1 See Recital 90 and art 58 of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive,  OJ L87/1 (MiFID II Delegated Regulation (EU) 2017/565), but note the observation in Recital (91) of that Regulation, that the Regulation
See also the rules and guidance in the Financial Conduct Authority’s (FCA) Handbook of Rules and Guidance (FCA Handbook), Conduct of Business Sourcebook (COBS), Chapter 8A.1, ‘Client agreements (MiFID, equivalent third country or optional exemption business)’.
2 Often, ‘interpretation’ and ‘construction’ are used interchangeably, but to use the term ‘construction’ as a term that refers to the process of arriving at a complete picture of the contractual duties of the parties, ie including those that are implied by law or by fact, would appear to be correct. See on the distinction between interpretation and construction, Gerard McMeel, The Construction of Contracts (OUP 2017) para 1.20 (noting that the use of the term ‘construction’ as meaning the broader process which encompasses both the interpretation of the express terms of the contract and the neighbouring technique of implication of terms, surfaced in Equitable Life Assurance Society v Hyman  1 AC 408, 458–59, see Lord Steyn). See also Hugh Beale (ed), Chitty on Contracts—General Principles (32nd edn, Sweet & Maxwell 2017) para 13-041, noting that the term ‘construction’ refers to the process by which the court determines the meaning and legal effect of a contract, which embraces oral contracts as well as those in writing, and implied terms as well as those that are expressed, but subsequently using the term in the narrower meaning of the process, observing that this process is sometimes referred to as ‘interpretation’, by which a court arrives at the meaning to be given to the express terms of the agreement.
3 Lord Wilberforce in Liverpool City Council v Irwin  AC 239, 253.
4 Lord Hoffman in Investor Compensation Scheme v West Bromwich Building Society  1 WLR 896, 912.
5 Lord Hoffman, ‘The Intolerable Wrestle with Words and Meaning’ (1998) 56 South African Law Journal 656, 662. Similarly, Lord Steyn in Equitable Life (n 2) 459. See for a discussion McMeel (n 2) paras 10.05–10.09.
6 McMeel (n 2), para 10.09, citing in support Equitable Life (n 2), and Attorney-General for Belize v Belize Telecom Ltd  UKPC 10,  1 WLR 1988, PC (Belize).
7 On the absence of a distinction in rules of interpretation at law or in equity, see Bank of Credit and Commerce International SA (in compulsory liquidation) v Ali  1 AC 251 (the House of Lords rejected any suggestion that there are different rules of interpretation at law and in equity). See further on this topic, McMeel (n 2) paras 1.54–1.55.
8 Total Transport Corp v Arcadia Petroleum Ltd  1 Lloyd’s Rep 351, 362. See also Chitty on Contracts (n 2) para 13-042.
9 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749 and ICS (n 4) .
10 Lord Hoffman in ICS (n 9) 912.
11 Homburg Houtimport BV v Agrosin Private Ltd, ‘The Starsin’  1 AC 715, 737–38 (citing, inter alia, Lord Halsbury LC in Glynn v Margetson & Co  AC 351, 359).
12 See for a summary of the principles that underpin interpretation, McMeel (n 2) paras 1.190–1.199.
13 Lord Wilberforce in Liverpool City Council (n 3) 253.
14 Chitty on Contracts (n 2) para 14-001.
15 Liverpool City Council (n 3) 253–54, observing that ‘to say that the construction of a complete contract out of these elements involves a process of “implication” may be correct; it would be so if implication means supplying what is not expressed’, and identifying usage, implication in fact, and implication in law, as ‘varieties of implications which the courts think fit to make’.
16 Lord Wilberforce’s passage is discussed by McMeel (n 2) paras 9.40–9.43, identifying the first technique as custom and usage, the second as implication in fact, and the third as implication by law.
18 Chitty on Contracts (n 2) para 14-005, appears to avoid a distinction between implication techniques and notes that ‘in the case of terms implied in law, many such terms have become standardised for particular classes of contract, so that it is somewhat artificial to attribute them to the unexpressed intention of the parties to the particular contract in dispute. The court is, in fact, laying down a general rule of law that in all contracts of a defined type … unless the implication of such a term would be contrary to the express words of the agreement.’ Accordingly, ‘the courts do not confine themselves to a narrow test of necessity but instead can draw upon a broader range of factors, such as the reasonableness of the term, its fairness and a range of competing policy considerations.
