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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Main & Orsv (Giambrone & Law (a firm) & Ors [2017] EWCA Civ 1193 (31 July 2017) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2017/1193.html Cite as: [2018] PNLR 2, [2017] EWCA Civ 1193 |
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ON APPEAL FROM High Court, Queen's Bench Division
Mr Justice Foskett
TLQ/14/0626
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE UNDERHILL
and
LORD JUSTICE MOYLAN
____________________
| Main & Ors |
Claimants/ Respondents |
|
| - and - |
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(1)  Giambrone & Law (a firm)(3) Alessandra Bellanca (4) Anna Cinzia D'Arpa (5) Gabriele Giambrone | Defendants/ Appellants |
____________________
Zia Bhaloo QC & Simon Johnson (instructed by Penningtons Manches LLP) for the Claimants/Respondents
Shantanu Majumdar (instructed by Edwin Coe LLP) for the Claimants/Respondents
Hearing dates: Tuesday 27th & Wednesday 28th June 2017
____________________
Crown Copyright ©
Lord Justice Jackson :
Part 1 Introduction |
Paragraphs 2 12 |
Part 2 The Facts |
Paragraphs 13 31 |
Part 3 The Present Proceedings |
Paragraphs 32 38 |
Part 4 The appeal to the Court of Appeal |
Paragraphs 39 44 |
Part 5 Ground 1: Equitable Compensation |
Paragraphs 45 64 |
Part 6 Ground 2: Solicitors' Accounts Rules |
Paragraphs 65 72 |
Part 7 Ground 3: SAAMCO |
Paragraphs 73 87 |
Part 8 Grounds 4 & 5: Planning Permission and Organised Crime |
Paragraphs 88 - 97 |
Giambrone".
Giambrone. I shall refer to him as "Mr Giambrone". Mr Giambrone became registered to practise in England in April 2005. In 2009 restrictions were placed on his practising certificate. Following a decision of the Solicitors' Disciplinary Tribunal in April 2013, Mr Giambrone lost his entitlement to practise in England.
"Upon the conclusion of a contract which has the purpose of the non immediate transfer of ownership or other real right of enjoyment of a property to be built or an act having the same purposes, or at an earlier time the builder is obliged, on penalty of voiding the contract, which can only be enforced by the purchaser, to obtain a surety and consign it to the purchaser, also in accordance with Article 1938 of the Civil Code, for an amount corresponding to the sums and the value of any additional settlement that the builder has received and in accordance with the terms and conditions laid down in the contract, must still receive from the buyer before the transfer of ownership or other real right of enjoyment."
"Rule 22 Withdrawals from a client account
(1) Client money may only be withdrawn from a client account when it is:
(a) properly required for a payment to or on behalf of the client (or other person on whose behalf the money is being held);
(aa) properly required for a payment in the execution of a particular trust, including the purchase of an investment (other than money) in accordance with the trustee's powers;
(b) properly required for a payment of a disbursement on behalf of the client or trust;
(c) properly required in full or partial reimbursement of money spent by the solicitor on behalf of the client or trust;
(d) transferred to another client account;
(e) withdrawn on the client's instructions, provided the instructions are for the client's convenience and are given in writing, or are given by other means and confirmed by the solicitor to the client in writing."
Giambrone at a property exhibition in London. They told him about the planned JoTS development and said that they needed lawyers to whom they could refer prospective purchasers. Mr Giambrone agreed to accept that role.
"By the signing of the present agreement, V.F.I., Overseas Properties Real Estate Agent Limited gives - and RDV srl takes note irrevocable mandate to
The law firm "
Article V of the Veco mandate was in similar, but not identical, terms.
"We will provide a full legal package with qualified lawyers and handle all aspects of moving in, including any legal documentation that is required."
The lawyers referred to in that paragraph were Giambrone.
Giambrone, who then sent a retainer letter. The retainer letters were all in similar form and included the following passages:
"Re: Purchase of your property in Calabria
We have been passed your details from VFI following your reservation of a new property in Jewel of the Sea (Calabria).
We have been requested to complete the necessary due diligence over the development, issue the Preliminary Contracts and to advise you in relation to the legal aspects of the aforementioned purchase. We have experience in advising a growing number of foreign investors in the Calabrian market, which is now fast becoming one of the "hot spots" in the Italian real estate market, with prices increasing rapidly.
Our lawyers from the London office have visited the area of Calabria and met with the representatives of VFI and of the Builders in order to discuss the legal aspects of these new developments in more detail.
