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QBENF 1998/0437/A2
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (AT CARDIFF)
QUEEN'S BENCH DIVISION
(THE RECORDER OF CARDIFF)
Royal Courts of Justice
Strand, London WC2A 2LL
Wednesday 12 July 2000
B e f o r e:
LORD JUSTICE THORPE
LORD JUSTICE SEDLEY
and
SIR ANTHONY EVANS
____________
PETER LINGHAM & COMPANY
Appellant
v
KARL LONNKVIST
Respondent
____________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
____________
MISS LINDSAY BOSWELL QC (instructed by Messrs Hugh James of
Cardiff CF1 4QB) appeared on behalf of the appellant.
MR NICHOLAS COOKE QC AND MR MILWYN JARMAN (instructed by Messrs
Godfrey Evans & Co of Penarth CF64 2AG) appeared on behalf of the
respondent.
____________
Judgment
As Approved by the Court
Crown Copyright ©
1. SIR ANTHONY EVANS: We heard this appeal in March 1999. It is from a
judgment given by the Recorder of Cardiff, Judge Michael Gibbon QC, sitting as
a High Court judge in February 1998. He was concerned with a claim by the
former owner and vendor of a shop property at 6 High Street, Barry, South
Glamorgan, against the purchasers, Mr and Mrs Lonnkvist, and with third party
proceedings between them and Peter Lingham Company, a firm of accountants,
(whom I shall call Mr Lingham).
2. The judge tried issues of liability only, that having been ordered by the
late Godfrey Evans, District Judge, on 5 December 1996.
3. The appeal arises in the third party proceedings, where the judge gave
judgment in favour of the defendants for damages to be assessed. He held that
the third parties were liable for breach of their contract of retainer, though
not in tort (the claim in tort was dismissed). He also dealt with issues of
causation and remoteness of damage which were raised by Miss Boswell QC,
leading counsel for the third party. She submitted in effect that the
defendants could not recover substantial, meaning more than nominal, damages.
He rejected this submission. The issues which gave rise to it were never
formally defined nor were they clearly identified. This was partly because the
only breach of contract which the judge held was proved against Mr Lingham was,
as Miss Boswell submits, not pleaded or particularised by the defendants as
part of the case which Mr Lingham went to court to meet.
4. We dismissed the appeal against the judge's findings of breach of contract,
for reasons set out in Part I of the judgment of Sedley LJ with which I agree.
This was given to the parties' representatives in July 1999 as the provisional
judgment of the court, but with a request for further submissions on the issues
of causation and remoteness which had been little canvassed before us. We
invited the parties to consider whether we should decide these issues on the
material we had, or whether there should be further submissions. In the event,
after a regrettably long delay, we reconvened to hear oral submissions on 30
March 2000.
5. Liability - Breach of Contract: Miss Boswell then renewed her
submission that the breach of contract which the judge held was proved was not
pleaded by the defendants, and we once more travelled through what on any view
are not precisely drafted allegations. In the result this proved a useful
exercise, because identifying the breach is the first stage in assessing the
issues of causation and remoteness which we have to consider and, if it is
clear that there cannot be an award of more than nominal damages, decide. The
allegation was:
"(vii) warned the defendants that the above steps should have been but had not
been taken".
(The steps referred to were those necessary, in effect, to ensure that the
figures for turnover up to December 1990 remained valid in July 1991.)
6. Against this background, the judge's findings are commendably exact. He
rejected Mr Lingham's explanation for writing his letter to the bank, the
proposed lender, on 17 July 1991, and found that `what the bank wanted was a
confirmation that the trading activity up to the end of June 1991 was
continuing at the level upon which the projections were based, and that Mr
Lingham's letter is not badly drafted, it was what the bank required' (page
46D). In other words, `Mr Lingham took a risk in writing the letter of 17th
July' (page 46H). The projections were based on the figures for the year ended
December 1990. The bank understandably wanted to know whether actual trading
was consistent with the projected level up to June 1991. Mr Lingham did not
know, but neither did he find out. He represented to the bank that it was, and
that was wrong. The judge's finding was that the allegation contained in (vii)
of the `Further and Better Particulars' was made out `in that the bank's
request required Mr Lingham to take some steps in July 1991 to ensure that the
turnover up to the end of June 1991' supported the projections (for 1991) that
had been made.
7. As to what steps Mr Lingham might have taken, the judge naturally thought
that he might have enquired of Mr Cossey, the vendor, who was also his client,
and that truthful answers would have been forthcoming (page 47A). But he did
not owe the defendants any contractual duty to consult Mr Cossey, and if he did
not do so, then all he could do was to report to them that the bank had made
its request for information as to current trading levels and ask for their
further instructions so that the bank loan could be secured.
8. The breach of contract, therefore, was Mr Lingham's failure to do this,
coupled with the fact that he wrote a letter to the bank containing a
misrepresentation which the judge found was made negligently and perhaps even
recklessly.
9. These findings are distinct from his earlier rejection of the various
explanations for writing the letter which Mr Lingham gave in the course of his
evidence in court.
10. On this reading of the judgment, the finding of breach of contract is clear
and the relevant facts were sufficiently pleaded.
11. Before leaving the question of breach, it is helpful to formulate the
contractual term which was broken. In broad terms, this was Mr Lingham's duty
as the defendants' agent for the limited purpose of obtaining finance for the
proposed purchase, to exercise due skill and care in the performance of that
function. More particularly, it was to respond to the bank's request for
information as to the 1991 trading figures by referring the request to the
defendants (or perhaps by approaching Mr Cossey on their behalf) and, on any
view of the matter, not to write a misleading reply to the bank.
