South Australia Asset Management Corp v York Montague Ltd [1996] UKHL 10

House of Lords
Between
South Australia Asset Management CorpAppellantYork Montague LtdRespondent
Before
Lord Goff of ChieveleyLord Jauncey of TullichettleLord Slynn of HadleyLord Nicholls of BirkenheadLord Hoffmann
[1]My Lords,[1]I have had the advantage of reading a draft of the speech of my noble and learned friend, Lord Hoffmann. For the reasons he gives, and with which I agree, I would make orders in the terms proposed by him. LORD JAUNCEY OF TULLICHETTLE. My Lords,[2]My Lords,[2]I have had the advantage of reading a draft of the speech of my noble and learned friend, Lord Hoffmann. For the reasons he gives, and with which I agree, I would make orders in the terms proposed by him. LORD SLYNN OF HADLEY. My Lords,[3]My Lords,[3]I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hoffmann. For the reasons he gives I, too, would make the order in each appeal as proposed by him. LORD NICHOLLS OF BIRKENHEAD. My Lords,[4]My Lords,[4]I have had the advantage of reading a draft of the speech of my noble and learned friend, Lord Hoffmann. For the reasons he gives, and with which I agree, I would make orders in the terms proposed by him. LORD HOFFMANN. My Lords,[5]My Lords,[5]the three appeals before the House raise a common question of principle. What is the extent of the liability of a valuer who has provided a lender with a negligent overvaluation of the property offered as security for the loan? The facts have two common features. 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.[6]The Court of Appeal (Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd. [1995] Q.B. 375) decided that in a case in which the lender would not otherwise have lent (which they called a "no-transaction" case), he is entitled to recover the difference between the sum which he lent, together with a reasonable rate of interest, and the net sum which he actually got back. The valuer bears the whole risk of a transaction which, but for his negligence, would not have happened. He is therefore liable for all the loss attributable to a fall in the market. They distinguished what they called a "successful transaction" case, in which the evidence shows that if the lender had been correctly advised, he would still have lent a lesser sum on the same security. In such a case, the lender can recover only the difference between what he has actually lost and what he would have lost if he had lent the lesser amount. Since the fall in the property market is a common element in both the actual and the hypothetical calculations, it does not increase the valuer"s liability.[7]The valuers appeal. They say that a valuer provides an estimate of the value of the property at the date of the valuation. He does not undertake the role of a prophet. It is unfair that merely because for one reason or other the lender would not otherwise have lent, the valuer should be saddled with the whole risk of the transaction, including a subsequent fall in the value of the property.[8]Much of the discussion, both in the judgment of the Court of Appeal and in argument at the Bar, has assumed that the case is about the correct measure of damages for the loss which the lender has suffered. The Court of Appeal began its judgment, at pp. 401-402, with the citation of three well known cases (Robinson v. Harman (1848) 1 Exch 850 , 855; Livingstone v. Rawyards Coal Co. (1880) 5 AppCas 25 , 39; British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd. [1912] AC 673 , 688-689) stating the principle that where an injury is to be compensated by damages, the damages should be as nearly as possible the sum which would put the plaintiff in the position in which he would have been if he had not been injured. It described this principle, at p. 403, as " the necessary point of departure."[9]I think that this was the wrong place to begin. Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation. A correct description of the loss for which the valuer is liable must precede any consideration of the measure of damages. For this purpose it is better to begin at the beginning and consider the lender"s cause of action.[10]The lender sues on a contract under which the valuer, in return for a fee, undertakes to provide him with certain information. Precisely what information he has to provide depends of course upon the terms of the individual contract. There is some dispute on this point in respect of two of the appeals, to which I shall have to return. But there is one common element which everyone accepts. In each case the valuer was required to provide an estimate of the price which the property might reasonably be expected to fetch if sold in the open market at the date of the valuation.[11]There is again agreement on the purpose for which the information was provided. It was to form part of the material on which the lender was to decide whether, and if so how much, he would lend. The valuation tells the lender how much, at current values, he is likely to recover if he has to resort to his security. This enables him to decide what margin, if any, an advance of a given amount will allow for a fall in the market, reasonably foreseeable variance from the figure put forward by the valuer (a valuation is an estimate of the most probable figure which the property will fetch, not a prediction that it will fetch precisely that figure), accidental damage to the property and any other of the contingencies which may happen. The valuer will know that if he overestimates the value of the property, the lender"s margin for all these purposes will be correspondingly less.