Moreover, we will soon be opening a new office in Reggio Calabria: we hope to build a long relationship with you and be able to advise you on all different aspects of Italian law after you complete your purchase in Italy.
A brief overview of the purchasing process
Although we may been recommended to you by the Promoters, we wish to emphasise that our Italian Lawyers are completely impartial from any other party associated with this purchase and therefore we will act solely in your best interests and advise you on all aspects of Italian law which will be relevant to your purchase.
The initial part of our remit is to carry out the customary due diligence over the Development and draft the Preliminary Contract in compliance with the provisions of the Italian Civil Code and local legislation. Our Italian Lawyers have already requested a number of documents to enable us to carry out the due diligence over the Limited Company which is building the Complex.
We have already carried out a number of land registry searches, called visure catastali, visure ipotecarie, and check the certificate di destinazione urbanistica, to verify that everything stated in the initial draft of the Preliminary Contact is correct.
We would routinely carry out enquiries to ensure that there are no liens, encumbrances, and rights of way in favour of third parties and that the land is legally registered with the urban registry, and, furthermore, that valid planning permission is in place for the project to go ahead.
We will ensure that the Builders/developers or the Promoters will provide us with a copy of a "fidejussione bancaria", which is now mandatory in certain circumstances: this is a bank loan guarantee that has to be provided by them so that, in the event of bankruptcy, we can claw back any funds anticipated at this stage directly from the guaranteeing Bank.
We will draft a Report on Title which will give you a clear idea of the legal status of the apartment that you wish to purchase and of the land upon which it is being built. At the same time, the final version of the Preliminary Contract will have been prepared by our lawyers and it will be sent to you for your consideration. Our documents are always drafted in Italian and English so that you will know the exact content of what you are required to sign: however, it is important to note that only the Italian version of the Contract will be legally binding.
Our professional fees
All our lawyers in the London office are regulated by strict rules of conduct imposed by the Law Society (England and Wales) and we have professional indemnity insurance of £5,000,000 for your extra peace of mind. You can rest assured that we will constantly strive to provide you with the highest level of service possible."
Giambrone prepared a letter, which gained wide circulation (as described in paragraph 100 of the judgment below). It included the following passages:
"Re: Due Diligence Report
"Jewel of the Sea" Development (Brancaleone)
We would like to confirm that
Upon inspection of the land registry searches, we have found that the Municipality of Brancaleone has granted two building licences on the 7th July 1994 (27/1994 and 26/1994) for the building of a residential complex located in Brancaleone, and hereby referred to as "Jewel of the Sea", for the sheets n. 45 (parcels 165, 166, 85 and 86) and sheet 45 parcel 175.
Finally, we also confirm that the Developer has provided us with a sample of a "Fidejussione Assicurativa" which is a bank loan guarantee valid under the current Italian legislation in accordance to decree 122 of 2005 and is a safeguard to any potential buyers for the event of default or bankruptcy of the building company."
Giambrone sent to their clients a report on title and a preliminary contract for signature.
"
Giambrone stated that it was only able to advise on legal aspects of the purchase. In my view, that brief passage did not have the effect of undermining the much wider obligations which Giambrone undertook in the documents quoted in paragraphs 21 - 24 above.
Giambrone wrote to clients in the following terms:
"We write with reference to the above transaction to acknowledge safe receipt of the deposit in our client account.
We confirm your instructions to release the exact funds received in our client account to the Vendor upon receipt of their signed copy of the preliminary contract and the issue of a bank loan guarantee in compliance with Italian Decree 122/05."
Giambrone never received from either RDV or Veco guarantees which complied with Decree 122. The guarantees which the developers provided were non-compliant. First, the issuers were registered under CLBC Article 106, not CLBC Article 107. Secondly, the guarantees lasted only for one year, rather than up to the date of completion of purchase. Some, but not all, of those guarantees were replaced by later guarantees. But again, those later guarantees came from issuers registered under CLBC Article 106 and they were only valid for one year.
Giambrone was not perturbed by those matters. It therefore proceeded to release the deposits received. It paid out 38% of those monies to RDV or Veco and 62% to VFI as commission. Giambrone did not inform its clients that such a small part of the deposits was going to the builders and such a large part was going to the promoters as commission.
Giambrone's clients never acquired units at Brancaleone. They rescinded their contracts of purchase but were unable to recover their deposits.