12. There was some debate before us as to the practical implications of Mr
Lingham's duty, but Mr Cooke QC referred us to the duty as formulated in the
third party defence, in the following terms:
".... to act for the first defendant for the limited purposes of:
(i) advising him in connection with raising finance for the proposed
purchase;
(ii) preparing a business plan to assist in the procedure for raising finance
for the proposed purchase; and
(iii) liaising between the plaintiffs and the first defendant in connection
with the preparation of the business plan and raising finance for the proposed
purchase."
13. I would accept Mr Cooke's submission that this formulation should be
accepted for the purposes of this case.
14. Causation: Miss Boswell addressed the topic of causation on the
basis that the only breach of contract found was writing the letter of 17th
July containing the misrepresentation which it did. She accepted that Mr
Lingham could be liable to indemnify the defendants against any claim made
against them by the bank for damages for misrepresentation, but no such claim
was made. Therefore, she submitted, no damage attributable to the breach had
been suffered. In fact, the loan was made, and the bank's later exercise of
its right as mortgagee of the property, she contended, was not caused by the
misrepresentation.
15. This submission however does not relate to the finding of breach which the
judge in fact made and which this court has upheld. Mr Lingham failed to refer
to the defendants the bank's request for up-to-date information as to the
trading results. If he had done so, Mr Cossey would have been asked, by the
defendants if not by Mr Lingham direct, what the trading figures were to June
1991. If these were obtained and given to the bank, it is probable that the
offer of finance would have been withdrawn or made on different terms. But
that is irrelevant, if the defendants having been alerted to the decline in
business would have reconsidered the terms on which they were willing to buy
the property.
16. In my judgment, one consequence of Mr Lingham's breach of contract was that
the defendants were deprived of this opportunity for reconsideration. There
would appear to be, on the evidence before us, at least a real likelihood that
the transaction would not have proceeded to the sale of the property. It
cannot be said, in my view, that the chain of causation was broken.
17. Remoteness: The test continues to be the natural and direct
consequences of the breach of contract, though the distinction between the
first (general) and the second (special circumstances) of the two rules in
Hadley v Baxendale may have been narrowed by more recent decisions.
18. Insofar as remoteness depends in this context on a test of reasonable
foreseeability, it cannot be said that the defendants' loss of an opportunity
to reconsider their decision to buy the property in the light of the actual
trading figures to June 1991, and even their decision to proceed with the
transaction without themselves making further enquiries as to the figures, was
not a reasonably foreseeable consequence of Mr Lingham's failure to report the
bank's request for the figures to them, and to advise them that such figures
needed to be obtained.
19. But `reasonable foreseeability' is not the only test. It is necessary to
apply the rule stated by Lord Hoffmann in SAMCO (otherwise known as
BBL) [1997] AC 191. This, as Lord Hobhouse later observed in
Platform Home Loans Limited v Oysten Shipways Limited [1997] 2 WLR 518
at 532, is effectively a further requirement analogous with the rule which
excludes from the recovery of damages those consequences which are held to be
too remote.
20. The question becomes whether the damages claimed represent the `kind of
loss' which it was Mr Lingham's duty to guard the defendant against. This test
is analogous with the `assumption of responsibility' that is sometimes regarded
as one hallmark of the imposition of a duty of care in respect of foreseeable
economic loss. But the test is not necessarily the same, and I would approach
the question in the present case by asking whether Mr Lingham as the
defendants' accountant, but with the limited duty of obtaining finance for the
proposed purchase, can be held responsible for the consequences for the
defendants of failing to inform them that the bank required up-to-date figures
which he did not have. At the very least he deprived them of the opportunity
to obtain up-to-date figures, which would have led to them reconsidering their
offer to purchase, even though he was not responsible for advising them with
regard to the wisdom of the purchase itself.
21. The judge's findings on the evidence he heard were these:
"In my judgment it would have been unlikely that the bank would have advanced
the money that they did, and in any event unlikely that Mr Lonnkvist would have
continued his negotiations for the purchase .... (page 48D)"
22. Mr Lingham's admitted duty included advising the defendants as to the
obtaining of finance for their proposed purchase. When the lender whom he
approached required further information about the current state of trading, and
he did not have it, he should have informed the defendants of their need to
obtain it. In other words, to advise them that they were seeking finance
without information which on any view was highly material. He was under no
duty to go further than that. He could not advise them whether the purchase
was wise or not. But he was bound to advise them that he could not proceed
without obtaining the information, and by failing to do this he may be held to
have assumed responsibility for the fact that they continued in ignorance of
the information and the advice he should have given them.
23. In my judgment, Mr Lingham may be held liable for the defendants' losses
incurred by proceeding with the purchase. I express my conclusion in this way
because the evidence before the judge was not directed towards these issues,
and in my view no final conclusion should be reached before the evidence is
given.
24. Alternative Causes: Miss Boswell further submitted that the
defendants' losses on the transaction were solely caused by their solicitor's
failure to ensure that they bought the butcher's shop business as well as the
property in which it was carried on and that they had the protection of an
anti-competitive clause from the vendors. The judge rejected this submission,
and so would I. It may well emerge that the solicitors' alleged failure (we
know nothing of the details) was negligent and, as the judge acknowledged, a
contributory cause, even a major contributory cause, of the defendants' losses.