[12]On the other hand, the valuer will not ordinarily be privy to the other considerations which the lender may take into account, such as how much money he has available, how much the borrower needs to borrow, the strength of his covenant, the attraction of the rate of interest or the other personal or commercial considerations which may induce the lender to lend.[13]Because the valuer will appreciate that his valuation, though not the only consideration which would influence the lender, is likely to be a very important one, the law implies into the contract a term that the valuer will exercise reasonable care and skill. The relationship between the parties also gives rise to a concurrent duty in tort: see Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145 . But the scope of the duty in tort is the same as in contract.[14]A duty of care such as the valuer owes does not however exist in the abstract. 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 the 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. Both of these requirements are illustrated by Caparo Industries Plc. v. Dickman [1990] 2 AC 605 . The auditors" failure to use reasonable care in auditing the company"s statutory accounts was a breach of their duty of care. But they were not liable to an outside take-over bidder because the duty was not owed to him. Nor were they liable to shareholders who had bought more shares in reliance on the accounts because, although they were owed a duty of care, it was in their capacity as members of the company and not in the capacity (which they shared with everyone else) of potential buyers of its shares. Accordingly, the duty which they were owed was not in respect of loss which they might suffer by buying its shares. As Lord Bridge of Harwich said, at p. 627:
"It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless."
In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed.[15]How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874) L.R. 9 Ex. 125. In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor"s duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. 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.[16]What therefore should be the extent of the valuer"s liability? The Court of Appeal said that he should be liable for the loss which would not have occurred if he had given the correct advice. The lender having, in reliance on the valuation, embarked upon a transaction which he would not otherwise have undertaken, the valuer should bear all the risks of that transaction, subject only to the limitation that the damage should have been within the reasonable contemplation of the parties.[17]There is no reason in principle why the law should not penalise wrongful conduct by shifting on to the wrongdoer the whole risk of consequences which would not have happened but for the wrongful act. Hart and Honoré, in Causation in the Law, 2nd ed. (1985), p. 120, say that it would, for example, be perfectly intelligible to have a rule by which an unlicensed driver was responsible for all the consequences of his having driven, even if they were unconnected with his not having a licence. One might adopt such a rule in the interests of deterring unlicensed driving. But that is not the normal rule. One may compare, for example, The Empire Jamaica [1955] P. 259, in which a collision was caused by a "blunder in seamanship of . . . a somewhat serious and startling character" (Sir Raymond Evershed M.R., at p. 264) by an uncertificated second mate. Although the owners knew that the mate was not certificated and it was certainly the case that the collision would not have happened if he had not been employed, it was held in limitation proceedings that the damage took place without the employers" "actual fault or privity" (section 503 of the Merchant Shipping Act 1894) because the mate was in fact experienced and (subject to this one aberration) competent. The collision was not therefore attributable to his not having a certificate. The owners were not treated as responsible for all the consequences of having employed an uncertificated mate but only for the consequences of his having been uncertificated.[18]Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made 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.[19]I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal by an example. A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber 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.[20]On the Court of Appeal"s principle, the doctor is responsible for the injury suffered by the mountaineer because it is damage which would not have occurred if he had been given correct information about his knee. He would not have gone on the expedition and would have suffered no injury. On what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctor"s bad advice because it would have occurred even if the advice had been correct.[21]The Court of Appeal [1995] Q.B. 375 summarily rejected the application of the latter principle to the present case, saying, at p. 404:
"The complaint made and upheld against the valuers in these cases is. . . not that they were wrong. A professional opinion may be wrong without being negligent. The complaint in each case is that the valuer expressed an opinion that the land was worth more than any careful and competent valuer would have advised."
