The Banque Bruxelles Litigation:

      This litigation, by the time it got to the Court of Appeal, involved a number of separate actions (including the Nykredit case). The Banque Bruxelles case was the lead case. That action was tried by Phillips J. and his judgment is reported at [1995] 2 All E. R. 769. Phillips J. attempted to evaluate in money terms the extent to which the plaintiffs' losses were attributable to the defendants' negligence on the one hand and the collapse of the market on the other. He thus approached the problem by making a causative attribution arrived at not by applying any legal principle but on the facts by an examination of the evidence. This could be described as a scientific approach.

      In the Court of Appeal [1995] Q.B. 375, the lenders challenged the scientific approach as commercially unrealistic. They pointed out the complexity of the situation, at p. 407:

 "It is one transaction and one loss. If, in the case of commercial property, V overvalues the land he is likely to over value the revenue which B will draw from it. In the case of domestic property V's overvaluation will have the result that B commits himself to pay more by way of interest than he otherwise would. If, in either case, the overvaluation is such that L, even after deducting a percentage from the valuation figure, advances more than the sale price, B may be able to avoid committing any of his own funds to the purchase of the land. In any of these events, the risk of default by B is enhanced, the protective effect of any deduction made by L in advancing his loan is reduced and the prospective loss to L, in the foreseeable event of a market fall, increased."

As part of their disagreement with Phillips J., the Court of Appeal (at pp. 421-422) rejected the scientific approach which attempted to analyse the causation factually. They pointed out the complexity of any such treatment of causation, particularly where more than one adviser was involved. It appears that they accepted the argument of the lender to which I have referred.

      In the House of Lords (by which time the Banque Bruxelles and the Eagle Star Insurance Co. had settled their differences and dropped out of the litigation) it does not seem that any attempt was made to resurrect the scientific approach. It certainly received no support from Lord Hoffmann who gave the judgment with which the other members of the House agreed. At the outset of his speech, at p. 210, he identified the two common features of the cases:

 "The first is that if the lender had known the true value of the property, he would not have lent. The second is that a fall in the property market after the date of the valuation greatly increased the loss which the lender eventually suffered."

At pp. 216 and 221 he affirmed that the premise from which the debate proceeds is that the causation test has been satisfied and that there is a basic loss caused by the plaintiff having entered into the relevant transaction which satisfies the prima facie criteria for recoverability. I have already quoted from the summary of Lord Nicholls in the Nykredit case. And in the same case Lord Hoffmann at p. 1638F reaffirmed that the SAAMCO principle "has nothing to do with questions of causation".

      I have stressed this aspect of the Banque Bruxelles litigation and the way in which it arrived at your Lordships' House because it shows that the SAAMCO principle is not derived from any application of mathematics. The loss suffered by a lender in the event of a market fall may not be directly proportionate or equivalent to the original overvaluation. The SAAMCO principle is essentially a legal rule which is applied in a robust way without the need for fine tuning or a detailed investigation of causation.

      The other feature of the Banque Bruxelles litigation to which I wish to draw attention is the fact that the question of contributory negligence was raised by the facts of one of those cases but was not thought to give rise to any special problem or to the legal issues which have been debated in the present case.

      At the conclusion of his speech at p. 222, Lord Hoffmann applied his statements of the law to the individual cases. Taking first the SAAMCO case itself, he said:

 ". . . the lenders on 3 August 1990 advanced £11m. on a property valued at £15m. May J. found that the actual value at the time was £5m. On 5 August 1994 the property was sold for £2,477,000. May J. quantified the loss at £9,753,927.99 and deducted 25 per cent. for the plaintiff's contributory negligence. The consequence of the valuation being wrong was that the plaintiffs had £10m. less security than they thought. If they had had this margin, they would have suffered no loss. The whole loss was therefore within the scope of the defendants' duty. It follows that the appeal must be dismissed."

It is to be observed that this approach applies the percentage reduction in the lender's damages to the lender's basic loss, the £9,753,927.99, not to the cap. Arithmetically the two approaches did not give the same answer in the SAAMCO case. The judgment which was upheld was for the sum £7.3m: 25 per cent. off £10m. would be £7.5m. The point was not argued but it is not insignificant that both the parties and Lord Hoffmann assumed that the right way to take into account contributory negligence was to apply the reduction to the basic loss which, apart from the SAAMCO principle would be the damages recoverable by the lender.

