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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Andrews v Waddingham & Anor [2006] EWCA Civ 93 (21 February 2006) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2006/93.html Cite as: [2006] EWCA Civ 93

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Mrs Justice Cox
[2005] EWHC 1121 (QB)

		Royal Courts of Justice Strand, London, WC2A 2LL
		21 February 2006

Lord Justice Brooke:

1. This is an appeal by the defendants, who are a firm of consulting actuaries, from a judgment of Cox J on 14^th April 2005 in an action for damages for professional negligence in which she directed that judgment be entered against them for just over £1 million. They do not dispute the finding of negligence or the computation of the award of damages on the basis of the judge's findings, but they contend that the loss which the claimant suffered was not causally connected with the defendants' negligence, and that in any event the judge ought to have found that the claim against them was statute-barred.
2. The judge set out her findings with conspicuous clarity. The material dealings between the parties took place over a period of about three months between October 1994 and January 1995. At that time the claimant, Mr Christopher Andrews, was 54 years old. He had been employed by the Ladbroke Group since 1972. Throughout his working life he had been concerned with company administration, and he finished up as group services director and company secretary. A number of different non-financial departments reported to him. The judge said that he was an intelligent, careful and meticulous man, with the commercial acumen that was to be expected from his long employment at Ladbrokes. However, although he was highly organised, thorough and proficient in dealing with numbers, he had no particular financial investment expertise. He certainly possessed no experience or expertise in matters concerned with pensions and actuarial issues.
3. In 1994 a change of regime at the top of Ladbrokes, heralded by the arrival of a new chairman and chief executive, led Mr Andrews to accept a proposal that he should take early retirement on negotiated terms. The group possessed a final salary occupational pension scheme under which the pension would escalate at a fixed rate of 5% per annum. Mr Andrews, however, was concerned about the future management of that scheme and the security of the pension he would obtain from it. He therefore decided to take professional advice about the wisdom of transferring his pension rights (which had a transfer value of about £1.9 million) and making provision for his pension outside the company scheme.
4. He therefore contacted the defendants at their Chalfont St Peter office, and in April-May 1994 he received general advice from Mr Waddingham about some of the options that were open to him. It was a feature of this case that while Mr Waddingham did not make attendance notes, Mr Andrews did keep a written record of all his discussions with him, and the judge found him to be an accurate historian of events. Mr Andrews stressed to Mr Waddingham from the outset of their discussions that he was concerned to achieve maximum long term security from his pension provision, especially as he was retiring so young. While Mr Waddingham for his part regarded inflation as "Public Enemy Number One", Mr Andrews wished not only to protect his pension against inflation but also to achieve growth so far as practicable. It was agreed that no decisions need be taken until the end of September when he was due to retire.
5. In early September they met again, after Mr Andrews had provided to Mr Waddingham the latest information he possessed about the options open to him under the company scheme. He reiterated his desire to achieve long term security. After the meeting Mr Waddingham sent him details of a number of retirement options. In a telephone conversation towards the end of September Mr Andrews referred again to the need for security. At that time Mr Waddingham thought he might be better off remaining with the company scheme, but he changed his mind about this at an important meeting on 8^th November when he told Mr Andrews his earlier advice had been wrong.
6. He now told Mr Andrews that he might well be able to obtain an annuity which would provide comparable benefits to the Ladbrokes scheme. Mr Andrews therefore asked him to obtain quotations for annuities which would provide the same benefits as that scheme. He referred in particular to the fixed annual increase of 5% which the company scheme would provide for him. At Mr Waddingham's suggestion his instructions now included a search for quotations featuring annual increases that kept pace with the retail price index ("RPI") or a 3% annual increase (if that was higher).
7. Because he was so concerned about security, Mr Andrews asked Mr Waddingham for written confirmation of the protection he would receive under the Policyholders Protection Act 1975 if his pension provider went into liquidation. The judge found that the statutory guarantee of 90% provision in these circumstances furnished an essential element for him when he was deciding whether to opt for an annuity (or annuities).