Giambrone, as their solicitors, were responsible for the losses. Accordingly, they commenced the present proceedings.
Giambrone in relation to its conduct of 119 attempted purchases of properties in JoTS. Each of the claimants lives in England or the Republic of Ireland. Some claimants are represented by Penningtons Manches LLP, others are represented by Edwin Coe LLP. These two cohorts have been referred to as the "PM claimants" and the "EC claimants". A few of the PM claimants face a limitation defence. These are referred to as the "PM limitation claimants". There are other special features affecting individual cases, which will be important in due course but which do not affect the present appeal.
Giambrone & Law (a firm) [2015] EWHC 1946 (QB). I shall refer to this as "the July judgment".
Giambrone was in breach of duty to the claimants in eight respects:
i) Failing to tell the claimants that the guarantees did not comply with Article 3.1 of the Decree: paragraph 128.
ii) Failing to advise on the inadequacy of the terms of the preliminary contract, particularly the apparent inability of the purchasers to terminate the contract for delay: paragraphs 184, 185.
iii) Failing to undertake any checks additional to looking at the face of the planning permission: paragraph 326. Failing to make any inquiry into the intrinsic validity and integrity of the planning permission: paragraph 198. See also paragraphs 315, 320-322.
iv) Paying commission to VFI out of the deposits without telling the clients the amount payable to VFI. The appellants should have told clients about the division at the outset and did not: paragraphs 375, 392 and 396. They deliberately concealed the existence of the mandates and therefore the level of commission payable to VFI from the claimants in a letter dated 29 April 2009: paragraphs 459 - 460. Failing to disclose the commission payable to VFI was also a breach of the implied duty to seek informed consent to the withdrawal of client money under rule 22 (1) of the Solicitors' Accounts Rules and payment out in those circumstances was a breach of trust: paragraphs 282 to 284.
v) Failing to carry out adequate due diligence: paragraph 443. On the scope of the enhanced due diligence, see paragraphs 289, 291, 297 to 298, 302 to 303 and 306.
vi) Failing to advise the purchasers that the non-returnable deposit of 50% was unusually high and failing to explain the reasons for this: paragraphs 362, 368, 373.
vii) Permitting the claimants to part with and paying out the deposits when guarantees extending to the completion date were not in place: paragraph 415. The fact that the guarantees were issued by Article 106 financial institutions should have been drawn to the attention of the purchasers and should have led to no deposits being paid out. Payments were accordingly made in breach of trust (paragraph 417), breach of contract (paragraph 402) and breach of the duty of care in tort (paragraph 402 and paragraph 1 (c) of the order dated 13 January 2016).
viii) Failing to alert purchasers to the risks of criminal activity in the construction industry in Calabria in appropriate terms, and to undertake enquiries into such activity: paragraph 437.
Giambrone & Law (a firm) [2015] EWHC 3315 (QB). I shall refer to this as "the November judgment".
i) The majority of claimants (as listed in the court's order) should recover as equitable compensation for breach of trust the full amount of the deposit which they had paid to Giambrone.
ii) The PM limitation claimants should recover as equitable compensation for breach of trust that element of their deposits which Giambrone had paid out to VFI. Giambrone's deliberate concealment defeated any limitation defence to that head of claim.
iii) It was not appropriate to grant relief to Giambrone under section 61 of the Trustee Act 1925.
Giambrone was aggrieved by the judge's decision. Accordingly it appealed to the Court of Appeal.
Giambrone applied for permission to appeal on seven grounds.
i) The judge erred in awarding equitable compensation, because even if Giambrone had obtained guarantees complying with Decree 122, the claimants would have recovered nothing under those guarantees in the circumstances which arose.
ii) The judge erred in finding that Giambrone's payment of commission to VFI, without informing the claimants of the level of commission was a breach of trust.
iii) The principles formulated in South Australia Asset Management Corporation v York Montague Limited [1997] AC 191 prevented the claimants from recovering part or all of their deposits either as damages for breach of contract/negligence or as equitable compensation for breach of trust.
iv) Giambrone checked that apparently valid planning permissions were in place for JoTS. It was not under a duty to do more.
v) Giambrone was under no duty to warn the claimants that in Calabria there was a risk of criminal activity in the construction industry.
Giambrone was obliged to hold the purchasers' deposits until such time as it received guarantees which complied with Articles 2 and 3 of Decree 122. In the event, neither RDV nor Veco ever did supply guarantees which complied with those articles. The guarantees which RDV and Veco provided to purchasers through Giambrone were deficient in two respects, as set out in Part 2 above.