But it is impossible to hold that Mr Lingham's breach of contract should be
excluded altogether.
25. Conclusion: As Mr Cooke observed to us, this has proved to be one
of those cases where the line of demarcation between liability and assessment
of damages is not easy to draw. This was not apparent when the order was made,
but it became troublesome when, at a relatively late stage in the proceedings,
issues of causation and remoteness were raised. These overlap the
straightforward distinction between liability and damages but they require
separate consideration when the evidence is given. In fact, the evidence was
directed towards the main aspects of the liability issue, not least the
defendants' failed contention that Mr Lingham owed them a duty to advise on the
merits of the transaction generally. It has taken two hearings of the appeal
to define the precise issues and to identify what is effectively the single
issue which we have to decide, namely, whether there is no prospect of the
defendants recovering more than nominal damages for the consequences of the
breach of contract. That is not the present position, in my judgment, on the
evidence so far given. Moreover, that evidence was not specifically directed
towards the issues of causation and remoteness which emerged towards the close
of the hearing on liability, and in my view there should not be a final ruling
until the relevant evidence has been fully heard.
26. In agreement with the judge, therefore, I would hold that there should be a
hearing of the damages issues and I would dismiss the appeal. I have
anxiously reconsidered the matter after reading the draft judgments of Lord
Justices Thorpe and Sedley, but I cannot be as confident as they are that as a
matter of law no damages can be recovered by the defendants, given the nature
of Mr Lingham's breach of duty towards them.
27. LORD JUSTICE SEDLEY: This is the appeal of the Third Party, a
chartered accountant, against a finding that he was liable to the first-named
defendant, Karl Lonnkvist, for breach of his contract of retainer in the
negotiation of finance for Mr. Lonnkvist's purchase of a butcher's shop and
equipment from the plaintiffs, Mr. and Mrs. Cossey. The action was brought by
Mr. and Mrs. Cossey on a promissory note for £15,000 given by Mr. and Mrs.
Lonnkvist as part of the consideration for the purchase of the shop. The
defence was, in essence, that the contract of sale had been induced by
misrepresentations made by Mr. and Mrs. Cossey, entitling Mr. and Mrs.
Lonnkvist to rescission and affording them a defence and counter-claim to the
action on the promissory note. If, however, their defence failed, they laid
the blame for their having entered into the bad bargain upon Mr. Lingham,
principally and initially on the ground that Mr. Lingham, who was Mr. Cossey's
accountant, had prepared untenably optimistic projections of the profitability
of the shop, upon which Mr. Lonnkvist had relied in going ahead with the
purchase.
28. On 5th December 1996 it was ordered that liability on the claim,
counter-claim and third party notice should be tried as preliminary issues.
The trial came on initially before Mr. Christopher Pitchford QC at the end of
July 1997 but was stood over for particulars to be given by the defendants of
their allegations against the third party and for service of reports. The
action was tried over 7 days in December 1997 by His Honour Judge Gibbon QC,
The Recorder of Cardiff, sitting as a judge of the Queen's Bench Division. He
found for Mr and Mrs Cossey against Mr and Mrs Lonnkvist, but in favour of the
latter against Mr Lingham. For reasons which will become apparent, it has
become necessary on this appeal to consider whether, if the finding of
liability against the third party stands, there is in law any recoverable
damage.
29. Liability: Before turning to the grounds upon which the
Recorder found against the third party in his judgment of 20th March 1998, it
is convenient to trace the factual history in a little detail, deriving it
where relevant from the facts which the Recorder found.
30. Mr. and Mrs. Cossey ran a butchers shop in High Street, Barry, Glamorgan,
which in October 1991 they sold to Mr. Lonnkvist for £95,000 together with
its equipment but (as it turned out) without any transfer of goodwill or
reciprocal restrictive covenant. Because Mr. Lonnkvist was unable to raise the
last £15,000 in time for the exchange of contracts, Mr. and Mrs. Cossey
agreed to take a promissory note for it. The two men intended that the
business as well as the premises and the equipment would constitute the
consideration for the £95,000, although the contract, as drawn, failed to
convey it. At an early meeting on the 5th November 1990 Mr. Cossey truthfully
represented the takings as roughly between £3,400 and £4,000 a week,
although they might go significantly above or below this bracket. At this
early stage Mr. Lingham was acting as Mr. Cossey's adviser alone. Although his
turnover figures were misleading in individual respects, they showed something
over £183,000 as the projected turnover for the whole of 1990, a figure
which turned out to be about right and which had not been orally exaggerated by
Mr. Lingham. In consequence, the business plan prepared by Mr. Lingham, sent
to Mr. Lonnkvist and acted on by him, was based on authentic figures. Last,
and most importantly for present purposes, the Recorder found:
"... Between the submission of the first business plan in probably December
1990 and the signing of the contract by Mr. Lonnkvist on 27th September 1991,
takings in the shop dropped significantly from 1990 levels, in all by just over
10%. Mr. Cossey had originally stated that the weekly takings were in the
bracket of £3,500 to £4,000, and I have found that that was not a
misrepresentation because the takings did come within that bracket, but the
significant drop of 10% took the 1991 takings below Mr. Cossey's original
bracketed figures. It is submitted therefore that that representation made by
Mr. Cossey as to the 1990 turnover was a continuing representation, and imposed
the duty on Mr. Cossey to inform Mr. Lonnkvist of any change of circumstances
which made that representation (which was true at the time) false. I do not
accept this proposition of law. Any representation Mr. Cossey made as to the
shop's 1990 turnover in 1990 related to the specific period to which it
referred ..."
