Health real estate
For all the latest legal and regulatory news and comment in healthcare estates and facilities management
Our market-leading Information Law team regularly publish articles and updates addressing the ever-evolving Information Law landscape.
Considering the future landscapes of our cities
For all the latest news and comment on employment and pensions law.
We have acted for clients in the majority of significant product liability cases that have been decided in the UK over the last 35 years. Our product…
For all the latest legal and regulatory news and comment in health and social care integration
This collection looks at the latest news, comment and development on the law affecting mental health services. The law affecting mental health…
Events and online training for the health and social care sector.
For all the latest news and comment in clinical negligence healthcare law
This collection addresses the full spectrum of cyber security and data risk management – the zeitgeist of our age.
What is a Collection? A Collection is a selection of features, articles, comments and opinions on any given theme or topic. It allows you to stay…
The Accountant's Liability Collection brings you topical news and insight of interest to accountants, actuaries, trustees and other financial…
Technology, brands and intellectual capital are key assets for any successful business. Our intellectual property (IP) team are experts at helping…
DAC Beachcroft's LatAm Quarterly Newsletter discusses topical news and issues in Latin America
Welcome to the Construction Risks collection. This space is used to report upon issues of interest to those who seek to allocate, manage and reduce…
The Solicitors' Risk Collection addresses issues and developments affecting legal practitioners, and the professional indemnity insurers of legal…
For all the latest news and comment in clinical regulatory healthcare law
This collection looks at our Safety, Health and Environment Team and the products and services they can provide. In the climate of increased…
For all the latest new and comment in tax law.
This collection contains DAC B eachcroft's latest report, The Route to Integrated Healthcare , which provides the first practical examples of how…
The European General Data Protection Regulation (GDPR) came into force on 25 May 2016. A rewrite of European data protection law, the GDPR imposes…
The Insurance Act 2015 comes into force in August 2016 and will represent a significant change to insurance contract law in this country. This…
For the latest news and comment on Corporate, M&A and Equity Capital Markets.
Find advice, commentary and thought leadership on all aspects of Director's & Officer's Insurance; from contract formation through to complex…
For all the latest news and comment on employment and pensions law.
Considering the future of housing
Considering the future of retail
The GC Collective collection offers insight and comment for General Counsels (GCs) and in-house legal teams.
Organisations face ever-increasing expectations from Government, regulators, customers or service users, and other stakeholders, so scrutiny and…
For all the latest news and comment in corporate regulatory healthcare law
For all the latest news and comment in employment and pensions healthcare law
For all the latest legal and regulatory news and comment in health technology
Legislative changes are bringing major changes to the Insurance landscape. This collection houses DAC Beachcroft's alerts on the pertinent issues.
The Insurance Market Conditions and Trends report is DAC Beachcroft's insurance sector flagship publication. Now in its tenth year, the report…
In response to client suggestions and requests, DAC Beachcroft's insurance sector flagship publication.
DAC Beachcroft Dublin specialises in insurance, professional indemnity, defendant personal injury, health, commercial litigation and employment work.…
For the latest news and comment on public procurement law.
For the latest news and comment on banking and finance disputes.
Analysis, commentary and checklists on the legal and governance implications of Brexit on businesses operating in, and trading with, the UK
This collection looks at the latest news and comment on commercial contracting healthcare law. With the health and social care sector under…
This collection looks at the latest strategic, commercial, regulatory and negligence legal and advisory news and comment in health and social care. …
Published On: 9 September 2015
This recent Court of Appeal decision Swynson Ltd v Lowick Rose LLP highlighted again the importance of the letter of engagement as an effective means of reducing liability. It also concerned a relatively unusual legal principle under which the negligent adviser's liability will not necessarily be reduced where the Claimant's loss has been reduced or extinguished through events brought about other than through attempts by the Claimant to mitigate its loss.
The firm of accountants, Hurst Morrison Thomson LLP (now Lowick Rose LLP, in liquidation) ("HMT"), had accepted at trial that it had been negligent in its preparation of due diligence reports to Swynson Limited ("Swynson"), and that this had caused their loss.