Giambrone to pay out the deposits to the promoters and the developers in those circumstances. On appeal Giambrone does not challenge that finding.
Giambrone had obtained compliant guarantees before paying out the deposits, the claimants would be in no better position.
Giambrone wrongly paid out.
"My first concern with proceeding by analogy with tort is that it overlooks the unique foundation and goals of equity. The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently, the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged."
McLachlin J added at 156 that she preferred to start from trust, "using the tort analogy to the extent shared concerns may make it helpful".
"I agree with the view of Professor David Hayton, in his chapter "Unique Rules for the Unique Institution, the Trust" in Degeling & Edelman (eds), Equity in Commercial Law (2005), pp 279-308, that in circumstances such as those in Target Holdings the extent of equitable compensation should be the same as if damages for breach of contract were sought at common law. That is not because there should be a departure in such a case from the basic equitable principles applicable to a breach of trust, whether by a solicitor or anyone else. (If there were a conflict between the rules of equity and the rules of the common law, the rules of equity would prevail by reason of section 49(1) of the Senior Courts Act 1981, derived from the provisions of the Supreme Court of Judicature Act 1875 (38 & 39 Vict c 77).) Rather, the fact that the trust was part of the machinery for the performance of a contract is relevant as a fact in looking at what loss the bank suffered by reason of the breach of trust, because it would be artificial and unreal to look at the trust in isolation from the obligations for which it was brought into being. I do not believe that this requires any departure from proper principles."
"My analysis accords with the reasoning of Lord Reed JSC and with his general conclusions, at paras 133-138. Equitable compensation and common law damages are remedies based on separate legal obligations. What has to be identified in each case is the content of any relevant obligation and the consequences of its breach. On the facts of the present case, the cost of restoring what the bank lost as a result of the solicitors' breach of trust comes to the same as the loss caused by the solicitors' breach of contract and negligence."
"135. The measure of compensation should therefore normally be assessed at the date of trial, with the benefit of hindsight. The foreseeability of loss is generally irrelevant, but the loss must be caused by the breach of trust, in the sense that it must flow directly from it. Losses resulting from unreasonable behaviour on the part of the claimant will be adjudged to flow from that behaviour, and not from the breach. The requirement that the loss should flow directly from the breach is also the key in determining whether causation has been interrupted by the acts of third parties. The point is illustrated by the contrast between Caffrey v Darby, where the trustee's neglect enabled a third party to default on payments due to the trust, and Canson Enterprises, where the wrongful conduct by the third parties occurred after the plaintiff had taken control of the property, and was unrelated to the defendants' earlier breach of fiduciary duty.
136. It follows that the liability of a trustee for breach of trust, even where the trust arises in the context of a commercial transaction which is otherwise regulated by contract, is not generally the same as a liability in damages for tort or breach of contract. Of course, the aim of equitable compensation is to compensate: that is to say, provide a monetary equivalent of what has been lost as a result of a breach of duty. At that level of generality, it has the same aim as most awards of damages for tort or breach of contract. Equally, since the concept of loss necessarily involves the concept of causation, and that concept in turn inevitably involves a consideration of the necessary connection between the breach of duty and a postulated consequence (and therefore of such questions as whether a consequence flows "directly" from the breach of duty, and whether loss should be attributed to the conduct of third parties, or to the conduct of the person to whom the duty is owed), there are some structural similarities between the assessment of equitable compensation and the assessment of common law damages.
137. Those structural similarities do not however entail that the relevant rules are identical: as in mathematics, isomorphism is not the same as equality. As courts around the world have accepted, a trust imposes different obligations from a contractual or tortious relationship, in the setting of a different kind of relationship. The law responds to those differences by allowing a measure of compensation for breach of trust causing the loss to the trust fund which reflects the nature of the obligation breached and the relationship between the parties. In particular, as Lord Toulson explains at para 71, where a trust is part of the machinery for the performance of a contract, that fact will be relevant in considering what loss has been suffered by reason of a breach of the trust."
Giambrone to liaise with the providers of the guarantees. Giambrone had no input into the drafting of the guarantees or any of the other formalities under Italian law. Giambrone's role was to receive whatever guarantees the developers provided and to check whether or not they complied with Decree 122. If (and only if) the guarantees did comply, then the solicitors were under a duty to release the deposits. In the language of Lord Toulson in AIB at [76], that was "the content" of the "relevant obligation".
