Neutral Citation No:  [2002] EWCA Civ 1327	Case No:  2001/2892

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
(His Honour Judge Hawkesworth QC)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date:  4th October 2002

Before:

LORD JUSTICE SIMON BROWN
(Vice-President of the Court of Appeal Civil Division)
LORD JUSTICE MANCE
and 
LORD JUSTICE LATHAM
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Between:

	PRIMAVERA	Claimant/
Respondent	
	- and -		
	ALLIED DUNBAR ASSURANCE PLC	Defendant/
Appellant	

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J Stuart-Smith Esq, QC & D Crowley Esq
(instructed by Messrs Wragge & Co) for the Appellant
E Bannister Esq, QC & J Gibbons Esq
(instructed by Messrs John Welch & Stammers) for the Respondent

Hearing dates:  23/24th July 2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

Lord Justice Simon Brown:
1.	Luigi’s of Covent Garden has long been a successful restaurant.  Its effective owner is Mr Luigi Primavera, the claimant in these proceedings, the respondent to this appeal.  He owns 99%, his wife 1% of the shares in L Primavera Limited, the restaurant’s legal owners.  In February 1987 the respondent wished to develop a second Luigi’s restaurant, nearby in Catherine Street.  He raised for the purpose a loan of £500,000 and linked this to an executive retirement plan (“ERP”), a pension scheme designed to produce a tax free lump sum of £500,000 for the repayment of the loan.  He was advised in all this by the appellants, in particular by their agent Mr Freedman.  It was the appellants, indeed, who had initially approached him, another of their agents having noticed his planning application for Catherine Street.  The pension plan he bought was theirs.  They too arranged the £500,000 loan, advanced by Kleinwort Benson.
2.	The respondent was 52 in February 1987;  he was to be 60 in July 1994.  For the ERP to work, that is to say for the scheme to produce a tax free lump sum of £500,000, the respondent needed to receive Schedule E earnings of not less that £334,000 per annum for three consecutive years during the plan’s proposed seven year operation (more, if he was to take the lump sum payment before reaching 60).  Of this requirement, however, the respondent was told nothing.  Rather than advising him of this, the judge found, Mr Freedman intentionally withheld the information lest it cost him his commission, the largest he had ever received from the sale of an ERP.  During these years the respondent was in fact being paid by his company a salary of only some £50,000 per annum, although he was drawing substantially more by way of dividend.  The restaurant’s profits, however, were such that there would have been no difficulty in paying him the qualifying income required.  Nor, it has been accepted for the purposes of these proceedings, would such payments have disadvantaged the respondent or his company in any way.
3.	In March 1995 the respondent decided to take the tax free £500,000 that he supposed to be available under the scheme.  He had by then reached 60 and had in any event been disappointed by the fund’s performance over the previous year.  Only then did he discover that for want of the qualifying income the tax free lump sum available was in fact only £125,875.  Only then too did the appellants tell him what for several years past had been their belief, namely that a delay in finalising the respondent’s ERP had caused it to be caught by the Budget changes of 17 March 1987 under which the tax free lump sum available would in any event have been limited to £150,000.  That information too the judge found had been intentionally withheld by Mr Freedman lest it “rock the boat”.  In fact, as the respondent’s solicitors’ own inquiries of the Inland Revenue eventually revealed in early 1997, the respondent’s ERP had never been caught by the 1987 Budget changes.  Ironically, therefore, it was only in 1995, when the appellants ceased to deceive the respondent (as they believed they had been doing) by their continuing failure to tell him of the cap which they understood to have been brought about by the 1987 Budget, that they came in fact to misrepresent the actual legal position.
4.	When the respondent found that only £125, 875 was available to him tax free in 1995 he decided to leave the fund in place, albeit he ceased making any further premium payments (his past contributions having amounted to some £601,000).  He was understandably angry.  On 11 October 1996 he issued a writ claiming damages for negligent advice and misrepresentation.  Particulars of claim, however, were not served until May 2001 and by then the situation had changed.
5.	The respondent’s solicitors’ discovery in early 1997 that the scheme was not after all caught by the £150,000 cap again opened the way to the possibility of securing a £500,000 tax free lump sum.  The required Schedule E salary payments were accordingly made for the next three years so that finally, by November 2000, the lump sum became available.  In the event the respondent then chose not to take it;  rather the fund continued, and still remains in being, doubtless much depleted over recent months.
6.	The following further facts and figures were either agreed or found by the judge below:
i)	The value of the ERP fund before tax as at 24 March 1995 was £792,896.  Because only £125,875 instead of £500,000 of the fund was available tax free, the value of the fund as at April 1995 was reduced by £101,000.  That sum represents the capitalised loss resulting from having to take a higher proportion of the fund in the form of a taxable annuity.  The fund would, in other words, have been worth £101,000 more in 1995 had the respondent received (as on proper advice he would have received) the qualifying Schedule E salary payments.
ii)	Between March 1995 (when £500,000 tax free should have been available to pay off the £500,000 loan) and November 2000 (when £500,000 tax free finally was available) the respondent serviced the continuing £500,000 loan by making interest payments totalling £140,000.
iii)	The respondent’s solicitors’ charge for clarifying the true position with regard to the 1987 Budget (namely that it had no impact upon the respondent’s ERP) was £2,632.
iv)	The pre-tax value of the ERP rose from £792,896 in 1995 to £1,451,760 in November 2000.  After deducting the £500,000 tax free lump sum, the capitalised value of the November 2000 fund for future pension payments would have been £534,000, greatly in excess of the equivalent figure for 1995.  Under the ERP the respondent had been allowed to switch funds from year to year, an option he had exercised on a number of occasions between March 1995 and November 2000.
v)	Put at its simplest, the respondent’s financial position in November 2000, through having decided in 1995 to leave the fund in being as a result of his inability at that date to take £500,000 tax free to repay the loan, was substantially better than had matters gone to plan.
