Andrews v Waddingham & Anor

A defendant who negligently supplies information about a particular risk is liable only for loss caused by the information being wrong. The fact that the claimant would not otherwise have entered the transaction is necessary, but insufficient, to establish liability for all loss arising from it.

The scope of liability is determined by the specific duty breached as pleaded and found. Where negligent advice concerned only the protection available on an insurer’s insolvency under the Policyholders Protection Act 1975, loss caused by non-guaranteed policy bonuses was outside that scope when the insurer had not become insolvent.

The claimant transferred pension rights and, on the defendants’ actuarial advice, purchased an Equitable Life with-profits annuity. His overriding concern was long-term pension security. The defendants negligently failed to explain that statutory protection under the Policyholders Protection Act 1975 did not extend to all elements of the annuity’s future payments.

After Equitable Life’s financial difficulties reduced the prospect of future terminal bonuses, the claimant recovered damages exceeding £1 million from Cox J: [2005] EWHC 1121 (QB). The defendants appealed. They accepted negligence as found, but contended that the pleaded breach did not cause the loss and that the claim was statute-barred.

1. Appeal allowed. The court set aside the judgment for the claimant and directed judgment for the defendants.

2. The pleaded and found breach was confined to advice about the protection afforded by the Policyholders Protection Act 1975 if the insurer became insolvent. It was neither pleaded nor found that the defendants had negligently advised the claimant to acquire the with-profits annuity, or negligently failed to explain the operation of that product generally.

3. Applying the principles in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 and Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2002] 1 Lloyd’s Rep 157, a claimant who relies on negligent information cannot recover every foreseeable loss from the transaction. Liability extends only to the consequences of the information being wrong. A claimant’s decision not to enter the transaction if correctly informed does not itself establish recoverable loss.

4. The loss arose because terminal bonuses under the with-profits annuity were not guaranteed and were affected by Equitable Life’s changed fortunes. It did not arise from the absence of statutory insolvency protection. Equitable Life had not become insolvent, and the claimant’s loss would have been unchanged even if the Act had applied as he was advised. The recoverable difference was therefore nil.

5. The judge’s reliance on Bristol & West Building Society v Steggles Palmer was misplaced. That case concerned a lender which would not have lent had material facts not been withheld; it did not justify recovery for loss outside the scope of this pleaded breach. The limitation issue consequently did not require determination.

• Court of Appeal (Civil Division): Allowed the defendants’ appeal, set aside the damages judgment, and entered judgment for the defendants: [2006] EWCA Civ 93 .
• Queen’s Bench Division: Cox J found negligent advice concerning the Policyholders Protection Act 1975 and entered judgment for the claimant for just over £1 million: [2005] EWHC 1121 (QB).