The negligent report was on an American company, "Evo", and in reliance on this report, in 2006 Swynson lent £15m to Evo Medical Solutions Limited ("EMSL") to invest in Evo. Evo encountered cashflow difficulties quickly, and over the next two years Swynson made a further two loans to EMSL to seek to protect EMSL's investment in the company, but to little avail.
Swynson was indirectly owned by "Mr Hunt", and as part of the further loans, he also became majority owner in EMSL. In late 2008, due to his concern about the amount that EMSL owed to Swynson, and for tax reasons, he personally made c.£18.6m available to EMSL. EMSL then used c.£17m of this to settle the first two loans from Swynson to EMSL.
Evo's financial difficulties continued and eventually Evo was wound up and neither Swynson nor Mr Hunt (who had become indirect owner of Evo also) received any monies from the realisation in repayment of the loans. No other amounts under the loans were repaid.
Swynson and Mr Hunt had claimed against HMT for the total of the loans to EMSL, together with accrued interest, of £19.75m. The claim brought by Mr Hunt personally failed, on the basis that the Engagement Letter was between Swynson and HMT and not with Mr Hunt; itself a salutary reminder of the importance of engagement letters, as Mr Hunt was found not to have been owed a duty of care by HMT because he was not a named client in HMT’s engagement letter.
That left Swynson's claim, which it was able to pursue successfully. At first instance the Judge held in Swynson’s favour that the repayment (through Mr Hunt's refinancing) of the first two loans from Swynson to EMSL was collateral to the loss caused by HMT's breach of duty and did not extinguish Swynson's loss. Accordingly Swynson was awarded damages in the amount of the total amount loaned, although this was limited to £15m according to the cap on liability in HMT's letter of engagement.
HMT appealed this decision on the basis that it should not be liable for loans which had been repaid.
The Court of Appeal dismissed HMT's appeal and ruled, by majority, that the loan repayments through Mr Hunt's refinancing did not reduce the damages recoverable.
The judgment confirmed that although ordinarily loan repayments would be brought into account in an action by a lender against the negligent adviser, indeed this was the position maintained by the dissenting Judge, Lord Justice Davis, the majority of the Court of Appeal held that this principle did not apply in this case.
In his leading judgment, LJ Longmore explained that in his view, this case felt into a category where the reduction of the claimant’s loss (i.e. through the refinancing by Mr Hunt in 2008) was achieved without steps taken in mitigation of the loss, the reduction was achieved through collateral events. Other examples of such events include insurance payments, benevolent payments and disablement (and other) pension payments.
The test which LJ Longmore applied to determine whether the loan refinancing in 2008 fell within this category, was whether the loan repayments arose out of the consequences of the accountant's breach of duty and in the ordinary course of business. Only if both elements were satisfied he said that the avoided loss be taken into account in the assessment of damages.
Applying this "test", LJ Longmore found that Swynson was unable to mitigate its loss as there was no prospect of it selling the debt to a third party for comparable value and the loan repayments did not in consequence arise in the ordinary course of business; there was no question of Mr Hunt funding repayment of such a loan on the same terms for any other company. In conclusion therefore the test was not satisfied and the loan repayments should not be brought into account.
The decision was yet again a valuable reminder of the importance of the terms of the Letter of Engagement; in this case it was the only effective means of reducing the negligent accountants' liability.
As for the decision that the claimant’s refinancing of its loan had not extinguished its loss, this is a difficult area of the law to predict the result. LJ Longmore appears to have been influenced in reaching his conclusion by a desire to prevent the negligent accountants avoiding full liability for the disastrous investment in the American company, Evo; concluding that it would not seem "sensible" for the repayment of Swynson’s loans to be applied to the benefit of the negligent adviser to reduce its liability. However, technical defences are often successful under UK law in the interests of legal certainty. The fact that this decision was reached despite a well-reasoned dissenting judgment, creates uncertainty, albeit the man on the Clapham omnibus might agree with the result.