Fund a duty of care and determined valuation principles in [2005] EWHC 279 (Comm).