8. It was at this stage Mr Shaw came on the scene. He had obtained a university degree in engineering followed by a diploma obtained at the end of a one year course in actuarial science. This was his first job. On Mr Waddingham's instructions Mr Shaw sought quotations from a number of different insurers, including the Equitable Life Assurance Society ("Equitable Life"). That company's recent unhappy experiences did not begin until after the House of Lords' adverse ruling in July 2000: it was never suggested that it was negligent to recommend its products in 1994. On 14^th November Mr Shaw sent Mr Andrews a spreadsheet which showed the annuity quotations he had obtained so far, and two days later he sent him details of those that appeared best suited to his needs. On 17^th November Mr Andrews raised with him the possibility of a 50-50 split between an annuity tied to the RPI and an annuity which escalated at a fixed annual rate of 5%. Mr Shaw said he should discuss this with Mr Waddingham direct. In his briefing to Mr Waddingham Mr Shaw said that Mr Henry, a representative of Equitable Life, had strongly recommended a "with profits" annuity, and that he had asked him for a quotation. This was the product that gave rise to the disputes with which we are concerned.
9. At their meeting the following day Mr Waddingham made no mention of this possibility. Instead, he set out to persuade Mr Andrews that it would be best to invest 100% in an annuity tied to the RPI, while Mr Andrews asked him to consider a 50-50 split. Mr Andrews also asked him to send him a letter confirming the cover which the 1975 Act would provide.
10. On 30^th November Mr Shaw drafted, and Mr Waddingham adopted without substantial amendment, a letter which was then sent to Mr Andrews concerning the effect of the 1975 Act. The letter was based on information faxed by the defendants' head office the previous day.
11. The judge set out this letter in full in para 26 of her judgment, in view of its importance in this case. In essence it told Mr Andrews that if an insurance company went into liquidation the statutory Policyholders Protection Board would ensure that in relation to long term business (such as annuity business) past arrears on payment must be paid, up to an amount of 90%, as soon as reasonably practicable, and that 90% of future payments were to be insured elsewhere. Policyholders might have to endure a further reduction in benefits if the Board felt that the benefits promised by the liquidated insurer were unduly optimistic or excessive, but it was said to be hard to imagine this approach being applied to annuities where the market was very competitive. After making certain criticisms of the Act, the letter stated that the cover the Act provided should give Mr Andrews considerable comfort. The judge commented that it contained no reference to the warning that "there are grounds for arguing that the Act operated less than fairly in the interest of 'with-profit' policyholders" which had been contained in the information sent by head office the previous day. We were told at the hearing of the appeal that this warning related to a feature of those policies that has no relevance in the context of the present case.
12. The judge found that Mr Andrews understood from this letter that the Act would provide 90% cover of any amount in payment on an annuity at any time. He believed that if an insurer became insolvent, another insurance company would take over "the pot of money" and would operate on the same basis. When the letter referred to "90% of the liability attaching to UK policies" Mr Andrews understood this as referring to the insurer's responsibility for payment. He would not have been thinking about a liability to make discretionary bonus payments because, as the judge observed, a "with profits" annuity was not "on his radar screen then". This was also the reason why Mr Shaw omitted any reference to this possibility in his draft letter. The judge found that Mr Andrews accepted what was said about the comfort provided by the Act at its face value.
13. On 7^th December Mr Shaw told Mr Andrews in a telephone conversation that he hoped to have the quotations finalised the following day, and that he should have a meeting with Mr Waddingham again when all the information was to hand. In the meantime the defendants would be writing him a letter about "with-profit" annuities. Mr Waddingham signed (again without significant amendment) a letter Mr Shaw had prepared on this topic. It was posted to Mr Andrews that day.
14. Again, the judge set out this letter in full (in para 38 of her judgment). It read:

"I am writing to let you know about one option we have not previously discussed when considering your options at retirement. I know it is important to you that the amounts of pension you will receive in the future will maintain their value in real terms and be protected against inflation. I have therefore requested from the Equitable Life Assurance Society a couple of quotes on their 'with profit' annuities.

