Haugesund Kommune & Anor v Depfa ACS Bank & Anor

In assessing contractual damages for negligent advice, the court must identify the loss caused by the breach in a fact-sensitive way. Where correct advice would have led the claimant not to enter the transaction, and the transaction is void so that no contractual rights were acquired, loss may occur when money is paid away. The claimant may recover the outstanding loss without first pursuing a separate restitutionary claim against another party. The value of that claim need not be deducted, because restitution is measured by the recipient’s unjust enrichment rather than the claimant’s loss. Actual recoveries are credited. The position differs from a valid lending transaction where the value of contractual rights forms part of the loss assessment.

The judgment determined a further issue arising from an earlier decision, [2009] EWHC 2227 (Comm). The municipalities had obtained declarations that purported swaps with Depfa ACS Bank were void and were liable in restitution. Wikborg Rein & Co had been found in breach of its contractual duty to advise Depfa that the swaps were prohibited loans.

The remaining issue was the measure of Depfa’s damages against Wikborg Rein. Depfa contended that it had suffered loss when it paid the money under the void transactions and need not give credit for the value of its further restitutionary rights against the municipalities. Wikborg Rein disputed any presently recoverable loss.

1. Judgment for Depfa. Depfa was entitled to recover the damages sought from Wikborg Rein. It was required to give credit for actual payments and recoveries, but not for the value of its outstanding restitutionary rights against the municipalities.
2. The assessment of damages is fact-sensitive. Authorities do not establish an inflexible rule applicable to every case. The relevant starting point was that Depfa would not have advanced the money had it been advised of a material risk that the swaps were prohibited loans.
3. The payments were made under a void transaction. Depfa acquired no contractual right to repayment and no legal relationship of the relevant kind. Its restitutionary remedy was uncertain and was measured by the municipalities’ unjust enrichment, not by Depfa’s loss. The loss was therefore suffered when the money was paid away, and its measure was the amount advanced together with the cost of funding, subject to actual diminution.
4. The court preferred the principle, reflected in The Liverpool (No.2) and Peters v East Midlands Strategic Health Authority, that a claimant is not required to pursue another potential source of compensation. That principle is distinct from mitigation. The authorities concerning concurrent liability did not make the municipalities and Wikborg Rein responsible for the same loss, since the municipalities’ restitutionary liability was measured by enrichment.
5. The approach in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No.2) did not require deduction of a value attributed to contractual rights, because there was no contract and the value of the rights acquired was nil. The reasoning in Bristol & West Building Society v Fancy & Jackson, Portman Building Society v Bevan Ashford and Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd supported recovery of the whole loss where correct advice would have prevented the transaction.
6. The possible rights of Wikborg Rein by subrogation, recoupment or contribution were not decided. They would arise only if Wikborg Rein later sought relief against the municipalities.

The judgment states that it was to be read with the first judgment, [2009] EWHC 2227 (Comm), which determined the validity and restitution issues. The present judgment decided the outstanding quantification issue. It also records that an appeal by the municipalities on the change-of-position issue was pending, but does not state its result.