19 See Madeleine Yates and Gerald Montagu, The Law of Global Custody (Bloomsbury 2013) para 6.16, n 3 in the context of the imposition of fiduciary duties, citing Lord Scarman in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd  AC 80, 104, as saying that ‘the test of implication is necessity. … Implication is the way in which necessary incidents come to be recognised in the absence of express agreement in a contractual relationship. Imposition is apt to describe a duty arising in tort, but inept to describe the necessary incident arising from a contractual relationship’.
20 cf McMeel (n 2) paras 9.01–9.11.
21 The ‘Moorcock’ (1889) 14 PD 64, 68 implying a duty on wharfingers to provide a safe wharf for a vessel, where it was agreed that the vessel had permission to moor and discharge cargo, and noting that ‘the implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side’.
22 Shirlaw v Southern Foundries (1926) Ltd  2 KB 206, 227, noting that ‘prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common “Oh, of course” ’.
24 See for a discussion, McMeel (n 2) para 10.59.
25 Lord Wilberforce in Liverpool City Council (n 3) 254.
26 A misrepresentation renders the agreement voidable and may give rise to an action for damages, but it cannot give rise to an action for breach of contract: Jack Beatson, Anson’s Law of Contract (30th edn, OUP 2016) 141 noting that the question of whether a particular statement is a term of the contract or a representation is frequently one of considerable difficulty, and that the basis for distinction between the two has been criticized. See Chitty on Contracts (n 2) paras 7-001ff.
27 Heilbut, Symons & Co v Buckleton  AC 30. See for an analysis, Chitty on Contracts (n 2) para 13-003, and Anson’s Law of Contract (n 26) 142.
28 Chitty on Contracts (n 2) paras 13-004ff.
29 Lord Hoffman in Mannai  AC 749, 779.
30 Lord Hoffman in ICS (n 4) 912.
31 Heilbut, Symons (n 27) 50. Lord Steyn, ‘Interpretation: Legal Texts and their Landscape’ in Basil S Markesinis (ed), The Clifford Chance Millennium Lectures (Bloomsbury 2000) 79, 81.
32 Assurances that relate to a process that, inherently, produces unpredictable outcomes, are not to be treated as warranties: Thake v Maurice  QB 644 (statement that vasectomy is irreversible not treated as a warranty).
33 See Lord Denning in J Evans & Son (Portsmouth) Ltd v Andrea Merziano Ltd  1 WLR 1078, 1081, observing that ‘when a person gives a promise or an assurance to another, intending that he should act on it by entering into a contract, and he does act on it by entering into a contract, we hold that it is binding’. See further Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd  1 WLR 623 in which a statement as to the mileage of the car, which was false, was held to be a contractual term, essentially on the grounds that the dealer, who was in a position to know or find out, should have researched the matter more thoroughly before making the statement. Dick Bentley Productions was distinguished from Oscar Chess Ltd v Williams  1 WLR 370 on the ground that in Oscar Chess, the maker of the statement, a private individual selling to a professional car dealer, ‘honestly believed on reasonable grounds’ that the statement was true. See for a discussion of these two decisions Anson’s Law of Contract (n 26) 142–44.
34 See Prenn v Simmonds  1 WLR 1381, and Lord Hoffman in ICS (n 4) 913, noting that ‘the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life’, and further in Chartbrook Ltd v Persimmon Home  UKHL, holding at para 33 that it would not be consistent with English law to admit evidence of negotiation as part of the background, that may throw light on what the parties meant with language used in the contract.
35 McMeel (n 2) paras 26.14–26.41.
36 See Chitty on Contracts (n 2) para 14-045.
38 See McMeel (n 2) paras 9.27–9.28.
39  2 Lloyds Rep 172, 185.
40 See Chapter 1, paras 1.44ff (on the agency powers of certain investment firms).
41 See Chapter 4, paras 4.50ff (on fiduciary duties).
42 Peter G Watts (ed), Bowstead & Reynolds on Agency (21st edn, Sweet & Maxwell 2017) paras 6-002 to 6-003.
43 Bowstead & Reynolds on Agency (n 42) paras 6-002 to 6-003.
44 Bowstead & Reynolds on Agency (n 42) paras 6-017 to 6-019.
45 Bowstead & Reynolds on Agency (n 42) para 6-022.
48 See McNair J in Bolam v Friern Hospital Management Committee  1 WLR 582, 586: a tort case, in which it was observed that in ‘a situation which involves the use of some special skill or competence, then the test as to whether there has been negligence or not is not the test of the [ordinary] man, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have that special skill’.