31. He went on to reject Mr. Lonnkvist's case that Mr. Cossey had asserted to
him on several occasions during 1991 that the business was continuing to trade
at the 1990 level. Among other things the Recorder found:
"Mr. Cossey did not appear to me to be a person who would deliberately lie if
in 1991 he had been asked directly whether takings had continued at the same
level as they had been in 1991."
32. The Recorder rejected the defence that payment of the promissory note was
conditional on the business making profits; and he rejected the counter-claim,
which asserted that Mr. Cossey, directly and through Mr. Lingham as his
accountant, had caused Mr. Lonnkvist loss by inducing him to purchase the shop
by means of false representations about its turnover.
33. Mr. Lingham's role, touched on in the main action, is brought to the fore
by third party proceedings. The initial meeting on the 5th November 1990 had
involved Mr. Lingham purely as Mr. Cossey's accountant. Mr. Lonnkvist at that
stage asked Mr. Lingham to act for him as adviser on the proposed purchase.
Mr. Lingham told him that he could not do so because, as Mr. Cossey's
accountant, he would face a conflict of interest. He offered, however, to act
for Mr. Lonnkvist purely for the purpose of helping him to find finance for the
purchase, an offer which Mr. Lonnkvist took up eight days later. It is
unnecessary to go through the evidence which brought the Recorder firmly to the
conclusion that Mr. Lonnkvist was quite wrong both in his evidence of a general
retainer and in his assertion that he did not understand Mr. Lingham's warning
that he should seek independent financial advice.
34. The business plan initially prepared by Mr. Lingham went through three
revisions. Mr. Lingham sent its fourth and final version on 21st June 1991 to
Mr. Lonnkvist and also to an investment broker, Steven Howells, who three days
later put it to the Royal Bank of Scotland as the basis of the loan which Mr.
Lonnkvist need to raise for the purchase of the shop. The plan begins with the
common disclaimer of reliability in relation to projections. Its fourth
section, captioned "Financial Summary", sets out projections, beginning with
takings and concluding with retained profit, for 1992 and 1993 (in each case to
the 30th June, although this does not appear from the document). The 1992
column adopts the 1990 takings figure, while the 1993 column adds a 10% uplift.
Then follows the critical paragraph:
"4.2 The takings levels have been based on the current activity of the High
Street operation for the period to the 1st December 1990 with an anticipated
rise of 10%. A further rise of 10% is anticipated in the year to 30th June
1993."
35. Although this appears to describe two 10% uplifts on the 1990 figures, when
in fact there was only one, nothing turns on this. As will appear, however,
the third party proceedings turn upon the rest of this paragraph.
36. On the 5th July 1991 a meeting took place at the Royal Bank of Scotland
branch in Barry. The Bank, the Recorder found, wanted to know what the
turnover figure in the business plan represented. On the 9th July Mr. Lingham
wrote to the bank manager giving a little more information about Mr.
Lonnkvist's personal assets. This, plainly, did not answer the question. The
Bank repeated the request by telephone, with the result that on the 17th July
1991 Mr. Lingham sent a further letter which began:
"Reference our telephone conversation, I can confirm that the turnover figures
in the projections have been based on the actual turnover that the High Street
operation achieved in the last 12 months."
37. The Recorder rejected Mr. Lingham's account of having followed this letter,
which he conceded in cross-examination was "very badly worded", with a
telephone call clarifying its contents:
"I find that what the Bank wanted was confirmation that the trading activity up
to the end of June 1991 was continuing at the level upon which the projections
were based, and that Mr. Lingham's letter was not badly drafted, it was what
the Bank required."
38. The letter was sent only to the Bank: no copy of it went to Mr. Lonnkvist.
The following morning, 18th July 1991, Mr. Lingham wrote to Mr. Lonnkvist to
give him the news that that the Royal Bank of Scotland would be offering him a
loan of £50,000 for the purchase of the shop. On the same day he wrote to
Mr. Cossey to give him the same news, beginning:
"... I have spoken personally to the new manager at the Royal Bank of Scotland
in Barry who has informed me that a loan to Karl Lonnkvist has been approved
..."
39. It was only on the next day, the 19th July, however, that Mr. Lingham's
letter of 17th July 1991 reached the Bank.
40. The deal went through. Mr. and Mrs. Lonnkvist mortgaged their home to the
Bank; they signed the promissory note to Mr. and Mrs. Cossey; and on the 2nd
October 1991 they exchanged contracts at the agreed price. By then, although
they did not know it, the takings of the business had fallen by over 10%. To
make things worse, Mr. Cossey set up in competition down the road, no
restrictive covenant having been exacted. Mr. and Mrs. Lonnkvist's business
failed.
41. When Mr. Lingham was brought in as third party to Mr. and Mrs. Cossey's
action on the promissory note against Mr. and Mrs. Lonnkvist, it was on the
basis that Mr. Lingham owed Mr. Lonnkvist duties both in contract and in tort.
The Recorder rejected the case in tort and it has not been sought to resurrect
it in this court. The particulars of breach of duty common to both causes of
action were pleaded thus:
"You ...