I find this reasoning unsatisfactory. It seems to be saying that the valuer"s liability should be restricted to the consequences of the valuation being wrong if he had warranted that it was correct but not if he had only promised to use reasonable care to see that it was correct. There are of course differences between the measure of damages for breach of warranty and for injury caused by negligence, to which I shall return. In the case of liability for providing inaccurate information, however, it would seem paradoxical that the liability of a person who warranted the accuracy of the information should be less than that of a person who gave no such warranty but failed to take reasonable care.[22]Your Lordships might, I would suggest, think that there was something wrong with a principle which, in the example which I have given, produced the result that the doctor was liable. What is the reason for this feeling? I think that the Court of Appeal"s principle offends common sense because it makes the doctor responsible for consequences which, though in general terms foreseeable, do not appear to have a sufficient causal connection with the subject matter of the duty. The doctor was asked for information on only one of the considerations which might affect the safety of the mountaineer on the expedition. There seems no reason of policy which requires that the negligence of the doctor should require the transfer to him of all the foreseeable risks of the expedition.[23]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. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.[24]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 or not 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.[25]I think that this principle is implicit in the decision of this House in Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd. [1991] 2 A.C. 249. Some banks had lent a large sum of money on the security of, first, property which the borrower had represented to be valuable, and, secondly, insurance policies against any shortfall on the realisation of the property. When the borrower turned out to be a swindler and the property worthless, the insurers relied upon a fraud exception in the policies to repudiate liability. The banks discovered that the agent of their broker who had placed the insurance had, by an altogether separate fraud, issued cover notes in respect of non-existent policies for part of the risk. This had come to the knowledge of one of the insurers before a substantial part of the advances had been made. The banks claimed that the insurers were under a duty of good faith to disclose this information and that, if they had done so, the banks would have so distrusted the brokers that they would have made no advance and therefore suffered no loss.[26]Lord Templeman (with whom all the other members of the House agreed) dealt with the matter in terms of causation. He said that assuming a duty to disclose the information existed, the breach of that duty did not cause the loss. The failure to inform the lenders of the broker"s fraud induced them to think that valid policies were in place. But even if this had been true, the loss would still have happened. The insurers would still have been entitled to repudiate the policies under the fraud exception.[27]Lord Templeman could only have dealt with the case in this way if he thought it went without saying that the insurers" duty to provide information made them liable, not for all loss which would not have been suffered if the information had been given, but only for loss caused by the lender having lent on a false basis, namely, in the belief that insurance policies had been effected. If that had not been the principle which the House was applying, the discussion of whether the non-existence of the policies had caused the loss would have been irrelevant. I respectfully think that the underlying principle was right and that it is decisive of this case. The Court of Appeal distinguished Skandia on the ground that the insurers could not have foreseen the borrower"s fraud. No doubt this is true: it shows that the rule that damages are limited to what was within the reasonable contemplation of the parties can sometimes make arguments over the scope of the duty academic. But I do not think it was the way the House actually decided the case. Lord Templeman"s speech puts the matter firmly on the ground of causation and the analysis makes sense only on the footing that he was concerned with the consequences to the lenders of having lent without knowing the true facts rather than with what would have been the consequences of disclosure.[28]The principle that a person providing information upon which another will rely in choosing a course of action is responsible only for the consequences of the information being wrong is not without exceptions. This is not the occasion upon which to attempt a list, but fraud is commonly thought to be one. In Doyle v. Olby (Ironmongers) Ltd. [1969] 2 QB 158 , Lord Denning M.R. said, at p. 167:
"The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say: 'I would not have entered into this bargain at all but for your misrepresentation. . . .' "