The SAAMCO principle:

      As emphasised by Lord Hoffmann and Lord Nicholls, and as I have already observed, the SAAMCO principle does not involve any question of factual causation. It involves a question which arises subsequent to the ascertainment of the lender's basic loss arising from the valuer's breach of duty. Further, as I also observed, it does not involve an approach of scientific apportionment. Although the speeches of Lord Hoffmann include the word "attributable," it is not used as a factual concept but as a legal one. If an analogy is required, one can be found in the concept of remoteness of damage, for example the damages recoverable under the rules in Hadley v. Baxendale (1854) 9 Exch. 341 for breach of contract. As has been pointed out in a number of cases (eg County Ltd. v. Girozentrale [1996] 3 All E.R. 834; and see McGregor on Damages 16th ed., (1997), para. 241 et seq), there is a close relationship between the application of such concepts as remoteness, contributory negligence and causation (and, for that matter, scope of duty of care). The same result can often be justified or formulated in any of these three ways.

      The principle drawn upon by Lord Hoffmann in the SAAMCO case is stated in terms of, and defined by reference to, the scope of the duty of care. This is a distinct legal concept but is sometimes referred to in the language of remoteness of damage. The decision of the Privy Council in Overseas Tankship (U.K.) Ltd. v. Morts Dock & Engineering Co. Ltd. (The Wagon Mound) [1961] A.C. 388, is commonly referred to as having revised and restated the law of remoteness of damage in the tort of negligence (disapproving In re Polemis and Furness Withy & Co. [1921] 3 K.B. 560). But the actual decision from which this consequence flowed was expressed in terms of the scope of the tort of negligence. In that case the defendant had been responsible for a spillage of oil which had caused some damage which was foreseeable and some which was not. It was held that the defendant was only liable in the tort of negligence for the foreseeable damage. In the words of the head note:

 "There is not one criterion for determining culpability (or liability) and another for determining compensation; unforeseeability of damage is relevant to liability or compensation--there can be no liability until the damage has been done; it is not the act but the consequences on which tortious liability is founded."

Thus it is the scope of the tort which determines the extent of the remedy to which the injured party is entitled.

      This approach was developed in the speech of Lord Oliver in Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605. That was the case in which it was held that the statutory auditor of a company did not owe a duty of care to investors. That it was forseeable that investors might place reliance upon the auditor's certificate and suffer a loss as a result did not suffice to establish liability to them in the tort of negligence since that was outside the scope of the function which statutory auditors were performing. (c.f. Smith v. Eric S. Bush [1990] 1 A.C. 831.) Lord Oliver of Aylmerton said, at p. 654:

 "To widen the scope of the duty to include loss caused to an individual by reliance upon the accounts for a purpose for 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."

Lord Oliver adopting a statement of the law by Brennan J. in the High Court of Australia in Sutherland Shire Council v. Heyman, (1985) 60 A.L.R. 1 at 48, which followed The Wagon Mound, said, at p. 651:

 "It has to be borne in mind that the duty of care is inseparable from the damage which the plaintiff claims to have suffered from its breach. It is not a duty to take care in the abstract but a duty to avoid causing to the particular plaintiff damage of the particular kind which he has in fact sustained."

It was on statements such as this that Lord Hoffmann founded his reasoning in the SAAMCO case. (See particularly [1997] A.C. 191 at 211-212.)

      The development of this reasoning in the SAAMCO case was that Lord Hoffmann, instead of applying it to kinds or categories of damage, applied it to the quantification of damage. Lord Hoffmann said, at p. 212:

 "The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.

 What therefore should be the extent of the valuer's liability?"

He answered this question by formulating the principle, at p. 213:

 "Normally the law limits liability to those consequences which are attributable to that which make the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate."

It was by this route that he arrived at the point which made it necessary to ask "what element of this loss is attributable to the inaccuracy of the information". (p. 216E). The effect of his decision was that in the ordinary case there would be a "cap" on the amount of the damages which the lender could recover from the valuer being the amount of the overvaluation. However, Lord Hoffmann was at pains to explain that he was not adopting a theory which simply had placed a "cap" on the lender's recoverable damages. He said at pp. 219-220

  "An alternative theory was that the lender should be entitled to recover the whole of his loss, subject to a 'cap' limiting his recovery to the amount of the overvaluation. This theory will ordinarily produce the same result as the requirement that loss should be a consequence of the valuation being wrong, because the usual such consequence is that the lender makes an advance which he thinks is secured to a correspondingly greater extent. But I would not wish to exclude the possibility that other kinds of loss may flow from the valuation being wrong and in any case, as Mr. Sumption said on behalf of the defendants York Montague Ltd., it seems odd to start by choosing the wrong measure of damages (the whole loss) and then correct the error by imposing a cap. The appearance of a cap is actually the result of the plaintiff having to satisfy two separate requirements: first, to prove that he has suffered loss, and, secondly, to establish that the loss fell within the scope of the duty he was owed."