(a) orally represented to the first named defendant that the turnover of the
said business was in the region of £198,000 per annum;
(b) in four business plans prepared for the first defendant gave projected
turnover of between £183,000 and £201,000 per annum;
(c) in letters dated the 21st day of June 1991 and 17th day of July 1991
advised the first named defendant that those projections were based on the
actual takings of the retail business at High Street;
(d) orally advised the first named defendant that the business could easily
pay its way;
(e) failed to advise or ensure that the first named defendant took independent
financial advice before completing the said purchase;
(f) continued to act for both the plaintiff and the first named defendant."
42. All but the third of these allegations have gone: (a), (e) and (f), it is
conceded, cannot be sustained on the evidence; (b) is factual but discloses no
error; and (d) was rejected by the Recorder. It is on (c) therefore that the
third party action has come to depend. On the face of it, it is unsustainable:
the letter of 21st June 1991 has no bearing at all, and the letter of 17th July
1991 was neither sent nor copied to Mr. Lonnkvist. But by further and better
particulars of (b) and (c) the defendants' counsel pleaded:
"The third party should have (but did not): -
........
(vi) taken steps to ensure that the turnover of the shop throughout 1991 until
completion of the purchase supported the representations as to turnover and/or
projections previously made. The business plans were being submitted to
lending institutions and copied to the defendant in June and July 1991
purportedly showing current turnover but in fact based on 1990 figures in the
cash book. By July 1991 such figures showed takings of £2,000 to
£3,000 per month less than the corresponding months in 1990. By September
this decline had increased to £6,000 per month.
(vii) warned the defendant that the above steps should have been but had not
been taken."
43. Understandably, counsel for Mr. Lingham submitted to the Recorder that the
pleaded case was at an end, and that there was no basis upon which any finding
of neglect could be made against her client. But the Recorder held that Mr.
Lingham "owed a duty both to the Bank and Mr. Lonnkvist to make proper
enquiries before making the assertion contained in the letter" of 17th July.
He found that Mr. Cossey, had he been asked, would probably have given Mr.
Lingham a truthful answer about the turnover. He concluded:
"I therefore find that the allegations contained in (vii) of the further and
better particulars ... are partially made out, in that the Bank's request
required the third party, Mr. Lingham, to take some steps in July 1991 to
ensure that the 1991 turnover up to the end of June 1991 supported the
projections made in the business plan submitted to the Bank."
44. This was by no means the end of the case: a major issue of causation and
remoteness of loss remained to be determined. But it is convenient to turn to
the attack upon the Recorder's conclusions mounted by Miss Lindsay Boswell QC
in a powerful submission. She contends, in brief, that neither the pleadings
nor the evidence entitled the Recorder to make any such findings against Mr.
Lingham.
45. A party is of course entitled, especially in a case as complex as this, to
proper notice of the case he is required to meet. It is a perfectly fair
criticism of the third party notice that it gave no inkling of the case which
eventually succeeded against Mr. Lingham. But three months before the trial,
further and better particulars brought the successful allegations into the
frame. Paragraphs (vi) and (vii) were in truth not elaborations of the third
party notice but fresh allegations; but any application to strike them out
would have been met with an application to amend the notice, so that - although
there would have been a question of limitation - the third party's advisers
would have risked something in costs by any such application. Whatever the
reason, no application was made. It was then for the third party to meet the
newly pleaded allegation at trial.
46. Miss Boswell next submits that the allegation was met, and that the
Recorder, in holding that it was not, misunderstood or overlooked important
elements of the evidence and in one instance drew an inference for which there
was no foundation. What she does not dispute is that it was an implied term of
Mr. Lingham's retainer, limited though it was, that he would answer any
relevant questions from the Bank carefully and as accurately as he could.
47. It is difficult to be unsympathetic to Miss Boswell's complaint that the
case upon which Mr. Lonnkvist eventually succeeded against her client took her
- and possibly her opponent - unawares. In preparation for the intended trial
before Mr. Pitchford QC, the defendants' skeleton argument had been predicated
squarely upon a duty - in the event rejected by the Recorder - to act for the
defendant and advise him in relation to the entire transaction. It was only by
the insertion of the phrase "In any event ..." in the written submissions that
the alleged duty of care to Mr. Lonnkvist was cut free of the alleged wide
retainer, founding in turn the claim that Mr. Lingham should have taken steps
to ensure that the turnover figures continued to justify the projection. But
it remains the case that the necessary elements of the Recorder's eventual
finding in Mr. Lonnkvist's favour were discernible in the pleadings, even if
they took an unanticipated form and even if the Recorder's allocation of them
to sub-paragraph (vii) rather than (vi) of the particulars is at first
surprising.
48. The Recorder noted that the further and better particulars went "well
beyond the allegations" in the third party notice but said:
"No point was taken by Miss Boswell, and she has met these allegations."
49. Miss Boswell tells us that she cannot explain how the Recorder obtained the
impression that she was not objecting to the uncovenanted breadth of the
defendants' case; but it was not the breadth but the shape of the defendants'
case that took her by surprise. The reason for this is to be found in the
evidence.
50. When Mr. Jarman, then representing Mr. and Mrs. Lonnkvist, cross-examined
Mr. Lingham he obtained an admission that the letter of 17th July was "very
badly worded". A little later Mr. Lingham volunteered this:
"Now, I would suggest that I would have followed that up, when I had the copy
on my desk, to Mr. Gordon [the bank manager] by telephone and said `Look, this
is a badly worded letter, this is a period, is there a problem?' But I cannot
state that that would have been -
Q Can you recall doing that, Mr. Lingham?