7.	The trial took place before His Honour Judge Hawkesworth QC, sitting as a Deputy Judge of the High Court, over four days in late November and early December 2001, judgment being reserved until 14 December.  The judge rejected the respondent’s primary case that, properly advised, he would never have taken, or would speedily have abandoned, the pension plan scheme.  Rather he found that the ERP would have been acquired and the qualifying salary payments made, the fund then being used in 1995 to pay off the loan, the balance to purchase an annuity.  That being so, he expressed his central conclusion on damages as follows:
“The claim which is made on the basis that the claimant would in any event have taken ERP contains two elements.  Firstly, the loss represented by the comparison between what he expected and what was possible in April 1995 taking the actual fund value of £792,896 at that date.  Since he had not paid the required level of final remuneration, he would only have been able to take the tax free lump sum of £125,875 as opposed to the expected lump sum of £500,000.  As a result a higher proportion of the pension fund would have had to be taken in the form of a taxable annuity.  The capitalised sum representing that loss was claimed at £101,000.
The second element is the continued cost of financing the bank loan between March 1995 and November 2000 [£140,000].  It should have been paid off by taking the lump sum in March 1995.”
8.	The judge rejected the appellants’ contention that both those elements of the claim fell to be reduced (were indeed eliminated) by reference to the respondent’s improved overall financial position through having in fact left the fund in being until November 2000.  In the event, judgment was given in the respondent’s favour for £241,000 damages and £87,962.40 interest, £328,962.40 in all.
9.	The appeal is directed solely to the question of damages.  In the light of the judge’s trenchant findings of fact the appellants no longer seek to dispute their agent’s negligence, first, in failing to advise the respondent of the need for him to receive qualifying Schedule E salary payments, and secondly, in misrepresenting in 1995 the effect of the 1987 Budget on the respondent’s ERP.  With regard to both matters Mr Freedman was found to have acted disgracefully.  The first, of course, is the more critical:  it was that which disabled the respondent from paying off his debt in 1995 with a tax free lump sum of £500,000 from his pension fund.  The subsequent misrepresentation as to the impact of the 1987 Budget - altogether less reprehensible, of course, than Mr Freedman’s earlier calculated failure to reveal the appellants’ (in fact erroneous) understanding of the legal position - merely led to a delay of two years (and a costs expenditure of £2,632) while the respondent’s solicitors took steps to discover the true position before he set in train the eventual three years’ qualifying payments.
10.	On this appeal the appellants take essentially two points.  First, they contend that to award both £101,000 (representing the reduced value of the pension fund in 1995) and £140,000 (representing the cost of servicing the still outstanding loan for the following five years) involves obvious double counting:  the two heads of claim are logically inconsistent.  If, as principally the respondent contends, he is entitled to have his loss assessed as at 1995, then plainly he cannot also recover the subsequent cost of financing his debt.  Secondly, and more fundamentally, the appellants contend that the effect of their negligence was to cause the respondent not a loss but, as at November 2000, a substantial gain and that in these circumstances he is not entitled to either of the claimed heads of damage.  Giving permission to appeal on the documents, it was this second argument which Longmore LJ addressed in commenting:
“The point on avoided loss is arguable even though the appellants’ case paradoxically appears to be that their (now accepted) breach of duty caused a benefit rather than a detriment to the claimant.”
11.	If the appeal succeeds on that second and more fundamental ground, the respondent by a cross-notice claims at the very least damages of £2,632.  Even if the enhanced value of the fund after 1995 were held to have avoided the loss, the cost of clarifying the legal position must, he submits, be recoverable from the appellants.
12.	There are thus three issues which arise on this appeal, each conveniently referable to a quantified head of claim.
Issue 1:  £140,000
13.	If, as the respondent principally contends, his loss falls to be assessed as at 1995, can he additionally recover £140,000 in respect of the subsequent interest payments due on the outstanding loan?  Although Mr Bannister QC never formally conceded the impossibility of this claim, by the end of the hearing he felt unable to press his argument further.  In reality it is hopeless.  True it is, of course, that by having only £125,875, instead of £500,000, available tax free in the fund for repayment of the loan in 1995 the respondent was unable, unless he found the balance of the money elsewhere, to pay off the loan and thus avoid his continuing interest liability upon it.  Assuming, however, as on this argument one must, that his fund had already been increased in 1995 by a damages award of £101,000 (with interest, if paid later) to compensate him for the shortfall in the tax free lump sum available, then clearly he cannot at the same time recover for future loss on some other basis arising out of the very same shortfall.  If (a critical “if” when one comes to the second issue) it is correct to compensate the respondent on the basis of his loss as at 1995, £101,000 is, on true analysis, the full sum by which the fund was diminished in value through his not having received the qualifying salary payments and thereby become entitled to a tax free lump sum of £500,000.