49 Bowstead & Reynolds on Agency (n 42) para 6-008.
50 Bowstead & Reynolds on Agency (n 42) para 6-009.
51 Bowstead & Reynolds on Agency (n 42) para 7-001.
52 Bowstead & Reynolds on Agency (n 42) para 7-001.
53 Bowstead & Reynolds on Agency (n 42) paras 7-003 to 7-004.
54 Bowstead & Reynolds on Agency (n 42) paras 7-003 to 7-004.
55 Bowstead & Reynolds on Agency (n 42) paras 7-003 to 7-004.
56 Bowstead & Reynolds on Agency (n 42) paras 7-048 to 7-050.
57 Bowstead & Reynolds on Agency (n 42) para 7-057, suggesting, at n 25, that the implication of the right to be indemnified is probably best characterized as implied based on the ‘business efficacy’ or ‘officious bystander’ tests.
58 Bowstead & Reynolds on Agency (n 42) para 7-061.
59 Appendix A specifies ‘investment services and activities’ as:
(1) Reception and transmission of orders in relation to one or more financial instruments; (2) Execution of orders on behalf of clients; (3) Dealing on own account; (4) Portfolio management; (5) Investment advice; (6) Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; (7) Placing of financial instruments without a firm commitment basis; (8) Operation of an MTF; (9) Operation of an OTF.
60 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast),  OJ L173/349 (MiFID II).
61 Regulation (EU) 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) 648/2012 (MiFIR).
63 See Danny Busch, ‘The Private Law Effect of MiFID I and MiFID II’, in Danny Busch and Guido Ferrarini (eds), Regulation of EU Financial Markets—MiFID II and MiFIR (OUP 2017) para 20.01.
65 See Bankers Trust v Dharmala Sakti Sejahtera  CLC 518. See also Gorman v British Telecommunications plc  1 WLR 2129, observing that the courts can be expected to ‘attach considerable weight’ to the content of the codes ‘drafted by those concerned with the maintenance of proper standards’, although in the circumstances, the court considered the common law duty of care to extend beyond the scope of the applicable pension regulations. See also Seymour v Caroline Ockwell & Co (a firm)  EWCH 1137 (QB), commenting that ‘whilst the ambit of the duty of care owed by a financial adviser at common law is not necessarily co-extensive with duties owed by that adviser under the applicable regulatory regime, the regulations afford strong evidence as to what is expected of a competent adviser in most situations’.
66 See Alastair Hudson, The Law of Finance (Sweet & Maxwell 2013) para 25.24, suggesting that the ‘position would appear to be that the courts will consider the extent of a defendant’s common law duties by reference to the defendant’s regulatory obligations, although the defendant will not be able to limit its obligations by relying on a narrow set of obligations in the appropriate context if the common law imposes a higher requirement’.
67 See Toulson J in Brandeis Brokers Ltd v Black and Others  2 Lloyd’s Rep 359, 363 (in which the broker’s general terms of business generally referred to the rules of the then regulator of brokerage business, the SFA): ‘I accept that the parties cannot have intended to incorporate the SFA rules, holus bolus, because they contain matters which would have no bearing on the way in which Brandeis was to perform the services which it contracted to perform and could not sensibly be transposed into the contractual arrangements between the parties. But the relevant parts of the SFA rules are those which do potentially have such a bearing.’
69 Article 69 of MiFID II concerns the supervisory powers, ie the regulator’s toolkit, such as access, audit, and information rights, as well intervention rights, sequestration and freezing rights, and removal rights. It does not address investor rights or remedies, or any other matter concerning the investor’s ability to seek compensation for loss or damage.
70 Littlewoods Retail and Others v Her Majesty’s Commissioners of Revenue and Customs (C-591/10)  STC 1714; ECLI:EU:C:2012:478.
71 Genil 48, S L and Comercial Hostelera de Grandes Vinos, S L v Bankinter S A and Banco Bilbao Vizcaya Argentaria, SA (C-604/11)  (CJEU); ECLI:EU:C:2013:344 para 57.
72 Busch (n 63) paras 20.03ff. Similarly, Hodge Malek and Sarah Bousfield, ‘Private Enforcement under MiFID II & MiFIR’ (2017) JBILF 485. See on the principle of effectiveness in European Union law inter alia: Takis Tridimas, The General Principles of EU Law (2nd edn, OUP 2006) 418–76; Walter van Gerven, Of Rights, Remedies and Procedures (2000) 37 CMLR 501.
