Haugesund Kommune & Anor v Depfa Acs Bank & Anor

A professional adviser who supplies specific information is responsible for the foreseeable consequences of that information being wrong. The adviser does not thereby assume responsibility for every consequence of the transaction.

The fact that a transaction would not have occurred but for negligent advice does not establish liability for the claimant’s whole loss. The court must identify why the loss arose and whether that risk fell within the adviser’s duty. A claimant’s freedom to choose between defendants applies only after loss and the particular defendant’s responsibility for it have been established.

Two Norwegian municipalities entered swap contracts with a bank after Norwegian solicitors advised that the municipalities had capacity to do so. The contracts were subsequently declared void. The municipalities were nevertheless liable to restore the advances, while the solicitors were liable for negligent advice.

In a second judgment, [2010] EWHC 227 (Comm), the Commercial Court held that the bank had lost the whole amount advanced when it transferred the funds and could recover that amount from the solicitors, subject to credit for actual recoveries.

The solicitors appealed. The central issue was whether the bank’s unrecovered advances constituted loss within the scope of the solicitors’ limited duty, given that the bank had assumed the municipalities’ credit and enforcement risks.

1. Appeal allowed unanimously. Rix LJ delivered the leading judgment. Gross LJ agreed with the result by a somewhat different route, and Peter Smith J agreed.

2. The principle in The Liverpool (No 2) remained valid. A claimant with established loss and remedies against several defendants may choose which defendant to pursue without first enforcing another remedy. That principle does not establish either the existence of loss or the responsibility of the selected defendant. Those are anterior questions.

3. Per Rix LJ, the solicitors had supplied specific legal advice about the municipalities’ capacity. They had not undertaken a general responsibility for whether the transactions should proceed. The fact that the bank would not have entered the swaps without the negligent advice did not make the solicitors responsible for every consequence of entering them. That conclusion followed the scope-of-duty analysis in SAAMCO and Nykredit.

4. The bank knowingly bore the municipalities’ credit risk and had been warned that judgments against them could not be enforced. Loss caused by their impecuniosity, unwillingness to pay or immunity from execution therefore fell outside the solicitors’ duty. The bank could recover only loss attributable to the contracts’ invalidity. There was no sufficient evidence that the outstanding non-payment arose from that invalidity rather than the risks retained by the bank.

5. Rix LJ considered that the bank acquired an immediate restitutionary right when the contracts failed. It was therefore wrong to assume that the entire advances were lost upon transfer. Gross LJ was not persuaded by that analysis and considered that substantial loss arose on transfer, but held that the disagreement was immaterial because the claimed credit and enforcement losses remained outside the solicitors’ responsibility.

6. The proposed fresh evidence did not establish that non-payment resulted from the contracts’ invalidity. It was not admitted as a basis for disturbing the conclusion. The award of damages representing the outstanding advances could not stand.

1. Court of Appeal (Civil Division): In [2011] EWCA Civ 33, unanimously allowed the solicitors’ appeal from the assessment of damages.

2. Commercial Court: In [2010] EWHC 227 (Comm), reported at [2010] 1 All ER (Comm) 1109, held that the bank had lost the advances upon transfer and could recover the outstanding amount from the solicitors, subject to actual recoveries.

3. Court of Appeal (Civil Division): In earlier proceedings, [2010] EWCA Civ 579, reported at [2011] 1 All ER 190, upheld the finding that the swaps were void and rejected the municipalities’ challenge to their restitutionary liability.

4. Commercial Court: In [2009] EWHC 2227 (Comm), declared the swaps void, held the municipalities liable in restitution and found the solicitors negligent, reserving assessment of the solicitors’ liability.