Giambrone should have remained as custodians of the deposit monies until the preliminary contracts were rescinded, and then paid those monies back to their clients.
Giambrone's breach of contract consisted of wrongfully paying out deposit monies which it had undertaken to keep safe. The contractual measure of damages is the amount of the deposits, because those monies have now vanished. This is a case where equitable compensation and contractual damages run in tandem.
Giambrone held the deposits received from purchasers in its client account. Giambrone could only make withdrawals from the client account in accordance with rule 22 of the Solicitors' Accounts Rules. I have set that rule out in Part 1 above.
Giambrone ought to have informed its clients before paying out such a substantial part of the deposit to VFI as commission. The payment of those sums to VFI without notice to the clients was a breach of rule 22 of the Solicitors' Accounts Rules. That was also a breach of trust: see Bristol and West Building Society v May, May and Merrimans (a firm) [1996] PNLR 138 at 158 159. Giambrone deliberately concealed that breach by pretending, in its letter to purchasers dated 29th April 2009, that it had only just discovered the commission paid to VFI. Therefore the PM limitation claimants can recover the amount of the commission. There can be no limitation defence to that head of claim.
"The defendant knew that he was a trustee of the money for the society; but he did not realise that he had misled the society and could not know that his authority to complete had determined (if indeed it had). He could not be bound to repay the money to the society so long as he was ignorant of the facts which had brought his authority to an end, for those are the facts which are alleged to affect his conscience and subject him to an obligation to return the money to the society."
Giambrone did not initially realise that it ought to disclose to clients the commission payments to VFI.
"As has already been indicated (see paragraphs 257 263), I am satisfied that the firm realised by no later than April 2009 (if, which I doubt, it had not realised before) that it should have told the claimants at the outset about this division. This could be the only explanation for the pretence maintained in about April/May 2009 (because pretence is what it was) that it had only recently discovered that the level of commission received by VFI was as it was then acknowledged to be."
"However, as I perceive it, the substantive claim made by the claimants arising on the basis of the Mandates is the knowledge they demonstrate that the firm had at the outset about the levels of commission. The claim advanced is that, in breach of duty, the firm failed to reveal it to the individual claimants prior to signing the preliminary contract. That claim could only be advanced when a claimant knew or ought reasonably to have known the fact that the firm knew about this at the outset, but did not reveal it to the claimants, and the letter of 29 April 2009, which revealed the level of the commission, contained the pretence that the firm had only recently discovered it.
In my judgment, a fundamental fact underlying the cause of action based upon the failure to reveal the commissions was suppressed deliberately on 29 April 2009 and the full truth was not revealed until the Mandates were revealed later."
Giambrone ought to have disclosed the payment of such large and over-generous commissions. Giambrone appreciated this as soon as it gave serious consideration to the matter. Giambrone felt so embarrassed about its conduct that it sought to suppress the truth. In my view that package of circumstances is sufficient to "affect the conscience" of Giambrone in the manner described by Millett LJ in Mothew at 23.
"I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."
"73. It seems to me that the primary question raised by this appeal is as to the scope of Wikborg Rein's duty. It may be that in the context of contract that might have to be rephrased as a question of assumption of responsibility, but the Saamco line of cases shows that English law is prepared to adopt the phraseology of tort, scope of duty, even in cases where there are parallel obligations in contract and tort. I bear in mind that in the present case, which is formally one of Norwegian law, Wikborg Rein's obligation arises only in contract. But the obligation remains one to exercise a duty of care, and it has been common ground in this court, as before Tomlinson J, that it is appropriate to consider the scope of that (contractual) duty in the terms laid down in Saamco and the cases which follow it.
74. In this context, the preliminary question is whether this is a category 1 or category 2 case. Mr Pollock contends for the former, and Mr Railton contends for the latter. In my judgment, however, this is a category 1 case. For these purposes, I am prepared to assume, with Lord Lloyd in Aneco, that category 2 reflects the primary category, and category 1 reflects the exceptional cases. Nevertheless, it seems to me that it is difficult to see Wikborg Rein's duty as being that of a general, as distinct from a specific kind. Wikborg Rein was asked to advise about a specific question, the validity of the proposed swap contracts. It did not have a general retainer to report or notify problems about the proposed transactions. It was not concerned with the creditworthiness of the Kommunes. It warned Depfa that it could not execute a judgment against the Kommunes, so that in that, different, sense, its contractual rights could not ultimately be vindicated or, one might say, be enforced. In such circumstances, Depfa knew that it ultimately relied on the creditworthiness and good faith of the Kommunes: and on those qualities Depfa made up its own mind and was wholly confident.