A result of this reasoning is that the damages which, in the present case, the plaintiffs can recover are confined to that part of the plaintiffs' basic loss caused by the defendants' negligence which can be equated in money terms to the amount of the defendants' overvaluation.

The SAAMCO Principle and Contributory Negligence:

      As I have already pointed out, in the SAAMCO case itself, it was not thought that this question of application gave rise to any separate problem. Nor, in my judgment should it. Section 1(1) of the Act of 1945 can be divided into three parts. The first part identifies a situation: where a claimant suffers damage as the result partly of his own fault and partly of the fault of another. The second part provides that that fact shall not defeat the claim of the former against the latter. The third part provides that the damages recoverable by the claimant in respect his damage shall be reduced to such an extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage. As previously explained, I do not accept the plaintiffs' argument that the damage, their basic loss, falls to be sub-divided. In accordance with the decisions of the judge and the Court of Appeal in the present case, Froom v. Butcher (sup) and the formulation of Lord Hoffmann, the totality of the plaintiffs' loss was partly caused by the defendants' fault and therefore the present case comes within the scope of section 1(1) of the Act of 1945. But that is not the end of the matter. It is still necessary to consider the third part of the statutory provision.

      The third part of section 1(1) requires the court to form a view as to what it thinks is just and equitable having regard to the plaintiffs' share in the responsibility for the damage and to reduce the plaintiffs' recoverable damages accordingly. It is at this point that the court has to ask itself whether and, if so, to what extent a further reduction in the plaintiffs' basic loss is to be made beyond that already required by the application of the SAAMCO principle.

      Is it just and equitable that plaintiffs who have suffered damage in the sum (using round figures) of £612,000 partly as a result of the defendants' fault and partly as the result of their own should have their recoverable damages reduced below the sum of £500,000? The answer which I give to this question in accordance with the findings of contributory negligence which were made by the judge at the trial is that there should be a further reduction in the plaintiffs' recoverable damages. Assume that the overvaluation had been of the order of £615,000: the SAAMCO principle would on the figures have been irrelevant but the plaintiffs' recoverable damages would nevertheless have fallen to be reduced by 20 per cent. so as to arrive at the figure, £489,000. On the judge's findings as to contributory negligence, the plaintiffs would not recover more than that figure under the Act of 1945.

      The next question is: does it make a difference that the starting point exceeded the amount of the overvaluation? The answer that I would give to this question, on the facts of this case, is that it does not. It is not just and equitable to make any further reduction. The resultant figure is within the scope of the duty of care which the judge has found that the defendants have breached. This approach in effect accommodates and recognises the arguments which the plaintiffs have advanced in criticism of the decision of the Court of Appeal. It is not just and equitable that the plaintiffs' recoverable damages be reduced to £400,000 on account of contributory negligence which is already fully taken into account by reducing them to £489,000. The primary element in the judge's assessment of contributory negligence, the overlending point, is something which can, both mathematically and logically, be said to have made a different contribution to the plaintiffs' overall loss to that made by the defendants' overvaluation.

      It is easy to demonstrate that the decision of the Court of Appeal can give rise to unacceptable results. My noble and learned friend Lord Millett whose speech I have read in draft already comments on this feature. It can also be said that their decision departs from the approach of Lord Hoffmann adopted by your Lordships' House in the SAAMCO and Nykredit cases and would attempt to revert to something akin to the scientific approach of Phillips J. which was not adopted by the Court of Appeal or the House of Lords in the SAAMCO case. The decision of the Court of Appeal in the present case in effect makes the same deduction twice over. The SAAMCO principle already involves an exercise of attribution in relation to the extent of the defendants' legal responsibility for the plaintiffs' basic loss. That fact must be taken into account in deciding what further, if any, reduction in the plaintiff's recoverable damages is just and equitable.

      My conclusion therefore is that just as Lord Hoffmann has formulated a general principle which is easy of application in all save exceptional cases, so also will the right answer on the application of section 1(1) of the Act of 1945 be arrived at by applying the traditional percentage reduction to the lender's basic loss before making any further deduction on account of the SAAMCO principle. I stress that these are rules of thumb; to adopt the language of Lord Nicholls, the principle has to be translated into practical terms. They do not aspire to mathematical precision nor is it desirable that any attempt be made in the ordinary run of cases to make them mathematically precise since the data (the evidence) will not normally, given the complexity of the situation, be sufficient to justify such precision. (See the Court of Appeal in Banque Bruxelles [1995] Q.B. 375.) The task of the court is to make a just and equitable assessment.