74 See Busch (n 63) para 20.19, and Malek and Bousfield (n 72) 486.
75 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC,  OJ L145/1 (MiFID I).
76 Similarly, Malek and Bousfield (n 70) 486–87.
77 Although the provision does not specify who is entitled to compensation, the reference to loss or damage resulting from infringement would not have meaning other than in the context of the supply of an investment service to an investor.
78 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) 1060/2009 and (EU) 1095/2010,  OJ L174/1 (AIFMD).
79 Emphasis added. See Danny Busch and Lodewijk Van Setten, ‘The Alternative Investment Fund Manager Directive’ in Lodewijk Van Setten and Danny Busch (eds), Alternative Investment Funds in Europe—Law and Practice (OUP 2014) paras 1.13–1.22.
80 European Commission, Review of the Markets in Financial Instruments Directive (MiFID) (Consultation Paper, 8 December 2010) section 7.2.6.
81 Nationale-Nederlanden Levensverzekering Mij NV v Hubertus Wilhelmus Van Leeuwen (C‑51/13) ; ECLI:EU:C:2015:286, discussed by Busch (n 63) para 20.16.
82 The FCA has the power, inter alia, to make rules that prescribe how an authorized person must organize and conduct their regulated business, see s 137Aff of the Financial Services and Markets Act 2000 (FSMA). Section 138G(1) FSMA requires the FCA (or Prudential Regulatory Authority, as the case may be) to make the rules by way of a written instrument, defined in s 138G(2) as a ‘rule-making instrument’, which see s 138G(4) is published ‘in the way appearing to the [FCA] to be best calculated to bring it to the attention of the public’. The FCA publishes the rule-making instruments, as well as other regulations such as general guidance and codes, at <http://www.fca.gov.uk>. To facilitate access, the FCA, and previously its predecessor, the FSA, consolidates the rule-making instruments in a single rulebook, the FCA Handbook of Rules and Guidance. The FCA’s Handbook is updated daily and made available at <http://www.fca.gov.uk>. In practice, the Handbook, and not the underlying rule-making instruments, is predominantly used as the source for the FCA’s rules.
83 Financial Services Authority, Reforming Conduct of Business Regulation (Consultation Paper No 06/19, 2006) paras 6.62–6.67.
84 Principle 6 required (and still requires) an authorized firm to pay due regard to the interests of its customers and treat them fairly. The Principles of Business are part of the, then FSA, now FCA Handbook. See for a discussion of the best interest rule under art 24 of MiFID II Chapter 4, paras 4.42ff.
85 As provided for at that time in art 19(1) of MiFID I and implemented through the Principles of Business and COBS.
86 Financial Services Authority, Reforming Conduct of Business Regulation (Policy Statement 07/6, 2007) para 6.7.
87 See Chapter 4, paras 4.03ff (on misrepresentation) and paras 4.11ff (on assumption of responsibility).
88 The FSMA definition of ‘private person’ must be contrasted with the MiFID II definition of ‘retail client’. As described in the Glossary Chapter 1, para 1.65, a ‘retail client’ in MiFID II terms may include bodies corporate and governmental (local) authorities, which the English courts have proved reluctant to bring into the definition of ‘private person’, see George Walker and Robert Purves (eds), Financial Services Law (4th edn, OUP 2018) para 19.52.
91 See s 138D(6) and the definition of ‘private person’ in Regulation 3 FSMA 2000 (Rights of Action) Regulations 2001, SI 2001/2256.
93 See Regulation 6(3) Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001, SI 2001/2256.
94 Paul Marshall, ‘Humpty Dumpty is Broken: “Unsuitable” and “Inappropriate” Swaps Transactions’ (2014) December JIBFL 679, 680.
95  EWHC 3034 (Ch), in which the court found that the bank had assumed a responsibility, see Hedley Byrne, to advise on the suitability of the proposed swap transaction and that the advice was given negligently, but that the banks were not liable because ‘they successfully excluded any duty not to do so’.
96 See Anson’s Law of Contract (n 26) 361, observing that ‘insurance companies frequently insert a “basis of the contract” clause in the proposal form by which the proposer is made to warrant the accuracy of the information supplied by him to the insurer’.