75. It is of course true that Depfa would not have entered into the transactions at all unless it could be advised that the contracts were valid and within the Kommunes' capacity. In effect, that causal connection between advice and loss goes without saying in all such cases. It is not in itself the reason for finding that the scope of duty concerned embraces all the loss consequential upon entering into the transaction concerned. For these reasons it does not seem to me that it is a sufficient explanation for characterising a case as a category 2 case to say that, without the forthcoming albeit negligent advice, the transaction concerned would not have been "viable". That is simply another way of saying that, if the claimant had not received the advice it did, it would not have entered into the transaction. A lender who is given a negligent overvaluation does not know that his transaction is not viable on the basis of the true value of the property concerned: but if he would not have gone ahead had he known the truth, it is because the transaction was not commercially viable, or not safely so. Alternatively, if he would have gone ahead even on the basis of that true value, for instance because he was content to rest on the safety of the borrower's covenant alone and was not concerned with the passing value of the property, then there has been no reliance and for that separate reason no relevant loss."
"(1) Where a plaintiff enters into a loss-making transaction in reliance on the defendant's negligent advice, he is not entitled to recover the whole of the loss on the transaction merely because the defendant was aware that he would not have entered into it but for the advice he received. He is liable only for the loss which is due to the advice being wrong.
(2) The court does not ask what would have happened if the defendant had performed his duty and stated the true facts (in which event the transaction would not have gone ahead at all). This is not the basis of the defendant's liability.
(3) The correct measure of damages is not the difference between the loss which has in fact occurred (the loss on the transaction) and the loss which would have occurred if the defendant had performed his duty and stated the facts correctly (which would have been zero since the transaction would not have gone ahead). This would not exclude the loss which ought to be irrecoverable. They are measured by the difference between the loss on the transaction and the loss which would have been sustained if the facts had been as the defendant represented them to be (when the transaction would still have gone ahead).
(4) The case is different where the defendant assumed responsibility for advising generally what course of action to take in relation to a particular transaction. But it is necessary to identify the transaction in question, for he is not liable for loss arising from some other transaction even though it may be linked with it, particularly if it called for the exercise of a different professional judgment. A broker should not lightly be assumed to undertake responsibility for an underwriting decision.
(5) The defendant's liability is measured by the scope of his duty. Accordingly, where the complaint is that he failed to report or give any advice at all on a particular matter, the plaintiff must prove that he was under a legal obligation to do so. It is not enough that he would probably have volunteered the information if asked."
i) Lord Sumption approved the analysis of SAAMCO by Rix LJ in Haugesund: see [42]. Lord Sumption approved the analysis of SAAMCO by Lord Millett in Aneco, except that it did not deal with causation of loss: see [44]. For ease of reference, I have set out the approved passages in paragraphs 76 - 77 above.
ii) The true distinction between categories 1 and 2 does not depend upon information or advice. The distinction lies in whether D is guiding the whole decision making process or merely providing part of the material on which C will rely: see [39] [41]. In a category 2 case "it is left to the advisor to consider what matters should be taken into account when deciding whether to enter into the transaction": [40].
iii) The SAAMCO cap excludes loss that would still have been suffered even if the erroneous information had been true. That "is simply a tool for giving effect to the distinction between (i) loss flowing from the fact that as a result of the defendant's negligence the information was wrong and (ii) loss flowing from the decision to enter into the transaction at all".
iv) Valuers and conveyancers usually fall into category 1. They provide part of the material on which the client bases its decision: see [44] [47].
Giambrone decided what information the claimants needed and provided that information to them. The documents which I have referred to in Part 2 above show that Giambrone were (albeit imperfectly) guiding the whole decision-making process. They were telling the clients what protection they needed, what sums they should pay out and when it was safe to pay those sums out.
Giambrone as their experienced Anglo-Italian lawyers.
Giambrone's duty.
Giambrone's duty. It was Giambrone who explained to the claimants their rights, liabilities and protections under Italian law. Giambrone explained to the claimants that they would be adequately protected by guarantees complying with Decree 122. Having done all that, Giambrone proceeded to pay out the deposits when no such guarantees were in place.