With-profit annuities are very similar to with-profit savings contracts prior to retirement in that the with-profit annuity fund will guarantee a certain level of bonuses, on top of which discretionary bonuses are awarded depending on the investment return achieved by the fund. There are therefore two elements to each payment you receive and they are the guaranteed basic payment (which incorporates the fixed bonuses), and the extra payments you will receive on top of this depending on how well the fund performs.

Equitable Life allow a choice as to what level of guaranteed bonus should be incorporated into the basic annuity payments. The Equitable Life will guarantee bonuses of 3½% per annum and you can choose further bonuses of up to 4½% per annum above that guaranteed by Equitable Life. If you choose not to receive any extra guaranteed bonuses then the level of guaranteed basic payments will be quite low. This does not mean that the pension you receive will be low because it would be hoped that the fund will provide adequate return in which to award extra discretionary bonuses. If you do decide on extra bonuses (up to a maximum of 4½%) then the initial amount of guaranteed payment will be greater. If, however, the fund return cannot support the total level of bonuses then the extra annuity bonus payments will reduce in future (but not less than that guaranteed by Equitable Life). In order to make the situation clearer I enclose two examples of how the with-profit annuity works.

The first example shows what would happen if you only went with the bonus guarantees of 3½% per annum with no extra bonuses on top. In this case, we can see that the guaranteed basic payments stay the same over time, however, the projected amount of gross payments increase with increasing fund return. If you chose the option of maximum bonuses of 8% per annum then the initial level of guaranteed payment is higher. These bonuses can only be supported if fund return is greater than approximately 8% and if this is not the case then payments will reduce. The guaranteed payments are reducing because the initial level of annuity was based on bonuses of 8% per annum where as the Equitable Life will only guarantee 3½% per annum and so on average the payments reduce by the difference (which is 4½% per annum.). These represent the minimum payments that must be paid.

If this concept appeals, the safest approach would be to choose no future bonuses other than those guaranteed by the Equitable Life. This is because the guaranteed basic payments remain level, and payments will not fall below this. If you choose extra bonuses then you are not necessarily better off in the long term, although your initial level of pension will be greater. In this respect, choosing extra bonuses means that your pension will behave more like a level annuity. In the long term, choosing a low level of guaranteed bonuses may also mean better returns as the Fund managers will be less constrained in their investment policy.

The Equitable Life will of course try to maintain the level of bonuses declared and so you would not expect your payments to fluctuate dramatically. Excessive returns in one year will be used as a buffer against worse returns in the future. It is important to note, however, that with-profit annuities with extra bonuses can go down as well as up and a level pension will only be achieved if you assume that the return achieved on the fund will approximately equal the level of future bonuses you have chosen.

There is no reason why we could not take the annuity as half with profits and half inflation-linked.

We should also reconsider flexible annuities which, as anticipated, came in the budget. I think it is time to meet you: could you telephone my secretary to arrange a convenient date."