Issue 2:  £101,000
14.	This is the real issue on the appeal and I do not pretend to have found it an easy one.  At what date does the respondent’s loss fall to be assessed?  If 1995, then his agreed loss is £101,000, the reduced value of the fund through having lost the tax advantage that would have come from making qualifying payments.  If, however, the date for assessment is November 2000 when finally a lump sum of £500,000 became available tax free in the fund, it is an agreed fact that the benefits by then accrued (namely the enhanced value of the fund, which allowed not only for the payment of £500,000 but also for a substantially larger annuity) extinguished the losses sustained during the previous 5½ years whilst the respondent received no annuity and had to continue servicing his debt.  The respondent, of course, contends for 1995, the appellants for 2000.
15.	The argument advanced by the appellants is quite straightforward and at first blush compelling.  It would be quite wrong to compensate the respondent as if he had liquidated the fund and thus crystallised his loss in 1995 when in fact he had not, and when by the date of trial it was known that, by leaving the fund intact, his position by November 2000 had improved beyond what it would have been had the fund been utilised as intended in 1995.  In short, he was substantially better off through being unable as a result of the appellants’ negligence to do what otherwise he would have done.  The loss was accordingly avoided.
16.	Mr Stuart-Smith QC relies in this regard upon the well known speech of Viscount Haldane LC in British Westinghouse Electric and Manufacturing Co -v- Underground Electric Railways Co (London) Limited [1912] AC 673, 689-690:
“… when in the course of his business [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.  … A jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.  The subsequent transaction, if to be taken into account must be one arising out of the consequences of the breach and in the ordinary course of business.”
The respondent railway company had purchased from the appellants a number of defective turbines which they eventually replaced with better machines.  They claimed as damages first the loss which they had already incurred in running the defective turbines (a claim which was not seriously disputed), and secondly the cost of installing the new machines.  The arbitrator, the Divisional Court and the Court of Appeal awarded the respondents both heads of claim, holding that the purchase of the new machines must be taken to have been merely for the purpose of mitigating the damages and that the appellants were not entitled to have the pecuniary advantages arising from the respondents’ subsequent use of these much superior machines and the saving of working expenses which would have been incurred even had their own machines been up to contract standard, brought into account.  The House of Lords allowed the appeal with regard to the second head of claim, Viscount Haldane stating at p691:
“I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain.  The transaction was not res inter alios acta but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach.  Apart from the breach of contract, the lapse of time had rendered the appellant’s machines obsolete, and men of business would be doing the only thing they could properly do in replacing them with new and up to date machines.  The arbitrator does not in his finding of fact lay any stress on the increase in kilowatt power of the new machines, and I think that the proper inference is that such increase was regarded by him as a natural and prudent course followed by those whose object was to avoid further loss, and that it formed part of a continuous dealing with the situation in which they found themselves, and was not an independent or disconnected transaction.”
17.	Although, as pointed out in McGregor on Damages 16th Edition (1997) paragraph 337, British Westinghouse was a contract case and Viscount Haldane’s reference to “the ordinary course of business” formulates the rule in a contractual context:  “A wider formulation, which more readily includes tort, is that matter completely collateral and merely res inter alios acta cannot be used in mitigation of damage” - a formulation well supported by the authorities.  As, however, McGregor continues:
“This has the great merit of stating the rule at once concisely and completely:  but it gives no indication of how the rule operates and of what solutions would be reached in applying it to particular circumstances.  Indeed the line between those avoided consequences which are collateral and those which are not is an exceedingly difficult one to draw.”
18.	One difficulty with Mr Stuart-Smith’s argument seems to me to be this.  True it is that in 1995 the respondent never actually realised his loss;  instead he left the fund in being.  But that is no less true of November 2000.  Why then should the latter date be regarded as the more realistic date for assessing the loss?  By the same token that equity gains in the market swelled the fund prior to November 2000, why should not the respondent equally be able to point to equity losses subsequently?  I recognise, of course, that it was never argued on his behalf that damages could properly be assessed by reference to some date later than November 2000.  The point I make, however, is that there is a degree of artificiality in whatever date is taken.
19.	It seems to me instructive, therefore, to consider what the position would have been had the respondent in fact liquidated the fund between November 2000 and the date of trial, say at a time when the market had fallen so that the final benefits received were substantially reduced.  The answer to this question, certainly as between November 2000 and any later date (and this is so, indeed, irrespective of whether or not the respondent had by then liquidated the fund), is, I believe, dictated by this court’s decision in Blue Circle Industries plc -v- Ministry of Defence [1999] Ch 289.  The claimant, BCL’s, loss there was through the defendants’ contamination of their estate by radioactive material which came to BCL’s knowledge in January 1993 and precluded their marketing the estate, as they were seeking to do, until remedial works were completed by the defendants in December 1994.  This was a period of falling property values.  After December 1994, however, the value of the estate started to increase.  The question arose as to whether credit had to be given for the larger value of the estate (still unsold) as at the date of trial (taken to be July 1996) or the lesser value as at December 1994.  The Court of Appeal held the latter.  I myself put it thus (321-322):
“Given that in December 1994 BCL became free to sell or retain their estate as they chose, why should the risk not then be regarded as switching back to them?  Had they sold, no one doubts that that sale would have crystallised their loss and thus ended their risk.  Why should it be otherwise merely because they chose instead to retain the property?  True, as the judge observed when later giving judgment on the question of interest, BCL ‘were not unreasonable in holding [the property] until July 1996’.  Had the market, therefore, fallen and BCL claimed, as no doubt they would have done, for the additional loss, it could not have been said against them that they should have mitigated their loss by selling in December 1994.  But would they in fact have been entitled to claim the additional loss?  That to my mind merely restates the present question:  Must they give credit for the rise in market value after December 1994?  Both questions must be answered the same way, whichever way it is.
