Lloyd's Maritime and Commercial Law Quarterly
LIMITING CONTRACTUAL AND TORTIOUS DAMAGES
Banque Bruxelles v. Eagle Star
South Australia Asset Management v. York Montague
Smith New Court v. Scrimgeour Vickers
Bristol & West BS v. May May and Merrimans
Bristol & West BS v. Mothew
South Australia Asset Management Corp. v. York Montague Ltd
1 is a “leapfrog” appeal from a first instance decision consolidated with two appeals out of five cases considered by the Court of Appeal sub nom Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd.2 In all three cases mortgage lenders had contracted with valuers to provide open market valuations of properties being considered as security for possible loans. The valuations given were negligently high. Also, by the time the borrowers defaulted, the property market had fallen sharply. As a result the properties were sold for far less than the amounts lent against them. The valuers were appealing on the quantum of damages awarded against them, being all the consequential losses of the mortgage lenders, including those arising from the subsequent fall in the market, as in all three cases the loans would not have been made at all if a reasonably competent valuation had been given.
Lord Hoffmann gave the unanimous judgment of the House of Lords and held that the maximum liability of the valuers was the difference between their negligent valuation and a “correct valuation” being the figure that reasonable valuers, using the information available at the relevant date, would most likely have given (not the highest figure that would not have been considered negligent). In the South Australia appeal itself, this difference was greater than the total loss suffered on the sale of the property, so the valuers were liable for the latter and their appeal was dismissed. In the other two cases, however, the difference was less than the total losses and the damages awarded against the valuers was reduced to that difference.
It has long been accepted in English law that parties in breach of their contracts cannot be held liable for all the consequential losses suffered by the other parties on the simplistic basis that “but for” the breach none of those losses would have occurred. The principal limitation has been the rule in Hadley v. Baxendale,3 that the party in breach is only liable for those losses that arise “according to the usual course of things” together with any special risks of which the party was on notice. This seems to be a tighter remoteness of damage rule than the tortious one of any reasonably foreseeable losses, but this difference was justified by Lord Reid in The Heron II
4 on the grounds that, in a contractual situation, the parties had the opportunity to reveal special risks to each other and allocate the risk accordingly.
Unfortunately, relying on a strict remoteness rule to limit contractual liability is hardly sustainable after the decision in Hedley Byrne & Co. Ltd v. Heller & Partners Ltd
5 since
1. [1996] 3 W.L.R. 87; [1996] 3 All E.R. 365.
2. [1995] Q.B. 375.
3. (1854) 9 Exch. 341.
4. [1969] I A.C. 350.
5. [1964] A.C. 465.
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