[29]Such an exception, by which the whole risk of loss which would not have been suffered if the plaintiff had not been fraudulently induced to enter into the transaction is transferred to the defendant, would be justifiable both as a deterrent against fraud and on the ground that damages for fraud are frequently a restitutionary remedy.[30]The question of liability for fraud does not arise in this case and I therefore confine myself to two observations. The first is that although I have said that fraud is commonly thought to be an exception, Hobhouse L.J. seems to have expressed a contrary view in the recent case of Downs v. Chappell [1997] 1 WLR 426 , when he said that the damages recoverable for fraudulent misrepresentation should not be greater than the loss which would have been suffered "had the represented, or supposed, state of affairs actually existed." In other words, the defendant should not be liable for loss which would have been a consequence of the transaction even if the representation had been true. This, as I have said, is what I conceive to be in accordance with the normal principle of liability for wrongful acts. But liability for fraud, or under section 2(1) of the Misrepresentation Act 1967 for a negligent misrepresentation inducing a contract with the representor, has usually been thought to extend to all loss suffered in consequence of having entered into the transaction. We have received written representations on Downs v. Chappell, which was decided after the conclusion of the oral argument, but since the issue in that case is not before the House, I prefer not to express any concluded view.[31]My second observation is that even if the maker of the fraudulent misrepresentation is liable for all the consequences of the plaintiff having entered into the transaction, the identification of those consequences may involve difficult questions of causation. The defendant is clearly not liable for losses which the plaintiff would have suffered even if he had not entered into the transaction or for losses attributable to causes which negative the causal effect of the misrepresentation.[32]The measure of damages in an action for breach of a duty to take care to provide accurate information must also be distinguished from the measure of damages for breach of a warranty that the information is accurate. In the case of breach of a duty of care, the measure of damages is the loss attributable to the inaccuracy of the information which the plaintiff has suffered by reason of having entered into the transaction on the assumption that the information was correct. One therefore compares the loss he has actually suffered with what his position would have been if he had not entered into the transaction and asks what element of this loss is attributable to the inaccuracy of the information. In the case of a warranty, one compares the plaintiff"s position as a result of entering into the transaction with what it would have been if the information had been accurate. Both measures are concerned with the consequences of the inaccuracy of the information but the tort measure is the extent to which the plaintiff is worse off because the information was wrong whereas the warranty measure is the extent to which he would have been better off if the information had been right.[33]This distinction was the basis of the decision of this House in Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223. Simplifying the facts slightly, the plaintiffs were moneylenders who had advanced £10,000 repayable with interest at the rate of 36.51 per cent., rising in the event of default to 45.619 per cent., on the security of a house which had been valued at £18,000. The valuation was admittedly negligent and the property fetched only £12,000. By that time arrears of interest had increased the debt to nearly £20,000 and the lenders claimed £8,000 damages. This House held that the lenders were not entitled to damages which represented the contractual rate of interest. That would be to put them in the position in which they would have been if the valuation had been correct; a measure of damages which could be justified only if they had given a warranty. In an action for breach of a duty of care, they could not recover more than what they would have earned with the money if they had not entered into the transaction. As there was no evidence that they would have been able to obtain the same exorbitant rate of interest elsewhere, the claim in respect of arrears of interest failed.[34]The Court of Appeal in this case referred to a large number of authorities but I think that, with the exception of one decision of the Canadian Supreme Court, none of them is concerned with the Caparo question (Caparo Industries Plc. v. Dickman [1990] 2 AC 605 ) of the kind of damage which falls within the scope of the duty of care. This is perhaps not surprising, because it is unusual to have a case in which a plaintiff has suffered foreseeable loss in consequence of entering into a transaction in reliance on inaccurate information where the loss is not a consequence of the inaccuracy of the information. For example, in Baxter v. F.W. Gapp & Co. Ltd. [1938] 4 All E.R. 457 (Goddard L.J.); [1939] 2 K.B. 271; [1939] 2 All E.R. 752 (Court of Appeal) a lender advanced £1,200 on the strength of a £1,800 valuation. The property realised only £850 and, as MacKinnon L.J. subsequently pointed out, there was no evidence that it had been worth any more at the date of the valuation. The consequence of the valuation being wrong was that instead of having a contingency margin of £600, the lender was from the start unsecured to the extent of £350. In those circumstances it is not surprising that Goddard