What, then, decides whether in these circumstances the risk passes?  Does the risk (of benefit or disbenefit) remain where it is until trial (or earlier sale) provided only that BCL act reasonably in retaining the land?  This is the effect of the judge’s decision.  Or does the risk pass to BCL once they are free to sell or retain the land and they exercise that choice?  I prefer BCL’s argument in favour of this latter approach.  Mustill LJ’s judgment in Hussey -v- Eels [1990] 2 QB 227 seems to me helpfully in point.  The defendants there negligently represented that a bungalow they were selling to the plaintiffs for £53,250 had not been subject to subsidence.  Because repairs would have cost £17,000 which was beyond the plaintiffs’ means, they instead demolished the bungalow and applied for planning permission to erect two others in its place.  Two and a half years later they sold the property with the benefit of that planning permission to a developer for £78,500.  The Court of Appeal, allowing their appeal and awarding them £17,000 damages, rejected the defendants’ argument that their loss had been eliminated by the sale to the developer.  Having reviewed a great number of authorities, Mustill LJ concluded, p241:
‘Ultimately, as with so many disputes about damages, the issue is primarily one of fact.  Did the negligence which caused the damage also cause the profit - if profit there was?  I do not think so.  It is true that in one sense there was a causal link between the inducement of the purchase by misrepresentation and the sale two and a half years later, for the sale represented a choice of one of the options with which the plaintiff had been presented by the defendants’ wrongful act.  But only in that sense.  To my mind the reality of the situation is that the plaintiff bought the house to live in, and did live in it for a substantial period.  It was only after two years that the possibility of selling the land and moving elsewhere was explored, and six months later still that this possibility came to fruition.  It seems to me that when the plaintiffs unlocked the development value of their land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception.’
By the same token, as it seems to me, BCL’s decision here to retain their estate after December 1994 should not properly be regarded ‘as part of a continuous transaction’ of which the damage to the land was the inception.  The loss caused by that breach of statutory duty ended once the land was reinstated and again became available to be retained or sold as BCL chose.  Any further loss would have been caused by BCL’s decision to retain the land:  likewise any gain.  The speculation from that point was on their own account.”
20.	The question in the present case, of course, is not as between November 2000 and the date of trial (when it would have been directly comparable to the dispute in Blue Circle Industries between 1994 and 1996) but rather between 1995 and 2000.  Here too in my judgment it is appropriate to adopt the approach taken by Mustill LJ in Hussey -v- Eels and to ask:  “Did the negligence which caused the damage also cause the profit”?  Was the increased value of the fund consequent on its retention “part of a continuous transaction of which [the appellants’ negligence] was the inception”?  Or did the negligence merely provide the opportunity for the respondent to gain the benefit and not itself cause it?
21.	Mr Bannister for the respondent argues that there was no greater causal link between the appellants’ original negligence here and the eventual benefit to the fund through its being left in place to grow until November 2000 than between the misrepresentation which had induced the property purchase in Hussey -v- Eels and the subsequent unlocking of its development potential.  The decision to retain the ERP fund in 1995 was, he says, the respondent’s as too were the actions he took subsequently:  a) to clarify through his solicitors the legal position consequent on the 1987 Budget;  b) then to increase his salary to the level necessary to achieve the qualifying payments;  and c) periodically to change the fund investments.  Of course, in one sense (as in Hussey -v- Eels) there was a causal link between the appellants’ negligence and the eventual profit.  But the negligence merely set the scene for that profit rather than directly causing it.  As the judge below found, the eventual state of the fund in November 2000 was “wholly collateral to the negligence proved”.  In short, the benefits accruing to the fund through its being left in place during the five and a half years in question were not to be regarded as the result of the appellants’ original negligent tax advice;  they were not part of a continuous transaction of which that negligence was the inception;  rather they were the result of a number of decisions by the respondent, beginning with the decision in 1995 not then to liquidate the fund, all of which were taken for his own benefit and at his own risk, and not so as to mitigate the loss already caused by the appellants’ negligent advice.
22.	Mr Bannister acknowledges that the necessary consequence of his argument is that, had the market in fact fallen rather than risen during the period in question the respondent could not have looked to the appellants to recover his consequent losses.  He accepts, as this court decided in Blue Circle Industries (despite Chadwick LJ's doubts on the point expressed at 316G-317C), that whether from a given date a claimant must give credit for benefits and whether he would be entitled to claim detriments must both be answered in the same way.  In each case the question to be asked is whether those gains or losses are properly to be regarded as part of a continuous transaction of which the relevant breach or tort was the inception.
23.	Mr Stuart-Smith seeks to analyse the facts very differently.  He submits that the appellants’ negligence consisted of their failure to tell the respondent of his need for qualifying income, a failure which, together with their subsequent misrepresentation as to the effect of the 1987 Budget, resulted in a five year delay before eventually a tax free lump sum of £500,000 became available in the fund.  The effect of the negligence continued, therefore, until November 2000 when its consequences had been worked out and the chain of causation ended.  At that date it could be seen that the respondent had not in the event suffered loss.  Rather he had chosen not to crystallise his loss in 1995 and had instead taken all necessary steps to remedy the effects of the negligence (or, as it could equally well be put, to mitigate his loss).  It was, submits Mr Stuart-Smith, the appellants’ negligence which caused him to stay in the fund.  Accordingly, even though the negligence caused the respondent his potential initial loss, it ultimately caused his net benefit.