15. There were in fact three elements to an Equitable Life with-profits annuity. The first was the basic level of annuity payable to the policyholder. The second was a reversionary bonus. Once such a bonus was declared, it represented a guaranteed increase payable each year for the duration of the annuity. The third was confusingly called a terminal or final bonus. It was more aptly described as an additional bonus. When this was declared it was added to the basic annuity and the reversionary bonus for the particular year, but it was not guaranteed and in the event of a downturn in the company's fortunes it could be reduced or disappear altogether. Mr Waddingham was himself very familiar with the Equitable Life arrangements. He described reversionary bonuses as "bonuses that stick" and additional bonuses as "bonuses that do not stick".
16. The judge was critical of the 7^th December letter. She said that it related to pension provision of some complexity and that it was not a model of clarity. It did not explain that the 1975 Act would not protect the additional bonuses, and the defendants did not at any time enlarge upon the advice contained in their 30^th November letter, so as to explain how it applied to a with-profits annuity of this type. The letter only mentioned two elements in each payment rather than three, and it made a reference to "extra payments" (depending on how well the fund performed) without clearly explaining the two elements of the bonus and how they interacted. The letter referred variously to "discretionary bonuses", "guaranteed bonus", "extra guaranteed bonuses" and "extra bonus", and the last expression described two different concepts towards the end of the letter. The judge found that the two examples enclosed with the letter were hidebound by the jargon of the industry, that they were difficult to understand and apply, and that the first example appeared, in part, to be inconsistent with the explanation of it that was contained in the letter.
17. The judge found that Mr Andrews did not understand the letter to be conveying to him any impression that a bonus, once awarded, was anything other than permanent. He believed the expression "discretionary bonus" to mean that the existence or size of any bonus payment in future years were dependent on investment performance. He did not understand, either from the letter or the examples, that the final, terminal or additional bonus element of a with-profits annuity, once declared, could be taken away in future years. The judge also found that Mr Shaw did not explain this in a telephone conversation on 11^th December. Nor did Mr Waddingham at a meeting the following day.
18. At that meeting Mr Andrews again emphasised that long term security was his overriding and prime concern. Mr Waddingham said that a 50/50 split between a 50% RPI-related annuity and a 50% with-profits annuity would be intuitive. He advised that the protection offered by the 1975 Act still applied. He did not, however, explain that it did not apply to the "additional bonus" element of an Equitable Life with-profits annuity. The judge found that if the true effect of the 1975 Act had been explained, Mr Andrews would not have touched a with-profits annuity with a barge-pole. He would have stayed with a split between a 50% RPI-related annuity and a 50% fixed 5% annuity if he had known that there was any possibility that a substantial, but unknown, element of his pension could be wiped out overnight.
19. Although Mr Andrews met Mr Henry, at Mr Waddingham's suggestion, three days later, his ignorance in this respect was not removed. Mr Henry assured him that Equitable Life would offer excellent financial security. Mr Andrews regarded Mr Henry as a salesman rather than as a pensions adviser, and the judge thought it unrealistic to suggest that Mr Andrews should have trawled through Equitable Life's documents himself with a fine toothcomb.
20. Eventually, after a number of further telephone conversations, the parties had a final meeting on 18^th January 1995, followed by a meeting at which Mr Henry joined them. After reviewing the different options and considering the updated figure for the transfer value of the Ladbrokes pension, Mr Waddingham said that Equitable Life appeared to be the best option. He discounted a concern Mr Andrews had expressed as to relying on the same insurer throughout. He said that it was virtually inconceivable that Equitable Life would have any problem. In any event the 1975 Act would provide 90% cover. Mr Andrews accepted this advice, and the parties agreed the choices that should be made. When Mr Henry joined them, Mr Andrews signed the necessary forms and the formalities were successfully concluded at the end of the month.
21. In the event Equitable Life ran into financial difficulties following the House of Lords decision in July 2000. At the end of 2000 it announced that it could not find a purchaser and that it would not be accepting new business. Although Mr Andrews had in fact suffered no loss by the time of the trial through choosing a with-profits annuity policy, the judge found that in future this policy would produce a substantially lower income than the fixed 5% annuity he originally intended to purchase, and the amount of the damages award was calculated on that basis. Credit was given for the fact that at the date of the trial Mr Andrews had in fact made a small gain by buying the with-profits annuity instead of the fixed 5% annuity.
22. Those were the judge's findings of fact. The claimant's statement of case averred that the defendants' advice in relation to the application of the 1975 Act was negligent in that they failed to explain properly to Mr Andrews how the Act would apply to the with-profits annuity. Each of the allegations in paragraph 8 of the Amended Particulars of Claim related to the difference between the protection in fact available under that Act and the protection which Mr Waddingham's firm led Mr Andrews to believe that he would have under the Act. They read as follows:

"(a) Contrary to the advice provided by the said Waddingham the 1975 Act did not provide for the protection of 90% of any policy and did not provide the security which the Claimant told Mr Waddingham, and which Mr Waddingham would also have known if he had carried out appropriate enquiries, was the Claimant's primary aim. The correct position was that the Act of 1975 only provided 90% protection of guaranteed policy proceeds. In the circumstances the said Equitable Life policy purchased by the Claimant on the advice of the said Waddingham did not and does not enjoy 90% protection as previously advised by the said Waddingham.