L.J. awarded him the whole of his loss, which was well within the £950 discrepancy in the valuation. In the Swingcastle case this House, for the reasons I have explained, disapproved of the fact that Goddard L.J. and the Court of Appeal awarded the plaintiff interest at the contractual rate instead of the return he could have obtained on some alternative use of his money. But the decision to award the whole loss, however it might be calculated, did not on the facts offend against the principle which I have stated. In the Court of Appeal, Mr. Heald K.C. for the valuers argued, in my view correctly, that the measure of damages should be, as Sir Henry Strong C.J. said in Lowenburg, Harris & Co. v. Wolley (1895) 25 S.C.R. 51, 57, "the loss occasioned by the over-valuation." This decision of the Canadian Supreme Court is the one exceptional case to which I have referred in which the point had arisen. MacKinnon L.J. pointed out that since there was no evidence that the overvaluation had been less than the whole loss suffered, the point was immaterial. He made no adverse comment on the Lowenburg case.[35]The other cases cited by the Court of Appeal and counsel for the respondent plaintiffs fall into two categories. The first comprises those cases concerned with the calculation of the loss which the plaintiff has suffered in consequence of having entered into the transaction. They do not address the question of the extent to which that loss is within the scope of the defendant"s duty of care. The calculation of loss must of course involve comparing what the plaintiff has lost as a result of making the loan with what his position would have been if he had not made it. If for example the lender would have lost the same money on some other transaction, then the valuer"s negligence has caused him no loss. Likewise if he has substantially overvalued the property so that the lender stands to make a loss if he has to sell the security at current values, but a rise in the property market enables him to realise enough to pay off the whole loan, the lender has suffered no loss. But the question of whether the lender has suffered a loss is not the same as the question of how one defines the kind of loss which falls within the scope of the duty of care. The Court of Appeal [1995] Q.B. 375, 421 justified its view on the latter question by an appeal to symmetry:
"If the market moves upwards, the valuer reaps the benefit; if it moves downwards, he stands the loss."
This seems to me to confuse the two questions. If the market moves upwards, it reduces or eliminates the loss which the lender would otherwise have suffered. If it moves downwards, it may result in more loss than is attributable to the valuer"s error. There is no contradiction in the asymmetry. A plaintiff has to prove both that he has suffered loss and that the loss fell within the scope of the duty. The fact that he cannot recover for loss which he has not suffered does not entitle him to an award of damages for loss which he has suffered but which does not fall within the scope of the valuer"s duty of care.[36]The distinction between the "no-transaction" and "successful trans- action" cases is of course quite irrelevant to the scope of the duty of care. In either case, the valuer is responsible for the loss suffered by the lender in consequence of having lent upon an inaccurate valuation. When it comes to calculating the lender"s loss, however, the distinction has a certain pragmatic truth. I say this only because in practice the alternative transaction which a defendant is most likely to be able to establish is that the lender would have lent a lesser amount to the same borrower on the same security. If this was not the case, it will not ordinarily be easy for the valuer to prove what else the lender would have done with his money. But in principle there is no reason why the valuer should not be entitled to prove that the lender has suffered no loss because he would have used his money in some altogether different but equally disastrous venture. Likewise the lender is entitled to prove that, even though he would not have lent to that borrower on that security, he would have done something more advantageous than keep his money on deposit: a possibility contemplated by Lord Lowry in Swingcastle Ltd. v. Alastair Gibson [1991] 2 A.C. 223, 239. Every transaction induced by a negligent valuation is a "no-transaction" case in the sense that ex hypothesi the transaction which actually happened would not have happened. A "successful transaction" in the sense in which that expression is used by the Court of Appeal (meaning a disastrous transaction which would have been somewhat less disastrous if the lender had known the true value of the property) is only the most common example of a case in which the court finds that, on the balance of probability, some other transaction would have happened instead. The distinction is not based on any principle and should in my view be abandoned.