24.	It is convenient at this stage to look at the latest in the line of authorities which have had occasion to consider which benefits do, and which do not, fall to be taken into account in mitigation (or avoidance) of a loss:  Needler Financial Services Ltd -v- Taber [2002] 3 All ER 501.  A superficial similarity exists between that case and this in that both relate to claims arising from negligent advice with regard to pension schemes.  Needler’s negligent advice to Mr Taber (given in 1990) was to transfer the deferred benefits to which he was entitled under an occupational pension scheme to a personal pension plan (“PPP”) with a mutual life assurance company.  In April 1998, when Mr Taber became 65, he found that his pension entitlement was less that it would have been under the occupational scheme, a loss capitalised at £21,322.  The question for the court was whether he had to give credit for the value of shares which he had received in June 1997 and sold two months later for £7,815 to which he had become entitled under the PPP when the life assurance company demutualised.  Sir Andrew Morritt VC held not.  Having examined a number of the previous authorities, including Hussey -v- Eels, he said this (pp 511-512):
“In my view the authorities to which I have referred establish two relevant propositions.  First, the relevant question is whether the negligence which caused the loss also caused the profit in the sense that the latter was part of a continuous transaction of which the former was the inception.  Second, that question is primarily one of fact.
The profit in this case is the holding of demutualisation shares issued to Mr Taber, but it might just as easily have taken the form of a cash payment or an additional bonus.  I can see no reason for drawing any distinction based on the form in which the benefit was received.  The benefit was derived from the demutualisation.  The demutualisation was not caused by the negligence of Needler.  It arose from the desire of the board of directors of the Society to have the corporate structure best suited to competing in the new markets for financial products they perceived to have arisen in the mid-1990s.  The underlying reasons are explained in detail on ch 3 of the report of the independent actuary.  They have no connection with the breaches of duty of all or any of the financial advisers which led policyholders to transfer to a mutual society.
It is true that but for the negligence of Needler Mr Taber would not have taken out the PPP.  It is also true that but for the PPP Mr Taber would not have received any demutualisation benefit.  Even allowing for these factors the demutualisation benefit was not caused by and did not flow, as part of a continuous transaction, from the negligence.  In causation terms the breach of duty gave rise to the opportunity to receive the profit, but did not cause it (see Quinn -v- Burch Brothers (Builders) Ltd [1996] 2 All ER 283, [1996] 2 QB 370;  Galoo Ltd (in liq) -v- Bright Grahame Murray (a firm) [1995] 1 All ER 16 at 30 [1994] 1 WLR 1360 at 1375).  The link between the negligence and the benefit was broken by all those events in the mid-1990s and later which led to the directors of the Society formulating and the court approving under s 49 of the 1982 Act the transfer of the long-term insurance business of the Society to LP.”
25.	There can be no doubt but that, looked at as a whole, Mr Taber’s loss through changing his pension scheme consequent on Needler’s negligent advice was reduced by the value of the demutualisation shares - just as, in Hussey -v- Eels, the Husseys can be seen to have profited overall from their purchase of the property.  In each case, however, the profits were held to be collateral, the causative chain having been broken.
26.	Not so here, submits Mr Stuart-Smith:  here, by contrast, the respondent stayed in the fund to overcome the effects of the appellants’ negligence so as to achieve at a later date the very result which, but for the negligence (and subsequent misrepresentation), would have been achieved earlier.  True, the decision to stay in the fund was the respondent’s;  but that is always true of steps taken to mitigate loss.  Mitigation (or avoidance) of loss is what the respondent can be seen to have been intent upon here:  the position is therefore quite different from that of the Husseys in obtaining planning permission;  they were not thereby remedying the effects of the misrepresentation but rather were exercising one of several options brought about by it, an option to realise the property rather than live in it.  The present position is different too from that arising in Mr Taber’s case, his benefit having resulted not from Needler’s negligence but from an independent decision to demutualise taken by the Society’s directors.
27.	I confess that at the hearing I found Mr Stuart-Smith’s argument a most persuasive one.  The more I have thought about the case since, however, the less convincing has seemed to me his all-important characterisation of the benefit accruing to this fund between 1995 and 2000 as the consequence of the respondent remedying the effects of the appellants’ negligence, a benefit thus to be regarded as caused by the negligence and in the result extinguishing the loss.  I have come to prefer a different analysis.  The appellants’ negligence, as it now seems to me, produced in 1995 an immediate loss in the way of a less valuable fund and one from which the respondent’s debt could not immediately be satisfied.  So far, however, from his at that stage being able to begin “remedying” the effects of the negligence, he first had to take account of the appellants’ delayed representation (misrepresentation as it later proved to be) with regard to the capping effect of the 1987 Budget.  Assume that the representation had in fact proved correct.  Could the respondent then have claimed for any downturn in the fund on the footing that he was merely investigating whether he could “remedy” the effects of the earlier negligence?  I rather doubt it.  And what if the downturn were caused by his own decision to switch funds?  Surely not.  More difficult still would have been any claim that he had been locked into the fund (as occurred in the very different circumstances arising in Smith New Court Securities -v- Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254) so that the effects of the negligence were to be regarded as continuing.  Remember too that the writ here was issued as early as October 1996, another indication that the respondent regarded the negligence as by then spent and the loss as already crystallised.