97 See Chapter 4, paras 4.42ff (on the duty of an investment firm under art 24(1) of MiFID II to act fairly in the investor’s best interest).
98 European Banking Authority, EBA Draft Guidelines on Outsourcing arrangements (Consultation Paper No EBA/CP/2018/11, 2018) 7, section 5. The EBA’s guidelines matter to investment firms within the meaning of art 4(1)(1) of MiFID II that also are in scope of the definition of ‘institutions’ within the meaning of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC,  OJ L176/338 (Capital Requirements Directive Mk IV, CRD IV) and Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) 648/2012 (Capital Requirements Regulation, CRR) and, therefore, are subject to prudential supervision under CRD IV and CRR, see art 3(1)(3) CRD IV in conjunction with art 4(1)(2)(c) CRR, ie investment firms that are authorized to provide the ancillary service referred to in point (1) of Section B of Annex I to MiFID II (safekeeping and administration of instruments), which deal on own account, underwrite, or place instruments, or that are permitted to hold money or securities belonging to their clients.
99 EBA (n 98) 18, section 11, definition of ‘outsourcing’: ‘an arrangement of any form between an institution, a payment institution or an electronic money institution and a service provider by which that service provider performs a process, a service or an activity, or parts thereof that would otherwise be undertaken by the institution, the payment institutions or the electronic money institution itself’.
100 That matter is within the purview of business continuity requirements; see art 21(3) of Delegated Regulation (EU) 2017/565.
101 See EBA (n 98) 23, s 23, and art 30(2) of Delegated Regulation (EU) 2017/565.
102 Delegated Regulation (EU) 2017/565, art 30(2)(b).
103 Article 16(5) of MiFID II.
104 Article 30(1) of Delegated Regulation (EU) 2017/565.
105 See EBA (n 98) 17, s 5, and 22, section 22.
106 Such as the requirement: to be able to take the critical function back in-house or transfer it to another firm, EBA (n 98) 26, section 32 under (g); to have a documented exit plan, EBA (n 98) 25, section 34(e)(ii); and put substantial contractual controls in place, EBA (n 98) 37ff, sections 62ff.
107 Recital (43) of Delegated Regulation (EU) 2017/565.
108 See Anson’s Law of Contract (n 26) 712, citing Lord Greene MR in Davies v Collins  1 All ER 247, 249 who said:
109 Art 31(1)(b) of Delegated Regulation (EU) 2017/565.
111 Chitty on Contracts (n 2) para 18-001.
112 See McMeel (n 2) paras 16.28ff.
113 Chitty on Contracts (n 2) para 18-093.
114 Article 26 of MiFID II (Provision of services through the medium of another investment firm); COBS 2.4.3R (Agent as client).
116 Beswick v Beswick  AC 58 (a majority of the House of Lords did not permit the promisee’s estate to recover damages as it had suffered no loss).
117  1 WLR 1468 (Lord Denning upheld the award saying that the claimant promisee could recover damages in respect of the third-party beneficiaries’ loss as well as in respect of his own).
118  1 WLR 277. See for criticism of the general rule: Chitty on Contracts (n 2) para 8-053.
119 See paras 5.36ff above (on exclusion of liability).
120 See Chapter 4, paras 4.42ff (on art. 24(1) of MIFID II and the duty of the investment firm to act fairly in the best interest of the investor).
121 Chitty on Contracts (n 2) para 18-054.
122 Anson’s Law of Contract (n 26) 472.
123 Contracts of services are normally personal to the contracting parties: Anson’s Law of Contract (n 26), citing Nokes v Doncaster Amalgamated Collieries Ltd  AC 1014.
124 Bowstead & Reynolds on Agency (n 42) para 5-001.
125 Bowstead & Reynolds on Agency (n 42) para 5-001.
126 Bowstead & Reynolds on Agency (n 42) para 5-011.
127 Bowstead & Reynolds on Agency (n 42) para 5-012.
128 Bowstead & Reynolds on Agency (n 42), citing JD Wetherspoon Plc v Van De Berg & Co Ltd  EWHC 639 (Ch) .
129 Bowstead & Reynolds on Agency (n 42) para 5-012, citing In Regal (Hastings) Ltd v Gulliver  2 AC 134, in which the directors of the claimant company were held capable of approving a profit made by the company’s solicitor, even though they could not retain their own profits.