(b) Mr Waddingham failed at any material time to inform the Claimant of the material distinction between the impact of the 1975 Act on a with-profits annuity and other types of annuity. He should in particular have done this in the letter of 30 November 1994 and/or in the letter of 7 December 1994 and/or at the meeting of 12 December 1994 and or/that of 18 January 1995.

(c) On the contrary, Mr Waddingham advised the Claimant and/or allowed him to proceed under the misapprehension that an investment into a 'with-profits' annuity was as fully protected under the Policyholders Protection Act 1975 as any other relevant form of investment."

23. In view of the way in which the case was pleaded it is not surprising that the judge confined her findings of negligence to a finding that Mr Waddingham had been negligent in relation to the advice he gave Mr Andrews about the application of the 1975 Act to with-profit annuities. She considered the issue of negligence in paras 64-75 of her judgment, and there is no appeal against that finding. She referred again and again in those paragraphs to the question of the protection afforded by the 1975 Act and the duty to explain this clearly in relation to the actual policy the client was being advised to purchase (see paras 65, 66, 68, 69, 70, 71, 72, 73, 74 and 75). On the principles explained by Lord Hoffmann in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 the defendants would have unquestionably been liable to compensate Mr Andrews if Equitable Life had gone into liquidation and he had not received through the operation of the 1975 Act the benefits he had reasonably been led to expect. But Equitable Life has not gone into liquidation and Mr Andrews did not run his case on the basis that it was likely to go into liquidation, either. The kind of harm from which it was the defendants' duty to protect him has not therefore occurred and is not likely to occur.
24. Mr Andrews' loss has occurred for a quite different reason which is bound up with the features of the particular type of with-profits policy he was advised to purchase. He opted to buy a variant of the policy which generated him a 3½% return each year. The "bonuses that stick" were added to the 3½% on a permanently guaranteed basis, but the "bonuses that do not stick" were not, and he faces a future in which his only pension entitlement is likely to be the guaranteed minimum swollen only by the guaranteed "bonuses that stick" that had adhered to the policy up to the time when it became likely that no further additional bonuses would be forthcoming. He now compares his position with the security he would have achieved under the Ladbrokes scheme.
25. It was a recurring theme throughout his evidence at the trial that he did not understand how the Equitable Life with-profits scheme worked, that the defendants did not explain it to him, and that the letter of 7^th December, with the two examples enclosed with it, left him very confused. The gist of his evidence can be gleaned from this short passage in his evidence-in-chief:

"Q. We have seen your quest for assurance about the Policyholders Protection Act 1975. Once you were advised as to the availability of a with-profits annuity, did you understand that bonuses were discretionary in such an annuity?

A. I understood they were discretionary in the sense that the future amounts would be decided upon dependant upon the performance – the investment performance. I had no understanding at all that any part of the bonuses were discretionary in the sense that I now know that some of them were not guaranteed.

Q. Once a bonus had been declared for a given year, let us say for the year 2000, what would happen, as you understood it then, to that bonus for 2001?

A. Sorry, could you repeat those years?

Q. Once a bonus had been declared and paid for, let us say, the year 2000, what was your understanding as to what would happen to that bonus for 2001?

A. My understanding was that it would be there permanently because, by way of background, I had the ability to draw a pension which gave me a fixed 5 per cent annual increase. Mr Waddingham had advocated the with-profits approach as being a better alternative and never told me that there was any risk of part of that bonus not being included in every future year, i.e. that once in payment, I understood it to be permanent and forever.

Q. What did you understand was the impact of the Policyholders Protection Act 1975 on the with-profits annuity?

A. I understood that it would provide 90 per cent cover in respect of such an amount as might be in payment at any time."

26. He was then asked what he understood would happen if the insurer became insolvent, and he referred in answer to the third paragraph of Mr Waddingham's letter of 30^th November:

A. "[I]t reads:

'[This] means that past arrears in payments must be made up to the amount of 90 per cent and the board must ensure that 90 per cent of future payments are insured elsewhere.'

