Aneco Reinsurance Underwriting Ltd ((in Liquidation)) v Johnson & Higgins Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLORD SLYNN OF HADLEY,LORD BROWNE-WILKINSON,LORD LLOYD OF BERWICK,LORD STEYN,LORD MILLETT
Judgment Date18 October 2001
Neutral Citation[2001] UKHL 51

[2001] UKHL 51

HOUSE OF LORDS

Lord Slynn of Hadley

Lord Browne-Wilkinson

Lord Lloyd of Berwick

Lord Steyn Lord Millett

Aneco Reinsurance Underwriting Limited
(In Liquidation) (A Body Incorporate Under the Laws of Bermuda) (Respondents)
and
Johnson & Higgs Limited
(Appellants)
LORD SLYNN OF HADLEY

My Lords,

1

My noble and learned friend, Lord Steyn has set out the essential matters of fact in this case which statement I gratefully adopt. In my view, as in his, the majority in the Court of Appeal were entitled to find and right in finding on the evidence that the brokers had undertaken a duty not merely to obtain reinsurance cover in the sum of dollar11m but also to advise on the availability of reinsurance cover in the market, without which the transaction would not have gone ahead. To give that advice involved an investigation as to the market's assessment of the risks involved, as my noble and learned friend, Lord Lloyd of Berwick has shown.

2

It is now accepted that no such reinsurance was available and that the appellants did not advise to that effect. In failing to make the necessary inquiry as to the market's assessment of the risk and to advise that such reinsurance was not available, the appellants were in breach of their duty. I agree with Lord Lloyd and Lord Steyn that the scope of the duty in this case is not the same as in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191. It is to use Lord Steyn's phrase on the other "side of the line drawn in SAAMCO.

3

I agree with Lord Lloyd and Lord Steyn that there is no justification for limiting the damage to the loss flowing from the failure to obtain the dollar11m reinsurance: it is the whole loss resulting from their entering into the insurance cover when no reinsurance was available.

4

The Court of Appeal on this came to the right conclusion and I would dismiss the Appeal.

LORD BROWNE-WILKINSON

My Lords,

5

I have had the advantage of reading in draft the speeches of my noble and leaned friends, Lord Lloyd of Berwick and Lord Steyn. I agree with them and for the reasons which they have given, I, too, would dismiss the appeal.

LORD LLOYD OF BERWICK

My Lords,

6

The question in this case is whether the brokers, Johnson & Higgins Ltd, are liable in negligence for the whole of the foreseeable loss suffered by Aneco Reinsurance Underwriting Ltd as a consequence of entering into a treaty of reinsurance with an underwriter at Lloyds, or whether the recoverable loss is limited by the principle stated in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191, also known as South Australia Asset Management Corporation v York Montague Ltd ("SAAMCO") and subsequently applied in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 and Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190.

7

There is no dispute as to the law. Mr Hunter QC for Aneco accepts that the brokers cannot be held liable for losses which fall outside the scope of their duty of care. Nor is there any longer any dispute as to the primary facts. Thus the sole question is whether in the particular circumstances of this case the brokers' duty of care was limited to the obtaining of satisfactory excess of loss protection on behalf of Aneco, in which case, as the brokers concede, they are liable for about dollar11 million, but no more; or whether as Aneco contend the brokers assumed a much wider duty of care, in which case they are liable for the full extent of Aneco's loss, amounting to about dollar35m.

8

It is convenient to start with Youell v Bland Welch & Co Ltd (No 2) (The "Superhulls Cover" case) [1990] 2 Lloyd's Rep 431, the facts of which were very similar. Brokers were instructed to obtain reinsurance on the London market on behalf of insurers, in respect of construction risks on three newbuilding vessels. The brokers informed the insurers that they had obtained reinsurance as "original". But they were wrong. The reinsurance was subject to a cut-off clause whereby the cover terminated 48 months after the commencement of construction. The brokers failed to inform the insurers. Had the insurers been given that information, they would not have accepted the reinsurance, and would have written greatly reduced lines on the original insurance. Phillips J, as he then was, held that the brokers were in breach of their duty of care both in contract and tort, and that the measure of damages was equal to the difference between the amount for which the insurers became liable on the original insurance, and the amount for which they would have been liable if they had written reduced lines. There was an alternative claim for damages based on the amount the insurers would have recovered on the reinsurance if it had not contained the 48 month cut-off clause. But counsel for the brokers conceded that the primary way in which the insurers put their case was the correct approach.