[37]The second category of cases relied upon by the plaintiffs concerns the question of whether the plaintiff"s voluntary action in attempting to extricate himself from some financial predicament in which the defendant has landed him negatives the causal connection between the defendant"s breach of duty and the subsequent loss. These cases are not concerned with the scope of the defendant"s duty of care. They are all cases in which the reasonably foreseeable consequences of the plaintiff"s predicament are plainly within the scope of the duty. The question is rather whether the loss can be said to be a consequence of the plaintiff being placed in that predicament. The principle which they apply is that a plaintiff"s reasonable attempt to cope with the consequences of the defendant"s breach of duty does not negative the causal connection between that breach of duty and the ultimate loss. This is the principle of which, in the sphere of physical damage, The Oropesa [1943] P. 32 is perhaps the best known example.[38]I need mention by way of illustration only one such case. In McElroy Milne v. Commercial Electronics Ltd. [1993] 1 N.Z.L.R 39, a solicitor negligently failed to ensure that a lease granted by his developer client contained a guarantee from the lessee"s parent company. The result was that the developer, who had intended to sell the property with the benefit of the lease soon after completion, found himself in dispute with the parent company and was unable to market the property for more than two years, during which time the market fell. The New Zealand Court of Appeal held that the developer was entitled to the difference between what the property would have fetched if sold soon after its completion with a guaranteed lease and what it eventually fetched two years later. The solicitor"s duty was to take reasonable care to ensure that his client got a properly guaranteed lease. He was therefore responsible for the consequences of his error, which was producing a situation in which the client had a lease which was not guaranteed. All the reasonably foreseeable consequences of that situation were therefore within the scope of the duty of care. The only issue was whether the client"s delay in selling the property negatived the causal connection between that situation and the ultimate loss. The Court of Appeal decided this question on orthodox lines by asking whether the client had reacted reasonably to his predicament. County Personnel (Employment Agency) Ltd. v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916 and Hayes v. James & Charles Dodd [1990] 2 All ER 815 are examples of similar principles of causation being applied by the Court of Appeal in England.[39]I turn now to the various theories suggested by the appellant defendants for defining the extent of the valuer"s liability. One was described as the " cushion theory" and involved calculating what the plaintiff would have lost if he had made a loan of the same proportion of the true value of the property as his loan bore to the amount of the valuation. The advantage claimed for this theory was that it allowed the lender to claim loss caused by a fall in the market but only to the extent of the proportionate margin or "cushion" which he had intended to allow himself. But this theory allows the damages to vary according to a decision which the lender made for a different purpose, namely, in deciding how much he should lend on the value reported to him. There seems no justification for deeming him, in the teeth of the evidence, to have been willing to lend the same proportion on a lower valuation.[40]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.[41]Mr. Sumption offered instead a more radical theory. He said that the court should estimate the value of the rights which the lender received at the date of the advance. If, by reason of the negligent valuation, they were worth less than the amount of the loan, the lender should be entitled to recover the difference in damages. But the calculation should be unaffected by what happened afterwards. This, he said (ante, p. 209B), was "usually the best way of excluding that which is extraneous and coincidental." The trouble is that it throws out not only the bathwater of the extraneous and coincidental but also the baby of the subsequent events which were the very thing against which the lender relied upon the valuation to protect himself. Mr. Sumption was prepared to modify the rigour of his theory to the extent of allowing a glance at a subsequent change in the value of the personal covenant. The court was not obliged to take the borrower to be the prosperous tycoon which everyone thought him to be at the date of the valuation but could have regard to the fact that he had afterwards been shown to be a fraudulent bankrupt. He allowed this concession on the ground that the reason why the lender had taken security in the first place was in case the personal covenant should turn out to be worthless. But Mr. Sumption was inflexible in excluding consideration of subsequent changes in the value of the property. I think that this is inconsistent with the grounds upon which the concession was made and that the obvious need for the concession undermines the whole theory. A fall in the value of the property may also be something against which the lender relies upon the valuer to protect him. A lender, for example, may advance £500,000 on property valued at £1m. to allow an ample margin for a fall in the market and other contingencies. If the property was actually worth only £550,000 it does not seem fair that he should have no remedy for the loss which he suffers when its value subsequently falls to £350,000. If the valuation had been correct, a £200,000 fall in market value would have caused him no loss at all.