      In my judgment this appeal should be allowed. It was not just and equitable for the Court of Appeal to reduce the plaintiffs' recoverable damages to £400,000. The just and equitable figure was £489,398.81. The question of what statutory interest should be added to that figure in accordance with the judgment of your Lordships' House in the Nykredit case will have to be considered by a judge in compliance with the remission ordered by the Court of Appeal.

LORD MILLETT

My Lords,

      In 1990 the appellant advanced £1,050,000 on the security of land valued by the respondents at £1,500,000. The advance represented 70 per cent. of valuation. The judge found that the land had been negligently overvalued, and that the true value of the land at the date of the advance was only £1,000,000. In 1994, following a catastrophic collapse of the property market, the appellant realised its security for £435,000, thereby incurring a loss of £615,000. After taking into account interest paid by the appellant and payments received from the borrower together with a sum of £40,000 which the appellant conceded was deductible because of a failure on its part to mitigate its loss, the overall loss on the transaction amounted to £611,748. The amount of the overvaluation (£500,000) was less than this, and accordingly this latter sum would have represented the amount of damages recoverable by the appellant in the absence of contributory negligence on its part: see South Australia Asset Management Corporation v. York Montague Ltd. [1997] A.C. 191 and Nykredit Mortgage Bank Plc. v. Edward Erdman Group Ltd. (No. 2) [1997] 1 W.L.R. 1627 ("Nykredit").

      The judge made two findings of contributory negligence. He found that the appellant was negligent in making the loan without having obtained from the borrower information required by its own form. The judge also found that the appellant was imprudent in advancing as much as 70 per cent. of valuation. He did not make any finding on the amount which a prudent mortgage lender would have advanced, whether 65 per cent. or 60 per cent. of valuation, but he expressed himself in terms which showed that, of the two items of contributory negligence, he considered the overlending to be much the more potent cause of loss.

      Having found that the appellant had itself contributed to the loss, the judge applied a broad brush to the assessment of damages. Taking both findings of contributory negligence together, he assessed their combined contribution to the loss at 20 per cent. There is no appeal from this assessment, though it is to be observed that, in respect of the second and more serious finding of contributory negligence, there was no need to apply a broad brush; the consequences of advancing too high a proportion of valuation can be precisely calculated. 5 per cent. of £1.500,000 is £75,000; for every 5 per cent. of valuation which the appellant advanced in excess of what was prudent it increased its loss by that amount.

      Having thus found that 20 per cent. of the loss or damage (£611,748) which the appellant had suffered as a result of the transaction was the result of its own fault, the judge awarded damages of £489,398. This figure represented 80 per cent. of £611,748 and, being less than the amount of the overvaluation, represented a loss which was entirely within the scope of the respondents' duty of care.

      The Court of Appeal rejected the appellant's argument that no imprudence in their lending policy could constitute contributory negligence, and held that the judge was entitled to find that the appellant was partly responsible for the overall loss of £611,748 which it had incurred on the transaction. It accepted the judge's assessment of the contribution which the appellant's own negligence made to the loss at 20 per cent. and held that he was entitled to apportion the damages accordingly. But it varied the order made by the judge. Instead of awarding the appellant damages of £489,398, representing the 80 per cent. of the overall loss of £611,748 which was not attributable to its own fault, as the judge had done, it reduced the award to £400,000, being 80 per cent. of the respondents' overvaluation of £500,000. The remarkable consequence is that, if the award stands, the appellant will bear more than one third of a loss for which it was only 20 per cent. to blame.

      It is necessary to recapitulate what this House has laid down in relation to the assessment of damages in cases of the present kind. Two calculations are required. The first is a calculation of the loss incurred by the lender as a result of having entered into the transaction. This is an exercise in causation. The main component in the calculation is the difference between the amount of the loan and the amount realised by enforcing the security.

      The second calculation has nothing to do with questions of causation: see Nykredit at p. 1638 per Lord Hoffmann. It is designed to ascertain the maximum amount of loss capable of falling within the valuer's duty of care. The resulting figure is the difference between the negligent valuation and the true value of the property at the date of valuation. The recoverable damages are limited to the lesser of the amounts produced by the two calculations.