A Yes, I can.
Q You can?
A I can recall after that actually having a further discussion with Mr. Gordon
and the words from Mr. Gordon were at that stage `We are going to do it because
we need to have a local butcher in Barry, we haven't got one,' or words to that
effect.
Q So what was the date of that telephone call?
A Well, I don't know. I can't be categoric ...."
51. The Recorder was understandably sceptical of this passage of evidence. He
said of Mr. Lingham:
"I have to hold that he has not been frank to the court, particularly with his
evidence that he followed the letter by phoning Mr. Gordon and saying `Look
this is a badly worded letter.' The Bank wanted something in writing, if he is
right, and the only way to correct a badly worded letter in those circumstances
would be by a letter correcting the letter at fault."
52. Pausing there, Mr. Lingham had done himself a classic disservice. He had
proceeded from the obvious need of the letter of 17th July 1991 for correction
to an assertion that he "would" have corrected it, followed immediately, when
prodded by counsel, by an assertion that he had done so by telephone and could
recall the conversation, although not its date. It was an account which was
not entirely easy to credit.
53. Even so, Miss Boswell submits that the Recorder's adverse finding overlooks
and conflicts with other parts of the evidence. For example, the Recorder
echoed Mr. Jarman's expressed puzzlement at Mr. Lingham's evidence that the
bank manager wanted more detail about the period to which the turnover figures
in the business plan related. Repeating Mr. Jarman's comment that the bank
already had this in writing in paragraph 4.2 of the business plan, he said:
"I have to say that I don't understand it either." Miss Boswell submits that
they were both wrong. The key paragraph of the business plan showed the
turnover to December 1990, but not the length of the period which it covered.
This, she submits, provides an intelligible reason, but one overlooked by the
judge, for the reference to "the last 12 months" in the letter of the 17th
July. Then there was evidence, or at least confirmation, as Miss Boswell
points out, in the letter sent by Mr. Lingham to Mr. Cossey on the 18th July
that he had indeed had a conversation with the bank manager that morning -
something of which the Recorder takes no overt account. And she criticises the
Recorder's further finding, rejecting Mr. Lingham's evidence that the bank
wanted his firm's authentication of the business plan on the ground that it
would have had Mr. Lingham's letterhead covering it when it was first
submitted, pointing out that it was not Mr. Lingham who had submitted the plan
but Steven Howells, the finance broker. As to the judge's further ground for
disbelieving Mr. Lingham, namely that he was "reluctant to confirm what was
requested in writing", there being no reference to it in the initial letter to
the bank of 9th July and a telephone message having been necessary to prompt
it, Miss Boswell submits that this is to exchange cause for effect. I am not
persuaded that this is so, but the point is in any event an appendix to the
Recorder's conclusion on this topic. What matters is the submission that there
was no sufficient evidence to support the Recorder's finding that the bank
wanted confirmation that the trading figures were valid to June 1991. As to
this, Mr. Lingham's letter of 17th July, confused and confusing though it is,
itself furnishes a sound basis for the Recorder's inference that such a request
had been made, and not simply a request to confirm the length of the period to
December 1990 represented by the figures in the plan.
54. Seen as a response to this request, the letter was at best obscure and at
worst misleading. Paragraph 4.2 of the business plan, it will be recalled,
said:
"The takings levels have been based on the current activity of the High Street
operation for the period to the 1st December 1990 ..."
55. The letter of 17th July 1991 started:
"... I can confirm that the turnover figures in the projections have been based
on the actual turnover that the High Street operation achieved in the last 12
months."
56. Carefully read, the letter makes no sense. The use of "have been" and
"last 12 months" would by themselves suggest up-to-date figures. But the
reference to "the turnover figures in the projections" takes the reader back to
December 1990. If the letter had referred to "the previous 12 months"
the use of the continuous past tense might have been overlooked, but the use of
the continuous past tense with "the last 12 months" strongly suggested that the
figures were up-to-date. While, therefore, the Recorder's finding that the
letter was designed to give the impression that the figures were valid to the
end of June 1991 is a harsh one, since he could well have concluded that the
letter was not capable of meaning anything to a careful reader, Mr. Lingham had
forfeited much of his defence to such a finding by his confabulation of
evidence (by which I mean not fabrication but the unconsidered filling of gaps)
about a follow-up to the letter.
57. Damage: Although oral argument before us was principally
devoted to the tenability of these findings, it remained - and remains - for
Mr. Lonnkvist to show that they constitute a breach of contract which has
caused him recoverable loss.
58. That there was, on the judge's findings, a breach of contract is
inescapable. The writing of the letter, even if it was no more than muddled
but more so if it was intended to mislead, was a breach of Mr. Lingham's
accepted duty to answer carefully and as accurately as possible any questions
from the bank in relation to the proposed finance. The real issue is whether
the breach has caused Mr. Lonnkvist any loss which is not too remote to be
recoverable.
59. This question was barely canvassed in the first argument of the appeal. It
was after judgment had been reserved that it became apparent that although it
was an issue which lay on the frontier between the preliminary issue of
liability and the contingent question of damage, if no more than nominal damage
were recoverable for the breach which has now been established, there would be
effectively nothing to send back for trial. For reasons to which I now turn,
and in regretful disagreement with Sir Anthony Evans, whose judgment I have
seen in draft, I have reached the conclusion that Mr Lonnkvist has on no
legally possible view suffered more than nominal damage by Mr Lingham's breach
of contract.