28.	There is one other authority to which I would refer, Downs -v- Chappell [1997] 1 WLR 426, an authority considered in Aldous LJ’s judgment in Blue Circle Industries.  The plaintiffs in that case had purchased a bookshop in 1988 for £120,000 in reliance on inaccurate figures of turnover and profit.  They suffered considerable loss.  The value of the business at trial was estimated at only £60,000, although they had refused offers of £76,000 in March 1990.  The Court of Appeal held that the loss was the difference between the purchase price and the offered price of £76,000, not £60,000 as claimed.  The reason was that the chain of causation was found to have been broken in March 1990.  As Hobhouse LJ put it at p437:
“It is not in dispute that it was possible for the plaintiffs to sell out in the first quarter of 1990 [for £76,000].  …  It follows that any losses which the plaintiffs suffered after the spring of 1990 were not caused by the defendants’ torts but the plaintiffs’ decision not to sell out at that date for a figure of about £75,000.  The only basis upon which the plaintiffs might have been able to recover any later loss would have been that they had been reasonably but unsuccessfully attempting to mitigate their loss further and had unhappily increased their loss …  On the facts of this case the plaintiffs are unable to make such a claim and have not sought to do so.  They have argued that they did not act unreasonably in rejecting the offers of £76,000 in March 1990.  Even accepting that they acted reasonably, the fact remains that it was their choice, freely made, and they cannot hold the defendants responsible if the choice has turned out to have been commercially unwise.  They were no longer acting under the influence of the defendants’ representations.  The causative effect of the defendants’ faults was exhausted;  the plaintiffs’ right to claim damages from them in respect of those faults had likewise crystallised.  It is a matter of causation.”
29.	I had thought at one stage that, had the market fallen after 1995, justice would have required that the respondent be entitled to recover his increased losses through remaining in the fund until finally a tax free lump sum of £500,000 became available from which to repay his debt.  My final conclusion, however, is that Mr Bannister is right in submitting that any such claim would have failed:  the various steps taken by the respondent after 1995 were not properly to be regarded as steps reasonably taken in mitigation of his loss.  Rather (as in Blue Circle Industries in 1994, and in Downs -v- Chappell in the spring of 1990) the choice of how to deal with the situation which confronted him in 1995 as a result of the appellants’ negligence was his and the speculation from that point on was on his own account.
30.	I would therefore decide Issue 2 in favour of the respondent and hold him entitled to damages of £101,000 together with interest thereon from 1995.
Issue 3:  £2,632
31.	Although the appeal was argued as if this issue arose only were the respondent otherwise to be held to have avoided all his losses, logically it seems to me to arise in any event once he is found disentitled to the £140,000 award.  £101,000 compensates him for his loss in 1995 consequent upon the appellants’ negligence.  His solicitors’ costs of £2,632, however, were incurred later and quite independently as a result of the appellants’ subsequent negligent misrepresentation as to the capping of whatever lump sum was in any event available in the fund.  But for the misrepresentation this fee would not have been incurred.  If then it is said that this misrepresentation (like the negligent advice before it) in fact benefited the respondent by resulting in a fund of increased value such as to offset and eliminate all his losses, the answer must inevitably be the same as that given above.  The position here, indeed, is a fortiori to that arising under Issue 2:  the suggested benefit of the enhanced value of the fund is of an altogether different character from the loss sustained through having to obtain legal advice consequent on a negligent representation and was not in any relevant sense caused by the negligence.
32.	On no possible view of the facts does it seem to me that the fees incurred in correcting the misapprehension brought about by the appellants’ misrepresentation can be offset by any benefit brought about through the respondent thereby being able to determine the future of his fund on a correct, rather than incorrect, understanding of the law.
Result of the appeal
33.	It follows from all this that I would allow the appeal to the extent of substituting for the damages in fact awarded the lesser sum of £103,632 together with interest upon each element of that award.
Lord Justice Mance:
34.	I have had the benefit of reading in draft the judgment given by Simon Brown LJ, and I can therefore proceed to address the issues without repeating the facts which he has set out in his paragraphs 1 to 12.
35.	I agree with Simon Brown LJ’s reasoning and conclusions in his paragraphs 13 and 14 on issue 1.  An award of £140,000 relating to the cost of servicing the loan after March 1995 is not compatible with the judge’s decision (in the context of issue 2) that the respondent’s loss, flowing from the appellants’ failure to advise the respondent of his need to procure sufficient Schedule E income, crystallised as at March 1995.
36.	Issue 2 relating to the judge’s award of £101,000 (consisting of the shortfall in value of the fund as at March 1995, on the basis that no more than £125,875 could have been drawn down tax-free at that date) is, as my Lord has said, more difficult.  The shortfall arises, as Simon Brown LJ points out in paragraph 6(i), because the smaller the permissible tax-free draw-down, the larger the balance of the pension fund on which tax has to be paid as and when annuity payments are received out of it.  Had the respondent been properly advised regarding the need to arrange sufficient Schedule E income, he would, on the judge’s findings, have been able to arrange this, and would have done this, prior to March 1995; and so would have been able to draw down the originally contemplated tax-free sum of £500,000 by March 1995.  Although the original proposal was for a scheme which would enable the bank’s loan to be paid off using the tax-free £500,000 after seven years (i.e.  in mid-1994), it was open to the respondent to keep the loan and the scheme in place for a longer period, and it was in fact only in March 1995 that (having seen the prior years’ investment performance) the respondent decided that he wished to draw down the represented tax-free £500,000 and learned that he could not do so.  In the event, both the pension scheme and, it appears, the loan remain in place to this day.