So, my understanding would be that another insurance company would take over the pot of money and continue to operate on the same basis.

Q. Did you have any understanding that there were in fact two different sorts of bonus; one which would be added and form part of the guaranteed annuity for the future and one which was different in character and could be away for the future?

A. Absolutely not. Had I known that, it simply wouldn't have been an annuity I would have wanted to touch. And I – I'm – totally fail to understand how it could have been put to me as being a better alternative than a pension or an annuity paying fixed 5 per cent increases which, by definition, are there forever, and having a with-profits annuity could somehow be an improvement on that now that I know that a proportion could be subject to removal at any time during the – during my lifetime."

27. Throughout a long period of cross-examination he stuck to his guns. He gave further explanations of his state of mind and his failure to understand the nature of the product he was buying on every page of the transcript between pp 50 and 61 and from time to time thereafter. Two further examples will suffice:

"The letter said nothing to alert me to the fact that the bonuses were granted in two forms: guaranteed and non-guaranteed. Had that been flagged up with me the conversation would have ended there." (p 70)

"Once a bonus has been awarded to me and come into payment they can't take it away...It was so fundamental." (p 101).

28. Mr Fenwick QC, who appeared for the defendants, readily accepted that if the case his clients had come to court to meet had been founded on the contention that they were in breach of a duty they owed Mr Andrews to explain carefully to him how Equitable Life's with-profits annuity scheme worked, and that he suffered harm as a consequence of their negligence, then it would have been open to the judge to find that the loss he in fact suffered was a foreseeable consequence of that breach of duty. But that was not the way the case was put (see para 22 above).
29. The judge placed considerable reliance, when finding in favour of Mr Andrews, on the judgment of Chadwick J in Bristol & West Building Society v Steggles Palmer, one of the cases reported under the name Bristol & West Building Society v Fancy & Jackson [1997] 4 All ER 582. In that case solicitors, who were acting for the society and for the borrower ("the client") in connection with a mortgage on the purchase of a leasehold flat in Chelsea, did not disclose to the society the true nature of the transaction. The client was in fact buying the flat from his employers, for whom the solicitors also acted, and they had agreed to buy a 125-year lease of the flat at a price £7,000 less than the client had agreed to pay on a sub-sale. In breach of the duties they owed to the society the solicitors failed to report to it the true nature of the transactions, or that they were also acting for the intermediate vendor, or that the balance of the purchase price had been paid, if at all, by the borrower direct to the purchaser. They also failed to make any inquiry as to whether the borrower had provided the balance of the purchase price (if paid) out of further borrowing. Chadwick J found that but for these breaches of duty the society would have been unwilling to lend to that borrower in order to fund a purchase from that lender, and that in those circumstances it was fair that the defendants should be responsible for the whole of the loss suffered by the society as a result of lending to that client.
30. The judge derived from this judgment the conclusion that the solicitors were found liable because they deprived the society of the opportunity of making a properly-advised choice. This led her to the view that Mr Andrews should be entitled to recover because he was similarly deprived of the opportunity of making a properly-advised choice. But in my judgment this is to draw from the Steggles Palmer case a degree of assistance that simply is not there. In Steggles Palmer the society would simply not have lent to that borrower if their solicitors had not hidden material facts from them in breach of duty. In Mr Andrews' case it was never alleged that it was negligent to recommend to him the purchase of a with-profits Equitable Life annuity. The only breach of duty relied upon was the failure to explain how the 1975 Act would operate in connection with an annuity of that type, and since the operation of the 1975 Act is an irrelevance in the events that have happened, Mr Andrews has suffered no loss as a result of that breach of duty.
31. It is not for the court to speculate why the case was put only on this narrower basis. There may have been evidential or other difficulties of which we know nothing. But given the narrowness of the breach of duty relied upon, the judgment must be set aside. Mr Andrews suffered his loss not as a consequence of his being negligently advised about the assistance he would derive from the 1975 Act but because like so many others, he was encouraged to invest in what appeared to be a thoroughly reliable life insurance company. Unhappily that company's fortunes were suddenly struck, as if by lightning, by the House of Lords' unexpected decision in the summer of 2000.
32. In those circumstances the judgment must be set aside, and I see nothing to be gained by going on to analyse the quite complex arguments on the limitation point. At the trial battle was joined over the date when Mr Andrews knew how his with-profits policy actually worked. Since any contention that the defendants were negligent in failing to explain to him how it worked must be ignored because it never formed part of his statement of case, an inquiry as to his date of knowledge in this respect would be a sterile exercise.
33. For these reasons I would allow the appeal and direct that judgment be entered for the defendants.

