Lowick Rose V Swynson – A Wrong Righted?

In a welcome decision for professionals, the Supreme Court has overturned a ruling which had the effect of lifting the corporate veil to allow a claimant to recover against its accountants in circumstances where the loss claimed had been transferred from the claimant company to its owner. The decision, which centred around the equitable doctrines of collateral payments and unjust enrichment, represents a return to a stricter approach to the characterisation of loss and a reluctance of the courts to allow general notions of 'justice' to trump established legal doctrine.

Factual Background

In 2006, Swynson, which was owned by a Mr Hunt, made a £15 million loan to EMSL. The loan was made in reliance on negligent advice given by an accountancy firm ("Lowick Rose"). In December 2008, the loan together with further loans that had been made by Swynson to EMSL, was refinanced. Mr Hunt loaned the outstanding sum to EMSL on the condition that the monies be used to repay Swynson. The purpose of the refinancing was to clear up Swynson's balance sheet and reduce its tax liability. Ultimately EMSL ceased business and was unable to repay to Mr Hunt the sums lent by him.

Swynson and Mr Hunt commenced proceedings against Lowick Rose in 2012 seeking damages arising out of the unrepaid loans. Lowick Rose argued that they could have no liability in damages on the basis that Swynson had suffered no loss as its original loan, made on the strength of Lowick Rose's report, had been repaid by EMSL in December 2008 when the loan refinancing was agreed.

The Court of Appeal decision

The Court of Appeal upheld the first instance ruling against Lowick Rose on the basis of the collateral payments exception to the general rule in relation to avoided loss.

The general rule provides that loss which has been avoided is not recoverable as damages, although expense that was reasonably incurred in avoiding the loss may be recoverable as the costs of mitigation. Applying this rule, Sywnson would be unable to recover any loss as the entirety of the loss had been mitigated by virtue of Hunt's actions.

Sywnson argued that the exception in respect of collateral payments applied. The collateral payments exception states that where a loss has been avoided by way of a payment which arose independently of the breach, then the law considers that the claimant's loss has not in fact been made good. For example, a lottery win in the amount of a claimant's loss would not satisfy a claim, nor...