37.	Is the assessment whether the respondent suffered any and if so what loss to be made as at that date, or as at November 2000 when it first became possible for the respondent to draw down such a sum if he wanted?  An alternative way of stating this issue is whether any prima facie loss suffered as at March 1995 was “mitigated” (or avoided) by the respondent’s actual conduct - in not crystallising his loss as at March 1995 and in taking the subsequent steps he did; this conduct in the event enabled him (if he wanted to) to draw down a tax-free sum of £500,000 in November 2000.
38.	“Mitigation” here refers not to steps which the respondent was under any duty to take, but simply to steps which he did take (see e.g.  the distinction drawn in Hussey -v-  Eels [1990] 2 QB 227, at p.232D-E by Mustill LJ).  The relevant legal test is whether the course of events, leading to the situation whereby in November 2000 the respondent could draw down £500,000 tax-free, was “a course which a reasonable and prudent person might in the ordinary course of business [or here the ordinary course of affairs] properly have taken” to “protect himself” in the face of the relevant breach.  In this connection it is relevant to ask whether it “formed part of a continuous dealing with the situation in which [the respondent] found [himself], and was not an independent or disconnected transaction”.  See British Westinghouse Electric and Manufacturing Co. Ltd. -v- Underground Electric Railways Co. of London Ltd. [1912] AC 673, at pp.689 and 692 per Lord Haldane LC, quoted and applied in Hussey -v-  Eels, at pp.235-6 per Mustill LJ).
39.	The significant feature of the present case is, in my judgment, that in March 1995, at the very time that the respondent learned that any tax-free drawdown that he might hope to make depended on the level of his Schedule E income, the appellants gave him further (erroneous) information to the effect that, despite “strong efforts” by the appellants with the Inland Revenue, the respondent’s pension policy was caught by the 1987 budget and as such subject anyway to a cap of £150,000.  This information was for nearly 18 months accepted as the end of the matter, i.e.  as precluding the drawing down tax-free of any sum greater than that supposed cap (cf the witness statement of the respondent’s solicitor, Mr Lavelle).  Only in September 1996, did it occur to the respondent’s advisers that it might be possible to produce a contrary argument to persuade the Inland Revenue that the 1987 budget did not apply; and it was only then and after further correspondence and research that the Inland Revenue was persuaded accordingly in January 1997.
40.	So, in the meantime, for nearly 18 months, the position was to all appearances that the original scheme had failed; and that the respondent could never receive a tax-free sum of £500,000.  As at March 1995, the most he could receive tax-free (bearing in mind his last three years Schedule E income) was only £125,875.  Even if he had increased his future Schedule E income, he could not have received more than £150,000.  In these circumstances, he took no steps to receive any sum, by cashing in the policy immediately or even, so far as appears, by increasing his income to enable himself to receive £150,000.  That was his choice.  It was not a choice which he made with a view to restoring or redressing the originally intended position, whereby he would receive a tax-free sum to pay off his loan, or to protect himself against the consequences of the breach.  Rather than crystallise his loss, by drawing-down such sums and paying off as much of the outstanding bank loan as he could, the respondent chose to keep the pension policy and the loan in existence to their full extent.  That may or may not have proved beneficial overall, but it was, in legal terms, his “speculation” (to use Lord Wrenbury’s word in Jamal -v-  Moolla Dawood, Sons & Co. [1916] 1 AC 175, at p.179).  I do not think that he could have complained as against the appellants, if his choice had proved to increase his loss, any more than I think that they can claim credit for any benefit which resulted from his choosing as he did between March 1995 and September 1996.
41.	In January 1997 the Inland Revenue accepted that the 1987 budget did not apply to his pension fund.  It thus became apparent, for the first time, that the respondent could, by paying himself more Schedule E income, achieve a position, which would, albeit after over five years delay, mirror that originally intended.  He duly paid himself more Schedule E income in his company’s financial years ending in 1998-2000, with the result that in November 2000 he could have drawn down £500,000 to pay off the still outstanding loan.  He thereby restored the prime anticipated benefit of the scheme, namely the possibility of making a tax-free draw-down of £500,000 to pay off the loan.  But this benefit only arose after the significant break in the continuity of events and the delay extended to over five years, which I have already identified.
42.	In fact, the respondent chose not to draw-down the £500,000 or any tax-free sum in or after November 2000.  As Simon Brown LJ has pointed out, his conduct in not drawing down £500,000 in November 2000 was on any view his own “speculation”, in relation to the consequences of which the appellants could have no risk or benefit.
43.	The key issue is however whether the benefits derived from continuing the fund until November 2000 are benefits, which have to be taken into account in measuring the respondent’s loss.  The most relevant aspect of such benefits, as I see it, was not the rise in the market value of the fund between March 1995 and November 2000; it was the simple benefit in tax terms flowing from the discovery of the need for, and consequential payment of, larger Schedule E income.  That was a benefit which did not depend on any rise in the market at all.  All it required was additional Schedule E income, which is something that the respondent would always have been willing to accept and arrange (had he known of the need).  
44.	Had there been no intervening misrepresentation in March 1995 regarding the existence of a £150,000 cap, the present aspect of the appellants’ appeal would, in my view, have looked very different to the way it actually does.  The respondent would then have been able immediately after March 1995 to arrange to receive larger Schedule E income.  Assuming that he had done so, thereby enabling himself to receive £500,000 tax-free in say November 1998, there would have been a strong case for determining whether he had suffered any loss by a comparison of the positions in March 1995 and November 1998.  In this hypothetical situation, the respondent’s reaction to discovering that he could not receive the represented tax-free sum of £500,000 to pay off his loan without first paying himself sufficient Schedule E salary, would have been to pursue the original aim by putting himself in as near a position as possible to that represented.  The initial failure to advise him that he needed sufficient Schedule E income would simply have postponed any hope of paying of the loan for some three and a half years.