60. The first and undoubted fact is that the bank agreed the loan before it
received the letter. This has to be related to the Recorder's first finding on
causation:
"What would have been the consequences if Mr. Lingham had enquired of Mr.
Cossey about the level of the 1991 takings and had been informed that they were
down by approximately 9% from the 1990 takings? In my judgment, a significant
conflict of interest would have then arisen between the interests of Mr. Cossey
and those of Mr. Lonnkvist. The application to the Bank could only have been
pursued if they were informed of a drop in takings. It is probable that the
Bank would have required an amended business plan to be submitted. In those
circumstances there would have had to have been a clear duty to inform Mr.
Lonnkvist of the change of circumstances. All this would have required the
prior consent of Mr. Cossey, which may or may not have been forthcoming.
In my judgment it would have been unlikely that the Bank would have advanced
the money that they did, and in any event unlikely that Mr. Lonnkvist would
have continued his negotiations for the purchase of No. 6 High Street. He
would have been put on his guard against purchasing the premises, at least at
the asking price. Mr. Lingham should have foreseen, when he wrote the letter
of 17th July, that it was possible that if he made the enquiries required of
him, they would show that the 1990 turnover was not being maintained in 1991.
He should have therefore realised that by writing the letter, it was possible
that he was misleading the bank, which in fact he did, and denying Mr.
Lonnkvist knowledge of matters which could have had a significant bearing on
whether he should have purchased the shop, again which in fact he did.
..........
The third party's breach of his contractual duties under the retainer was
responsible for Mr. Lonnkvist not knowing the true trading position for the
purchasing of the premises which he would not have purchased at the price he
did but for the breach. In those circumstances, the costs incurred in the
purchase at least constitute loss."
61. The Recorder went on to reject Miss Boswell's argument on remoteness -
namely that the real cause of Mr. Lonnkvist's loss, if any, was his solicitor's
failure to include and protect the goodwill of the business in the contract of
sale - on the ground that this did not exclude the causative effect of Mr.
Lingham's negligence. On its own, this finding is unexceptionable, at least to
the extent that it would leave the question open for future determination.
Furthermore, the undoubted fact that the bank agreed the loan before the letter
arrived is inconclusive. If there was a duty to give up-to-date figures, and
if these would have shown a drop in takings, then the late arrival of an
accurate letter would still have enabled the bank to withdraw or modify its
offer and might have induced it to do so.
62. The real question therefore is the true ambit of Mr. Lingham's duty to Mr.
Lonnkvist. It was a duty to use his best professional endeavours to procure
the grant by the bank of finance for the purchase of the shop. An element of
the duty was to respond to any reasonable request by the bank for further
information. The obligation to do this accurately was owed by Mr. Lingham not
to the bank but to Mr. Lonnkvist. Had a loan been made on the strength of
inaccurate information given to the Bank by Mr. Lingham, it would have been
against Mr. Lonnkvist that the bank had its recourse, and Mr. Lonnkvist would
have had a remedy over against Mr. Lingham. But there was no legal nexus
between Mr. Lingham and the Bank.
63. The loan which Mr. Lingham was retained to seek was made. It could not
have been, nor was it, recalled for misrepresentation, since it had not been so
induced. At most, as I have said, the bank might have gone back on its offer
if the letter, when it arrived, had been accurate. The security, Mr. and Mrs.
Lonnkvist's home, was realised because the business failed. But the Recorder
concluded that had Mr. Lingham done his duty he would have asked Mr. Cossey how
the business was doing and have been told of the downturn; he would have warned
Mr. Lonnkvist, who would not have gone through with the purchase.
64. But Mr. Lingham had been extremely careful to limit his own retainer in
order to avoid any conflict of interest save that which his two clients, Mr.
Cossey and Mr. Lonnkvist, were prepared to accept. Mr. Cossey had waived the
confidentiality of the relevant part of his business accounts in order that a
business plan could be prepared for Mr. Lonnkvist and presented to the bank.
But Mr. Lingham had undertaken no responsibility whatever to advise Mr.
Lonnkvist. Whatever might have been the position in tort (and part of the
Recorder's reasoning on causation, quoted above, is in the language of tort
liability), the only material duty which Mr. Lingham owed Mr. Lonnkvist in
contract - namely to give the bank accurate information - though breached by
him, had no consequence adverse to Mr. Lonnkvist, who obtained the loan which
he wanted without any subsequent claim on the bank's part to have been misled
into granting it. Mr. Lingham owed him no contractual duty to advise on the
wisdom of the purchase: as everybody including Mr. Lonnkvist knew, he could
not do so consistently with his obligations to Mr. Cossey. Nor was it his
obligation to prevent the bank from making an unwise loan. That, therefore,
proper enquiries and a proper response by Mr. Lingham might have alerted either
the bank or Mr. Lonnkvist or both to the fact that the changed situation made
the proposed purchase unwise is not only speculative but, more important,
something beyond the reach of the contractual relationship existing between Mr.
Lingham and Mr. Lonnkvist.
65. It is apparent from the skeleton arguments submitted at trial that, to the
end, the case for Mr. Lonnkvist stopped at the assertion that Mr. Lingham
should have checked the veracity of the figures which he was giving to the
bank. It assumed that if this could be established, liability would follow.
