Key Points

Mitigation of loss by a claimant does not always mean that liability under negligence claims is avoided

The Facts

Swynson Limited ("Swynson") lent £18m in three loans in 2006, 2007 and 2008 to Evo Medical Solutions Limited ("Evo") in 2006 in reliance on a due diligence report prepared for Swynson by Lowick Rose LLP (the "Accountants").  Evo was unable to repay and so Mr Hunt (who at the time was an indirect owner of both Swynson and Evo) loaned over £18m to Evo so that it could repay the 2006 and 2007 loans. Mr Hunt channelled the funds through Evo rather than direct to Swynson for tax mitigation purposes and to benefit Swynson. The 2008 loan remained outstanding and the Borrower was wound up.  

Swynson subsequently brought a negligence claim against the Accountants relating to the due diligence report, and claimed loss in the amount of all three loans.  The Accountants admitted negligence but argued they should only be liable for the outstanding 2008 loan.  The first instance judge held in favour of Swynson and the Accountants appealed.  

The Decision

The appeal was dismissed.  The two judges in the majority came to their decisions on different grounds: (i) firstly that the repayment was not in the ordinary course of Swynson's business given that Evo was only in a position to repay the first two loans because Mr Hunt (who had a unique relationship with both borrower and lender) provided the funds, and it was unlikely that any other person would have, and (ii) secondly that it is unjust that the Accountants should benefit from Mr Hunt's intervention.  The dissenting judge's view was that in actual fact Swynson had only suffered loss in respect of the 2008 loan and the Accountants should only be liable for that.  The connection between Mr Hunt, Evo and Swynson should be irrelevant for these purposes.  

Comment

This case is based on unusual facts and divided the Court of Appeal.  However, it serves as a warning that mitigation of loss will not always reduce liability in damages claims.

Swinson Limited v Lowick Rose LLP (in liquidation)