Lord Justice Richards:
 


34. I agree that the appeal should be allowed and judgment be entered for the defendants for the reasons given by Brooke LJ. But since we are differing from the conclusion reached by Cox J in her very careful judgment, I think it right to add a few words of my own.
35. The principles that govern this case are those discussed at length by Lord Hoffmann in South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191 ("SAAMCO"), in passages quoted extensively by Cox J in her judgment. Lord Hoffmann pointed out that a claimant must not only show that a duty of care was owed to him and that there was a breach of duty, but also that it was a duty in respect of the kind of loss he has suffered. The defendant in breach is not normally liable for all the consequences of the breach, but only for those falling within the scope of the duty.
36. In the case of liability in negligence for providing inaccurate information, Lord Hoffmann gave the example of a mountaineer about to undertake a difficult climb who is concerned about the fitness of his knee. The mountaineer goes to a doctor who negligently pronounces the knee fit. The mountaineer goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee. The doctor should not be liable for that injury. He was asked for information on only one of the considerations which might affect the safety of the mountaineer on the expedition. In Lord Hoffmann's view there seemed to be no reason of policy which required that the negligence of the doctor should lead to the transfer to him of all the foreseeable risks of the expedition.
37. Lord Hoffmann continued (at 214C-F):

"I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong ….

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."

38. Lord Hoffmann has subsequently accepted extra-judicially (see (2005) 121 LQR 592 at 596) that it was inappropriate to talk in terms of scope of the duty of care rather than the extent of liability for breach of the duty. That, however, does not affect the substance of his analysis.
39. A helpful summary of the relevant principles is also to be found in the speech of Lord Millett in Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2002] 1 Lloyd's Rep 157 at 191, para 66:

"(1) Where a plaintiff enters into a loss-making transaction in reliance on the defendant's negligent advice, he is not entitled to recover the whole of the loss on the transaction merely because the defendant was aware that he would not have entered into it but for the advice he received. He is liable only for the loss which is due to the advice being wrong …

(3) The correct measure of damages is not the difference between the loss which has in fact occurred (the loss on the transaction) and the loss which would have occurred if the defendant has performed his duty and stated the facts correctly (which would have been zero since the transaction would not have gone ahead). This would not exclude the loss which ought to be irrecoverable. They are measured by the difference between the loss on the transaction and the loss which would have been sustained if the facts had been as the defendant represented them to be (when the transaction would still have gone ahead).

(4) The case is different where the defendant assumed responsibility for advising generally what course of action to take in relation to a particular transaction …."

