The Court of Appeal has recently considered recoverability of
loss and the application of the principles set out by the House of
Lords in South Australia Asset Management Corporation v York
Montague Ltd ("SAAMCO") in the context of a
claim against solicitors.
The case concerned swap contracts entered into by a Bank with two
Norwegian municipalities. The Bank's Norwegian solicitors
advised – incorrectly and negligently - that the swap
contracts were permissible under Norwegian law and that the
municipalities had capacity to enter into them. When the
municipalities subsequently brought proceedings seeking a
declaration that the swap contracts were invalid and that they had
no liability under them, the Bank counterclaimed in restitution and
also joined the solicitors to the action, alleging that it had
entered into the contracts in reliance upon the firm's
negligent advice.
Applying SAAMCO principles, the Court of Appeal found that
the solicitors were retained to advise on a specific question, the
validity of the proposed swap contracts. They had no general
responsibility to advise their client on whether to proceed with
the transaction or not. The reason for the Bank's loss was not
the invalidity of the transactions, but the impecuniousity of the
Norwegian municipalities or their unwillingness to abide by the
court's decision. This did not fall within the scope of the
duty assumed by the solicitors and accordingly they were not liable
for the losses suffered by the Bank.
The Court of Appeal's decision represents a fairly strict
application of SAAMCO and illustrates the willingness of
the courts to limit recoverable losses in appropriate cases. It is
a favourable one for law firms and their insurers and underscores
the need to consider whether there is a sufficient causative link
between the actual or alleged breach of duty and the loss. Whilst
it may appear, at first blush, to be counter-intuitive, the
decision will emphasise to claimants and their lawyers that it is
simply not enough, without more, to show that the transaction would
not have taken place but for the negligent advice; only if the loss
(or part of it) falls within the scope of the solicitor's duty
will damages be recoverable.
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This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 06/04/2011.