Summary

The application of s.1(1) Law Reform (Contributory Negligence) Act 1945 to cases of professional negligence in the context of the principles laid down by the House of Lords in South Australia Asset Management Corp v York Montague Ltd (1996) 3 WLR 87 and Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No.2) (1997) 1 WLR 1627 where there had been contributory negligence on the part of the lender.

Facts

Appeal by the plaintiff from the decision of the Court of Appeal on the application of s.1(1) Law Reform (Contributory Negligence) Act 1945 to cases of professional negligence in the context of the principles laid down by the House of Lords in South Australia Asset Management Corp v York Montagu Ltd : Nycredit Mortgage Bank plc v Edward Erdman Group Ltd (1996) 3 WLR 87 ('SAAMCO') and Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No.2) (1997) 1 WLR 1627. In the present case, an additional factor not present in those cases was contributory negligence on the part of the lender. There had been a wide divergence of judicial opinion on the significance of this point. In the Nykredit decision (supra), the effect of SAAMCO was summarised as follows: step (i): establish the basic loss of the lender; and step (ii): see whether that basic loss exceeded the amount of the overvaluation. If it did, it was necessary to see whether the lender's right of recovery from the valuer was limited to the extent of the overvaluation. The issue in the present case was whether the reduction in the plaintiff's damages on account of their contributory negligence should have been applied to the plaintiff's basic loss (step (i)) or their loss as limited by the application of the SAAMCO principle (step (ii)). Jacob J found that there was 20 per cent contributory negligence but held (because of the way he allocated interest) that it did not affect the outcome of the SAAMCO calculation. The Court of Appeal held that the SAAMCO calculation must be done first and that the plaintiff's recoverable damages then be reduced by a further 20 per cent. The judge found the overvaluation was #500,000. The agreed basic loss was #611,748. The basic loss, less 20 per cent, was #489,398. The overvaluation, less 20 per cent, was #400,000, the figure arrived at by the Court of Appeal.

Held

(Lord Cooke dissenting): (1) The SAAMCO principle was not derived from any application of mathematics. The loss suffered by a lender in the event of a market fall might not be directly proportionate or equivalent to the original overvaluation. The SAAMCO principle was essentially a legal rule which was applied in a robust way without the need for fine-tuning or a detailed investigation of causation. (2) In SAAMCO itself it was assumed, but not argued or decided, 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. (3) Lord Hoffmann in SAAMCO developed the reasoning in Caparo Industries plc v Dickson & Ors (1990) 2 WLR 358, and applied the principles limiting the scope of the duty of care to the quantification of damage. As a result, in this case the damages which the plaintiff could recover were confined to that part of the plaintiff's basic loss caused by the defendants' negligence which could be equated in money terms to the amount of the defendants' overvaluation. (4) The totality of the plaintiff's loss was partly caused by the defendants' fault and therefore the present case came within s.1(1) of the 1945 Act. It was however necessary to consider the application of the third limb of that section, namely whether the damages recoverable by the claimant in respect of his damage should be reduced to such an extent as the court thought just and equitable having regard to the claimant's share in the responsibility for the damage. The court had to ask itself whether, and if so to what extent, a further reduction in the plaintiff's basic loss was to be made beyond that already required by the application of the SAAMCO principle. (5) There should be a further reduction in the plaintiff's recoverable damages. Assuming that the overvaluation was #615,000, the SAAMCO principle would on the figures have been irrelevant but the plaintiff's recoverable damages would nevertheless have fallen to be reduced by 20 per cent, arriving at #489,000. It did not make a difference that the starting point exceeded the amount of the overvaluation. It was not just and equitable to make any further reduction. The resultant figure was within the scope of the duty of care which the judge had found that the defendants had breached. The plaintiff's contributory negligence was already fully taken into account by reducing the damages to #489,000. (6) The primary element in the judge's assessment of contributory negligence, the overlending, made a different contribution to the plaintiff's overall loss to that made by the defendants' overvaluation. (7) The decision of the Court of Appeal could give rise to unacceptable results and in effect made the same deduction twice over. (8) The traditional percentage reduction to be made under s.1(1) of the 1945 Act should be applied to the lender's basic loss before making any further deduction under the principle in SAAMCO. (9) The just and equitable figure in this case was #489,398.