40. The application of those principles to the present case flows from the very specific nature of the breach of duty alleged by Mr Andrews and found by the judge. Brooke LJ has set out the relevant part of the Amended Particulars of Claim at para 22 of his judgment. The negligence alleged was confined to advice about the protection afforded by the Policyholders Protection Act 1975. That was the case the defendants had to meet at trial. Although the judge's discussion of the negligence issue went a little wider, her actual finding of negligence was similarly confined, namely that "Mr Waddingham was, in relation to the advice he gave about the application of the 1975 Act to with-profit annuities, in breach of his duty of care" (para 75).
41. The fact that Mr Andrews would not have chosen the Equitable Life with-profits annuity if he had been given correct advice about the application of the 1975 Act does not mean that he is entitled to recover the loss he has sustained as a result of his acquiring the annuity. That loss is unconnected with the fact that the 1975 Act does not apply to the annuity as Mr Andrews was advised it did: Equitable Life is not insolvent or in similar financial difficulty in which Mr Andrews would need to have recourse to the protection provided by the 1975 Act. The loss arises out of the fact that the terminal bonuses are not guaranteed and are adversely affected by the downturn in Equitable Life's fortunes. But the negligence as pleaded and as found by the judge did not relate to the fact that the terminal bonuses were not guaranteed.
42. To adopt the approach of Lord Millett in Aneco, the correct measure of damages is the difference between the loss sustained by acquiring the Equitable Life with-profits annuity and the loss which would have been sustained if the 1975 Act applied to the annuity as Mr Andrews was advised it did. That difference, however, is nil, since the loss sustained by acquiring the annuity would be unaffected even if the 1975 Act applied in full.
43. In reaching a different conclusion, Cox J reasoned in para 84 that Mr Andrews should have been told that the 1975 Act did not apply to with-profit annuities in the same way as to other annuities because of the fact that in relation to future benefits the protection of the Act is in respect only of the reversionary bonus guaranteed, once declared. If that correct explanation had been given, as it should have been, Mr Andrews would not have purchased the Equitable Life with-profits annuity. The loss was recoverable because it was "inextricably linked to the negligently given information". In para 85 she said that "once the 1975 Act information is wrong, in this sense everything else follows and Mr Andrews does not have the protection he sought against the loss of his future benefits". Similarly, in para 86 she stated that the loss was "caused by Mr Waddingham's mis-information, because Mr Andrews would never have purchased the policy if he had been correctly informed, and his loss is therefore intimately connected with that feature of the policy, which would have made him decide, had he been properly advised, not to purchase it."
44. It seems to me that that line of reasoning amounts to saying that because Mr Andrews would not have entered into the transaction if he had been properly advised about the 1975 Act, he is entitled to recover the loss he has sustained in consequence of entering into the transaction. But that runs directly counter to SAAMCO and Aneco. The fact that Mr Andrews would not have entered into the loss-making transaction but for the negligent advice is a necessary but not a sufficient condition of liability.
45. In para 88 the judge, in distinguishing the factual situation in SAAMCO, stated that "the kind of loss" which had occurred was the same as that against which Mr Andrews wanted protection. In my view that is too broad an approach. It is true that Mr Andrews wanted protection against anything that would threaten the long-term security of his pension. But the negligent advice related to protection conferred by the 1975 Act against the insolvency of the insurance company. The loss that occurred was not that kind of loss.
46. At paras 89-92 the judge considered the distinction drawn by Lord Hoffmann in SAAMCO between an "information" case and an "advice" case. She said in para 90 that, whilst the ultimate decision was always for Mr Andrews, "Mr Waddingham, as his independent financial adviser, was clearly advising him what it was in his best interests to do. Mr Andrews accepted and acted upon that advice". She drew a comparison with Bristol & West Building Society v Steggles Palmer, stating in para 92 that in the present case "Mr Andrews was similarly deprived of the opportunity of making a properly-advised choice".
47. Brooke LJ has examined the Steggles Palmer case at paras 29-30 of his judgment. I agree with him that it does not give the assistance that Cox J sought to derive from it. More generally, it seems to me that the present case cannot be equated with the kind of "advice" case to which Lord Hoffmann was referring in SAAMCO when he drew the distinction he did between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. I come back to the basic point that it was neither pleaded nor found that Mr Waddingham negligently advised Mr Andrews to enter into the Equitable Life with-profits policy. Negligence was pleaded and found only in relation to the advice concerning the application of the 1975 Act to such a policy. The advice so given was only one of the inputs into Mr Andrews's decision-making process. The situation comes within the scope of what Lord Hoffmann said about the provision of information for the purpose of enabling someone else to decide upon a course of action, rather than about the giving of advice on whether a course of action should be taken.
48. For those reasons, I do not think that the conclusion reached by Cox J on this issue is sustainable.
49. I agree that in the circumstances it is unnecessary to consider the separate limitation point.

Sir Paul Kennedy:

50. I agree with both judgments.