Solicitors' Negligence When Giving An Opinion Held Not To Be Direct Cause Of The Loss

Haugesund Kommune and Other v Depfa ACS Bank [2011] EWCA Civ 33

Another aspect of this case was reported in bulletin 66 covering June 2010. It involved swaps contracts under which Norwegian authorities borrowed monies from Depfa. In connection with the decision to lend, the Norwegian lawyers, Wikborg, gave an opinion that the municipalities did have power and authority to enter into the agreement. In the event, the High Court held that they did not have such power with the result that the swaps contracts were invalid. Nonetheless, the municipalities were found to be liable to the bank in restitution. Wikborg was held liable in negligence. The Judge accepted that, if Wikborg had advised that there was any material risk that the swaps were prohibited loans, the banks would not have advanced the money. Wikborg was ordered to pay the banks' losses, less any sums actually recovered from the municipalities.

Wikborg appealed citing the SAAMCO case. In that case, the House of Lords drew a distinction between the provision of information to enable someone else to decide on a course of action ("category 1 case") and actually advising someone as to what course of action to take ("category 2 case"). In a category two case, if the advisor is negligent, he will be responsible for all the foreseeable loss which is a consequence of that course of action being taken. In category 1, however, an advisor is only responsible for the consequences of the information being wrong. Wikborg claimed that this was a category 1 case. It had erred and it acknowledged the bank would not have entered into the transactions if the bank had not received that advice. However, under category 1, Wikborg was not responsible for all the consequences of the advice being relied on, but only the consequences of that advice being wrong.

The Court of Appeal agreed with Wikborg and overturned the High Court's decision. Two of the Judges reached the same conclusion by a different route (the third, Peter Smith J, agreed with both). Rix LJ took the view that Wikborg was not advising on the credit worthiness of the municipalities. The bank relied on the creditworthiness and good faith of the municipalities, matters on which it made up its own mind. The loss was...