9

Evans LJ [2000] 1 All ER (Comm) 129 held that the decision of Phillips J in the Superhulls Cover case was of direct assistance in the present case, and was correctly decided. Mr Sumption QC submitted that the decision cannot stand in the light of SAAMCO. My noble and learned friend, Lord Millett is of the view that the decision ought to be overruled; but he would forgive the learned judge for failing to anticipate the decision in SAAMCO since the point was conceded by counsel.

10

My own view is that the point was correctly conceded, and that the subsequent decision in SAAMCO has not changed the relevant law, or undermined the authority of Phillips J's decision. It would be odd if it had, since the Superhulls Cover case was not included among the 53 cases cited by counsel in SAAMCO; and its existence cannot simply have been overlooked, since Mr Sumption was leading counsel in both cases.

11

Why, then, does the SAAMCO "principle" not touch on the decision in the Superhulls Cover case? What indeed is the SAAMCO principle? It is surely the principle which has been common ground throughout the argument before us that a defendant is not liable in damages in respect of losses of a kind which fall outside the scope of his duty of care. There was nothing new in that principle. It has been the rule in contract since the decision in Czarnikow v Koufos [1969] 1 AC 350, if not before. It has been the rule in tort since In Re Polemis and Furness Withy & Co Ltd [1921] 3 KB 560 was disapproved in Overseas Tankships (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound (No 1) [1961] AC 388.

12

What was new and important in SAAMCO was the application of the principle to valuers, so as to exclude their liability for loss due to a fall in the market: see Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 A C 190, 209 per Lord Hobhouse. Thus in the case of valuers, and their like, that is to say, those who undertake to provide specific information, the SAAMCO principle gave rise to a sub-rule, that valuers are not generally liable (the word is that of Lord Hoffmann, at p 214) for all the foreseeable consequences of their negligence, but only for the consequences of the valuation being wrong. It follows that the damages will usually, though not always, be limited to the difference between their valuation and the correct value; see p 222, per Lord Hoffmann, and the Platform Home Loans case p 210, per Lord Hobhouse.

13

In paragraph 12 of their printed case the brokers state this sub rule as if it were a rule of general application in the law of contract.

"The question is not what would have happened if a correct report had been made, but what would have happened if the report actually made had been correct."

But this is not what the House decided. So much is clear from the immediately following paragraph in Lord Hoffmann's speech, at page 214 in which he draws a contrast between a duty to provide specific information and a duty to advise generally. It is clear also from a further passage, at p 217, in which he pointed out that 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. So it would, I think, be a mistake to regard the Superhulls Cover case, if correctly decided, as being an "exception" to some general exclusionary rule established in SAAMCO. It is rather the other way round. The Superhulls Cover case represents the ordinary rule, whereby brokers (and others) are liable in contract for the foreseeable consequences of their negligence, including the adverse consequences of entering into a transaction with a third party, provided such consequences can fairly be held to fall within the scope of the defendant's duty of care. SAAMCO is an example of a special class of case - typically that of a valuer, but not confined to valuers - where the scope of the defendant's duty is confined to the giving of specific information.

14

Next I should say a word about Banque Keyser Ullmann SA v Skandia (UK) Insurance Co. Ltd. [1991] 2 AC 249. The facts were complicated, but are set out with conspicuous clarity in the speech of Lord Millett. I do not repeat them. Prior to SAAMCO, the decision of the House was regarded as depending in the end on a short question of fact, albeit one which eluded the Court of Appeal. The fraud of Mr Lee, and the failure of the insurers to disclose that fraud to the plaintiff banks was at most (in the old forbidden language) a causa sine qua non of the financial loss suffered by the banks. The causa causans was the fraud of Ballasteros. By reason of the latter fraud the insurance which the brokers failed to obtain was in truth valueless.

15

In SAAMCO Lord Hoffmann observed that implicit in Lord...

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