      It is to be observed that neither amount is an element or component of the other. Either may be the greater, for they are the results of completely different calculations. In mathematical terms, they bear the same relationship to each other as a-b does to c-d. The figure produced by the second calculation is simply the amount of the overvaluation. It is not the loss or any part of it, and cannot be equated with the amount of the loss sustained by the lender in consequence of the overvaluation. The two are the same only in a case where the lender has advanced 100 per cent. of valuation.

      Section 1(1) of the Law Reform (Contributory Negligence) Act 1945 applies "where any person suffers damage as the result partly of his own fault and partly of the fault of another". The appellant submits that, as a result of the respondents' negligent overvaluation, it suffered damage of £500,000, and that it is inappropriate to reduce the damages in order to reflect fault on its part which played no part in their breach of duty.

      Now if the premise were correct, viz. that the £500,000 represented all or any part of the damage suffered by the appellant, then the conclusion would follow. But, as I have already pointed out, it is not correct. The £500,000 is merely the amount of the overvaluation. The damage which the appellant suffered as a result of the transaction which they entered into in consequence of the overvaluation is not £500,000 but £611,748. This is the damage referred to in section 1(1). This damage was due to the insufficiency of the security. The sufficiency of any security, however, depends on a combination of two factors: the value of the security and the amount of the advance. If the respondents had given a lower valuation, or if the appellant had lent a lower proportion of valuation, then in either case the appellant's loss would have been less. Accordingly, the loss of £611,748 which the appellant suffered was partly as a result of its own fault and partly of the fault of the respondents within the meaning of section 1(1) of the Act.

      Where the subsection applies, "the damages recoverable in respect" of that damage are to be reduced "to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage." In the present case, the damage in question was £611,748, the appellant's share in the responsibility for that damage was 20 per cent., and the damages which would have been recoverable if there had been no contributory negligence would have been £500,000. The Court of Appeal seem to have assumed that, if the appellant was 20 per cent. responsible for the damage of £611,748, it must be just and equitable to reduce the amount of the damages that would otherwise be recoverable to the same extent. Normally, no doubt, that is so; but then normally the amount of the damages which would otherwise be recoverable and the amount of the damage are the same. But in the present case this ignores the fact that the result of the appellant's own imprudence has been to cause it to suffer a measure of irrecoverable loss. This ought to be reflected in the apportionment of the overall loss. Deeper analysis shows that it may be appropriate to do this by first reducing the amount of the irrecoverable damages until they are exhausted, and only then reducing the amount of the recoverable damages.

      As I have already pointed out, 5 per cent. of £1,500,000 is £75,000. It follows that if a prudent lender would have advanced only 65 per cent. of valuation instead of 70 per cent., it would have suffered a loss of (£611,748-75,000) = £536,748, and would have recovered damages of £500,000. It cannot be right to award damages of £500,000 to a lender who prudently lends 65 per cent. of valuation and yet reduce the damages to £425,000 to a lender because he has imprudently lent more than 65 per cent. of valuation. It is sufficient that he should bear the whole of the additional loss of £75,000 himself. Likewise, it cannot be right to award damages of (£611,748- 150,000) = £461,748 to a lender who has prudently lent only 60 per cent. of valuation and yet reduce the damages to £350,000 to a lender because he has imprudently lent more than 60 per cent. of valuation. In each case the lender has lent too much and he must bear the whole of the resulting additional loss himself. This may result in his suffering a reduction in the amount of the damages which can be recovered from the valuer, but it need not do so.

      Where the lender's negligence has caused or contributed directly to the overvaluation, then it may be appropriate to apply the reduction to the amount of the overvaluation as well to the overall loss. Where, however, the lender's imprudence was partly responsible for the overall loss but did not cause or contribute to the overvaluation, it is the overall loss alone which should be reduced, possibly but not necessarily leading to a consequential reduction in the damages. When the consequences of the lender's imprudence cannot be calculated, the judge will have to do the best he can to assess the parties' respective contributions. But the court should not speculate when it can calculate.

      In the present case the appellant was found to be at fault in two respects. Neither of them caused or contributed to the overvaluation. The judge assessed the appellant's share in the responsibility for the overall damage at 20 per cent. and reduced the damages to £489,398 accordingly. In my opinion this was the right approach. The amount of damages which the judge awarded properly reflected the 80 per cent. of the overall loss for which the respondents have been found to be responsible and which, being less than the amount of the overvaluation, fell wholly within the scope of their duty of care.

      I would allow the appeal and restore the award of damages made by the judge.