45.	In the hypothetical situation being considered in the previous paragraph, it remains true that the loan would have continued to incur interest; on the other side, the fund would also have continued to earn income and, all going well, to increase or maintain its capital value.  There would of course be an element of uncertainty whether the fund’s growth (whether through income or capital growth) would precisely match the loan interest (or any annuity which the respondent would have received from the balance of the fund after taking £500,000 to pay off the loan).  Even this uncertainty might have been eliminated or reduced by switching all or part of the fund into the fixed interest investments for which the scheme also provided (so matching the fixed interest payments under the loan and receivable under any annuity).  But, apart from that possibility, the incurring of exposure to any such uncertainty would, on the current hypothesis, have been the natural and unbroken consequence of the appellants’ breach and of the reasonable and prudent course taken by the respondent to mitigate it.  On the hypothesis I have been considering, the appellants would, I think, therefore have been answerable, if the exposure had led to any actual loss.
46.	As it is, the hypothetical factual situation which I have considered in the preceding two paragraphs never arose.  It never arose because of the appellants’ own further mistaken advice in March 1995 as to the existence of a £150,000 cap.  It may be regarded as either bad luck or poetic justice that one consequence of this further mistaken advice is that the appellants cannot claim to measure the respondent’s loss by taking into account the fact that the respondent was ultimately able to remove the obstacle to his receiving £500,000 tax-free and so to eliminate the tax disadvantage.
47.	This is not to say that the appellants can avoid responsibility for the costs of £2,632 which the respondent also incurred as a result of this further erroneous advice in March 1995 (Issue 3).  The appellants have not suggested that these costs would have been necessary or would anyway have been incurred, even if they had given no such erroneous advice.  The giving of the further mistaken advice constitutes a quite separate and pleaded claim, although the judge did not deal with it as such.  I agree with Simon Brown LJ that the loss resulting from this further mistaken advice is recoverable in any event, in addition to the loss (measured as set out in the previous paragraphs of this judgment) arising from the original failure to advise regarding the need for sufficient Schedule E income.
Lord Justice Latham:
48.	I have had the benefit of reading in draft the judgments given by Simon Brown LJ and Mance LJ.  I agree that the appeal should be allowed but only to the extent indicated by Simon Brown LJ.
49.	As to the first and third issues, I need say no more than that I agree with the judgments of both Simon Brown LJ and Mance LJ.  As to the second issue, I have had the same difficulty as they have in deciding what is the just result at the end of the day.  One thing is certain.  An action brought and disposed of in 1995 in respect of the advice would have resulted in an award of damages for £101,000, whether or not the respondents had crystallised  his loss.  The same would have been the case in 1996 when the writ in the present action was issued.  It seems to me that it is from that perspective that the appellants case that the subsequent benefits have to be brought into account should be viewed.
50.	The issue does not raise the question of whether the respondent, when he ultimately took the steps that he did after receiving the proper tax advice, did so as part of any duty to mitigate his loss.  The question is simply whether, in the events that have happened, it can be said that the appellants breach of duty which caused the damage also caused the profit, if it can properly be described as profit: see Mustill LJ in Hussey –v- Eels [1990] 2 QB 227 at page 241 B.  This formulation of the question is echoed in the passage from McGregor on Damages 16th Edition 1997 para 337, in paragraph 17 of Simon Brown LJ’s judgment.  But as that latter passage indicates, these neat formulations mask very real problems of application to the facts of given cases.
51.	I was at first attracted by the appellant’s argument, essentially based on British Westinghouse House Electric and Manufacturing Co Ltd –v- Underground Electric Railway Company of London Ltd [1912] AC673, that the respondent simply did that which a reasonable and prudent man would have done in the circumstances, so that whatever benefits resulted must be taken into account in assessing whether or not he has suffered any loss.  Further, there is a superficial attraction in the argument that the respondent merely, albeit by his own actions, continued the transaction brought about by the breach of duty of the appellants so that there was a clear connection between the breach of duty and the ultimate benefit which the respondent obtained.
52.	However, it seems to me that these arguments ignore the purpose of the original transaction.  It was to enable the respondent to raise a loan of £500,000 which he could redeem in 1995.  The respondent had not intended the transaction to continue beyond that.  And he paid no further premiums into the policy after 1995.  He had a number of choices when it became apparent that the scheme had not worked.  He could have simply crystallised his entitlement to a lump sum and taken the annuity; he could have decided that since he was now in the pension scheme, he would continue to fund it and find some other way to raise the £500,000.  As it was, as a result of his own efforts, or to be more exact the efforts of advisors on his behalf, he discovered that it was possible to use the policy to unlock £500,000.  But in so doing, he was not continuing with the original scheme.  That had failed because of the breach of duty of the appellant.  He was using the assets that he had to his best advantage, in the same way as the plaintiffs in Hussey –v- Eels.  The fact that he has not used the £500,000 to pay off the debt underlines the fact that essentially he was making an investment decision in 1997 which only had an historical connection with the original scheme.  Had that investment decision proved disadvantageous, he would not have had any claim for such loss against the appellants arising out of the breach of duty alleged.  The corollary is that the appellants are not entitled to take advantage of any benefits that may have been obtained by the respondent to reduce or extinguish the undoubted loss which he sustained in 1995.