Giambrone undertook to carry out extensive due diligence, including ensuring that there was valid planning permission. In the event, there were serious flaws in the planning permissions, such that they were suspended in June 2008. The nature of the planning problem seems to have been within the knowledge of Giambrone and its experts (see paragraphs 190-191 and 196-197 of the judgment), but they did not reveal the details.
Giambrone undertook to carry out an enhanced level of enquiry into the existence of valid planning permissions. In fact Giambrone did no more than observe that there were apparently valid planning documents. The judge held that Giambrone should have done more than that, but he left over to the second trial whether further investigation by Giambrone would have uncovered the problem.
Giambrone undertook to carry out an enhanced level of enquiry into the planning permissions. Giambrone, but not his clients, knew perfectly well that Calabria was a "crime-ridden part of Italy" (see paragraph 105 of Giambrone's defence in the Noel action). In cross-examination Mr Giambrone said that crime infiltrated all sectors. That included the construction sector. Any lawyer with that degree of knowledge about how things were done in Calabria would do more than merely take the planning permissions at face value. Whether Giambrone's breach of duty in this regard had any practical consequence will be a matter for the second trial, if there is one.
Giambrone did not warn the claimants about the risk of organised crime in Calabria. Quite the opposite. The documents which Giambrone sent out suggested that everything was above board and the clients were making safe investments in holiday homes.
Giambrone knew perfectly well about Mafia activities affecting all sectors in Calabria, including the construction sector. He was acting for foreign clients whose knowledge of the area was based upon VFI's glossy brochure and the clients' 'inspection visits'.
Giambrone's failure to warn the claimants about the risks of criminal activity in the construction sector was a breach of duty. He was entitled to make that finding.
Lord Justice Underhill :
Giambrone was obliged to inform its clients about the size of VFI's commission and/or that, in consequence of it, so large a proportion of the deposit was payable to VFI rather than the relevant developer. I was not sure that the split between promoter and developer was a matter in which a purchaser in a case like this would have a legitimate interest. But the Judge's conclusion to the contrary was based on his evidently very thorough understanding of the unusual circumstances of this particular case, including what he found to have been Giambrone's deliberate decision to conceal the fact that it had known this information from the start; and I am not prepared to say that he was wrong.
Giambrone should have conducted "a degree of enquiry
higher than normal" into whether the developments had planning permission; and he appears to have decided that, since it admittedly did no more than ascertain that there were planning permissions from the comune which on their face applied to the developments, it was in breach of that enhanced duty. But he made it clear in the following paragraph that the evidence available to him did not enable him to decide what further steps could have been taken. That of course puts in issue whether the breach that he found caused any loss, which was deferred to the next stage of the trial. But to my mind it also undermines the finding of breach. I do not think that it was right for the Judge to hold in the abstract that Giambrone was in breach of an obligation to do more than he did unless and until he was in a position to identify what the further steps were. However, if I am right about this, there is no substantive difference in the nature of the enquiry required at the second stage. On either basis it will be necessary for the Judge to decide, with the benefit of such further evidence as may be called, what further steps, if any, Giambrone could and should have done to ascertain whether the developments had valid planning permission; and, if so, what information such steps would have disclosed.
Giambrone could really be under an obligation to advise clients about the prevalence of organised crime in the construction industry in Calabria, which might be said to go more to the overall wisdom of the purchase than to a matter within the remit of a lawyer, even a lawyer advising on a foreign purchase. But it is, again, necessary to bear in mind the very particular circumstances of this case and the width of the role undertaken by Giambrone; and I have come to the conclusion that the Judge was entitled to make the finding that he did.
Lord Justice Moylan :
Giambrone was in breach of duty to the claimants in respect of planning permission. In my view, these were breaches which the judge was entitled to find having regard to his conclusion that Giambrone was under an "enhanced level of due diligence" in respect of "checking the validity of the planning permission" (paragraph 315) based significantly on Giambrone stating in the retainer letter that the firm "would "carry out enquiries to ensure
that valid planning permission is in place
"" (paragraph 313).
Giambrone had undertaken in respect of planning permission did not fulfil this enhanced level of obligation. This is not surprising because Giambrone did not accept that there was any such obligation. The judge referred to one expert who gave evidence that ""the regulatory and specialist plans" would have demonstrated the "mistake on the part of the municipality
"". The judge also gave examples of the type of additional enquiries which, in his view, were required.