[42]Mr. Sumption attempted to justify a valuation at the date of breach of duty by saying that it would be wrong if the damages could be different according to when the trial was held. Leaving aside the retort that this is bound to be a consequence of his concession on the value of the personal covenant, I think that there is no such general principle. On the contrary, except in cases in which all the loss caused by the breach can be quantified at once, the calculation of damages is bound to be affected by the extent to which loss in the future still has to be estimated at the date of the trial. In actions for personal injury, it is common for a trial on the quantum of damages to be deferred until the plaintiff"s medical condition has stabilised and the damages can be more accurately assessed. There is however a limit to the time for which the parties can wait. So the assessment of damages will often be different from what it would have been if the trial had taken place later. This result can be avoided only by postponing the trial until the plaintiff is dead or (as Mr. Sumption"s theory would entail) confining the damages to the loss which at the time of the accident he appeared likely to suffer, irrespective of what actually happened. Neither of these solutions has appealed to judges or legislators.[43]It is true that in some cases there is a prima facie rule that damages should be assessed at the date of the breach. For example, section 51(3) of the Sale of Goods Act 1979 provides that where there is an available market for goods the measure of damages for non-delivery is prima facie the difference between the contract price and the market price of the goods at the time when they should have been delivered. But the purpose of this prima facie rule is not to ensure that the damages will always be the same irrespective of the date of trial. It is because where there is an available market, any additional loss which the buyer suffers through not having immediately bought equivalent goods at the market price is prima facie caused by his own change of mind about wanting the goods which he ordered: compare Waddell v. Blockey (1879) 4 Q.B.D. 678. The breach date rule is thus no more than a prima facie rule of causation. It is not concerned with the extent of the vendor"s liability for loss which the breach has admittedly caused.[44]As a matter of causation, however, it seems to me impossible to say that the loss was caused by any decision of the lenders not to go into the market and realise the value of the rights which they had acquired at the date of the advance. They did not know until some time afterwards that the valuations were wrong and in any case there is no available market for single mortgages on development sites. The actions of the lenders were, as in McElroy Milne v. Commercial Electronics Ltd. [1993] 1 N.Z.L.R. 39, a reasonable response to the situation in which the lenders found themselves and did not therefore negative the causal connection between the breach of duty and the ultimate loss.[45]Before I come to the facts of the individual cases, I must notice an argument advanced by the defendants concerning the calculation of damages. They say that the damage falling within the scope of the duty should not be the loss which flows from the valuation having been in excess of the true value but should be limited to the excess over the highest valuation which would not have been negligent. This seems to me to confuse the standard of care with the question of the damage which falls within the scope of the duty. The valuer is not liable unless he is negligent. In deciding whether or not he has been negligent, the court must bear in mind that valuation is seldom an exact science and that within a band of figures valuers may differ without one of them being negligent. But once the valuer has been found to have been negligent, the loss for which he is responsible is that which has been caused by the valuation being wrong. For this purpose the court must form a view as to what a correct valuation would have been. This means the figure which it considers most likely that a reasonable valuer, using the information available at the relevant date, would have put forward as the amount which the property was most likely to fetch if sold upon the open market. While it is true that there would have been a range of figures which the reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range. There is no basis for calculating damages upon the basis that it would have been a figure at one or other extreme of the range. Either of these would have been less likely than the mean: see Lion Nathan Ltd. v. C. C. Bottlers Ltd., The Times, 16 May 1996.[46]I turn now to the facts of the three cases. In South Australia Asset Management Corporation v. York Montague Ltd. 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.[47]In United Bank of Kuwait Plc. v. Prudential Property Services Ltd. the lenders on 19 October 1990 advanced £1.75m. on the security of a property valued by the defendants at £2.5m. The judge found that the correct value was between £1.8m. and £1.85m. It was sold in February 1992 for £950,000. Gage J. quantified the lenders" loss (including unpaid interest) at £1,309,876.46 and awarded this sum as damages.