Miss Boswell in her final skeleton argument dealt discretely with causation,
but - for reasons which will have become apparent earlier in this judgment -
believed that she was still doing so in response to a case in negligence. She
wrote:
"There are so many gaps in Mr. Lonnkvist's case on causation that it is
difficult to put forward the difficulties in his case in any logical order."
66. This issue, whether it is treated as one of causation or one of remoteness,
seems to me to turn on the first principles illustrated by the decisions of
this court in Galoo Ltd. v. Bright Grahame Murray [1994] 1 WLR 1360 and
Swindle v. Harrison [1997] 4 All ER 705. The first confirms that the
mere acceptance of a loan cannot amount to a loss causing damage. It confirms,
too, that it is not enough that a breach of contract has given the opportunity
for a loss to be sustained: the breach must be the dominant or effective cause
of the loss if it is to sound in damages. The second case, looking at the same
issue from (so to speak) the opposite direction, confirms that loss, if proved,
must be shown to have been caused by the defendant's breach of duty. Both
chime with what Lord Oliver of Aylmerton said of negligence (where recoverable
damage is part of the cause of action) in Caparo Industries Plc v.
Dickman [1990] 2 AC 605,654:
"To widen the scope of the duty to include loss caused to an individual by
reliance on the accounts for a purpose to which they were not supplied and were
not intended would be to extend it beyond the limits which are so far deducible
from the decisions of this House."
67. They chime, too, with the underlying principle reiterated by Lord Hoffmann
in the Banque Bruxelles case [1997] AC 191, 211, 213:
"A plaintiff who sues for breach of a duty imposed by the law (whether in
contract or tort or under statute) must do more than prove that defendant has
failed to comply. He must show that the duty was owed to him and that it was a
duty in respect of the kind of loss which he has suffered.... Normally the law
limits liability to those consequences which are attributable to that which
made the act wrongful.".
68. We have been shown no authority which closes this gap in the case for Mr.
Lonnkvist. The only authority relied on by Mr. Jarman on Mr. Lonnkvist's
behalf in his written submission to the Recorder is Downes v. Chappell
[1997] 1 WLR 426, a decision on proof of damage in the relatively
straightforward case where a plaintiff has been induced by a defendant's
fraudulent misrepresentations to buy a business from the defendant at a gross
over-valuation. It has nothing to do with the present case.
69. Returning to the Recorder's summary of his conclusions (quoted above) Mr.
Lingham had no contractual duty to apprise Mr. Lonnkvist of the true trading
position or to advise him about the wisdom of the purchase. To attribute Mr.
Lonnkvist's ignorance of the true trading position and his decision to go ahead
with the purchase to Mr. Lingham's breach is either to treat the ambit of the
contract as greater than it was or to found upon a causative link between two
things which had no contractual nexus, namely the soliciting of finance and the
decision to purchase. These were of course connected for Mr. Lonnkvist, but
for Mr. Lingham, as his retainer had always made clear, they were entirely
separate. By holding that Mr. Lingham was liable for failing, in substance, to
head off Mr. Lonnkvist's purchase of the shop, the Recorder has in effect - and
in perhaps understandable response to the obliquity of Mr. Lingham's evidence -
reintroduced the very duty of care which he had earlier, and correctly,
rejected. The same, in my respectful view, is true of the proposition which has
found favour with Sir Anthony Evans that Mr Lingham's breach of contract
deprived Mr and Mrs Lonnkvist of the opportunity for reconsideration of the
proposed purchase: Mr Lingham, as he had always made perfectly clear, had no
duty to afford them such an opportunity.
70. Likewise, the fact that had he gone back to Mr Lonnkvist about the need for
up to date figures Mr Lonnkvist might - or, as the Recorder found, might not -
have got them from Mr Cossey cannot make Mr Lingham answerable for all the
possible consequences (of which renegotiating or reneging on the purchase were
only two). Not only would such a conclusion introduce unacceptably remote
effects into the computation of loss; it would render Mr Lingham liable for
failure to do the very thing Mr Lonnkvist had agreed he should not be required
to do, namely to furnish to Mr Lonnkvist information about Mr Cossey's
accounts.
71. Returning to the Banque Bruxelles formulations, it seems to me that
the duty which was broken was a duty to give the bank reliable information
about the business; that the loss suffered by Mr and Mrs Lonnkvist was the
purchase of premises containing a business which failed; and that to the extent
(itself highly contentious) that this was because they did not know of the
downturn in takings, this had nothing to do with what made Mr Lingham's
omission wrongful since he owed them no duty to alert them to it.
72. For these reasons I would allow this appeal. I do not consider that the
theoretical entitlement of Mr. Lonnkvist to nominal damages for the breach
which has been found justifies a remission of the case for the assessment of
such damages. I would order that judgment be entered for the third party in
the third party proceedings.
73. LORD JUSTICE THORPE: I have had the advantage of reading in draft
the judgments of my lords on the issue of causation and remoteness. I accept
the analysis of my lord, Sedley LJ. I adopt it as well as his full and
careful reasoning. Although the defendant is the victim of contractual breach,
and a reprehensible breach at that, we would hardly right the wrong by
committing him to yet another round of trial the outcome of which would
inevitably be of no solace to him.
Order: Appeal Allowed. No order for costs, either in the Court of Appeal
or in the court below. Application for permission to appeal to the House of
Lords refused.
(Order does not form part of approved judgment.)
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