[48]In my view the damages should have been limited to the consequences of the valuation being wrong, which were that the lenders had £700,000 or £650,000 less security than they thought. The plaintiffs say that the situation produced by the overvaluation was not merely that they had less security but also that there was a greater risk of default. But the valuer was not asked to advise on the risk of default, which would depend upon a number of matters outside his knowledge, including the personal resources of the borrower. The greater risk of default, if such there was, is only another reason why the lender, if he had known the true facts, would not have entered into the particular transaction. But that does not affect the scope of the valuer"s duty.[49]I would therefore allow the appeal and reduce the damages to the difference between the valuation and the correct value. If the parties cannot agree whether on the valuation date the property was worth £1.8m. or £1.85m. or some intermediate figure the question will have to be remitted to the trial judge for decision on the basis of the evidence called at the trial.[50]In Nykredit Mortgage Bank Plc. v. Edward Erdman Group Ltd. the lenders on 12 March 1990 advanced £2.45m. on the security of a property valued by the defendants at £3.5m. The correct value was said by Judge Byrt Q.C. sitting as a judge of the Queen"s Bench Division to be £2m. or at most £2,375,000. The price obtained on a sale by auction in February 1993 was £345,000. The judge quantified the loss (including unpaid interest) at £3,058,555.52 and gave judgment for the plaintiffs in this sum.[51]The lenders submit, as in the United Bank of Kuwait case, that they were misled not only as to the value of the security but also as to the risk of default. They say the duty of the valuers according to the terms of the particular contract was not confined to advising on the price which the property could be expected to fetch in the open market. The value of the property lay in its potential for development and the usual method of calculating such value is to consider what the proposed development would be worth when complete and to deduct the estimated cost of the work and a reasonable profit for the developer. The difference is the value of the undeveloped land. The letter of instructions to the valuers, dated 22 February 1990, said that the property was being considered as security for a mortgage advance and then asked:
"Would you please provide a report and valuation as to the open market value . . ."
The letter was apparently in the bank"s standard form, because it went on to say:
"In preparing your report, please comment on the following, if applicable . . . 7. The current rental value and its relationship with the present income, and give your opinion as to the lettability of the property in the open market or, if unlet, please comment on the viability of the proposed rental income. 8. The completed value (if a development project) and a commentary regarding the potential saleability. . . . 10. The estimated development costs, and a commentary as to whether the costs quoted are realistic."
[52]The proposed loan was for "an initial term of 12 months:" the loan was to finance the purchase of the land and the lenders expected that they would be paid off when the borrower obtained finance to carry out the development. The borrower was an off-the-shelf, single-asset company.[53]The reason why the valuation was wrong was that the valuers had overestimated the demand for the property and underestimated the costs of the development. Thus the information which the report provided under each of the heads I have quoted was also wrong. The lenders say that if the valuers had not been negligent they would have appreciated that the proposed development was not viable. As the borrower was a single-asset company, a default was virtually inevitable. The prospect of some other lender refinancing the project was zero: the lenders were likely to be locked into the loan for an indefinite period and therefore exposed to market fluctuations for longer than they had reason to expect.[54]The main thrust of these submissions is also concerned with what would have happened if the valuer had provided accurate information. This, as I have said, is not the basis of the valuer"s liability. In any case the comments requested in the bank"s standard letter were not in my opinion, as a matter of construction of the contract between bank and valuer, independent items of information on which the bank was entitled to place reliance separately from the open market valuation. They amounted to an exposure of the valuer"s calculation, so as to enable the bank to form a view as to how accurate they were likely to be. But the valuer would not in my view have incurred any liability if one or more of his comments had been wrong but (perhaps on account of a compensating error) the valuation was correct. The contract did not therefore impose a different liability from those in the other cases.[55]I would therefore allow the appeal and substitute for the judge"s award of damages a figure equal to the difference between £3.5m. and the true value of the property at the date of valuation. The judge appears to have been inclined to fix the latter figure at £2m. The reference to £2,375,000. was based upon a concession made by plaintiffs" counsel on the basis that for the purposes of calculating the damages according to the principle adopted by the Court of Appeal it did not matter one way or the other. However, if the parties cannot agree upon the figure, it will also have to be remitted to the judge for determination on the evidence adduced at the trial.

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