130 Bowstead & Reynolds on Agency (n 42) para 5-010.
131 ‘Compensatory damages’ may generally be defined as monetary compensation for a civil wrong (i.e. a tort or a breach of contract): James Edelman, Jason Varuhas, and Simon Colton, (eds), McGregor on Damages (20th edn, Sweet & Maxwell 2017) para 1-001. Three categories of claims that provide monetary awards if pursued successfully are not characterized as ‘damages’ because they are not dependent on wrongdoing: “These are actions for money payable by the terms of a contract, actions for restitution based on unjust enrichment, and actions under statutes where the right to recover is independent of any wrong”, see: ibid para 1-004. Compensatory damages must be distinguished from restitutionary and disgorgement damages based on tort, breach of contract, or equitable wrong, seeking restitution of a benefit or profit greater than the claimant’s loss, if anys: ibid para 1-009.
132 Lord Diplock in Albacruz (Cargo Owners) v Albazero (Owners), The Albazero  AC 774, 841C, surmising that the ‘general rule in English law today as to the measure of damages recoverable for the invasion of a legal right, whether by breach of contract or the commission of a tort, is that damages are compensatory. Their function is to put the person whose right has been invaded in the same position as if it had been respected so far as the award of a sum of money can do so’.
133  EWCA 1184. See for a discussion of the decision of the Court of Appeal in this case that the loss caused by the market downturn of 2008 and 2009 was not too remote, Chapter 7, paras 7.84ff.
134 See Gerard McMeel and John Virgo (eds), McMeel and Virgo on Financial Advice and Financial Products (3rd edn, OUP 2014) para 18.41.
135 It being accepted that in defining a duty of care, whether in contract or in tort, it is not always easy to distinguish between matters pertaining to the scope of the duty, and matters pertaining to the scope of the damages, where formulation of the duty often seems to be a function of determining which types of loss ought to be losses from which the defendant owed a duty of care to protect the claimant. See also McGregor on Damages (n 131) para 6-002.
136 McGregor on Damages (n 131) para 6-011ff.
137 Chitty on Contracts (n 2) para 26-089.
138 McGregor on Damages (n 131) para 8-005ff.
139 See Chapter 4, paras 4.11ff (on liability for assumption of responsibility).
140 See Chapter 4, paras 4.03ff (on liability for misrepresentation).
141 See Millett LJ in the decision of the Court of Appeal in Bristol and West  Ch 1, 11:
In considering the issue of causation in an action for negligence brought by a client against his solicitor it appears from Downs v Chappell that it is necessary to distinguish between two different kinds of case. Where a client sues his solicitor for having negligently failed to give him proper advice, he must show what advice should have been given and (on a balance of probabilities) that if such advice had been given he would not have entered into the relevant transaction or would not have entered into it on the terms he did. … Where, however, a client sues his solicitor for having negligently given him incorrect advice or for having negligently given him incorrect information, the position appears to be different. In such a case, it is sufficient for the plaintiff to prove that he relied on the advice or information, that is to say, that he would not have acted as he did if he had not been given such advice or information. It is not necessary for him to prove that he would not have acted as he did if he had been given the proper advice or the correct information. This was the position in Downs v Chappell  1 WLR 426.
143 SAAMCO v York Montague (n 142) 216.
144 See Lord Hoffman in SAAMCO v York Montague (n 142) 218, noting in relation to a valuer’s liability for providing a lender with a wrong valuation report,
I say this only because in practice the alternative transaction which a defendant is most likely to be able to establish is that the lender would have lent a lesser amount to the same borrower on the same security. If this was not the case, it will not ordinarily be easy for the valuer to prove what else the lender would have done with his money. But in principle there is no reason why the valuer should not be entitled to prove that the lender has suffered no loss because he would have used his money in some altogether different but equally disastrous venture. Likewise the lender is entitled to prove that, even though he would not have lent to that borrower on that security, he would have done something more advantageous than keep his money on deposit.
145 McGregor on Damages (n 131) paras 8-005ff.
146 Chitty on Contracts (n 2) para 26-119.
148  2 KB 528 (CA).
149  1 AC 350 (HL).
150 (1854) 9 Ex 341, 354.
151 Victoria Laundry (n 148) 539.
152 See the discussion in Chitty on Contracts (n 2) paras 26-119ff.
153 Brown v KMR Services Ltd  4 All ER 598 (the Court of Appeal rejected the argument of the defendant/insurance underwriters that the scale of the financial disaster was unforeseeable).
154 The terminological relationship between ‘special damages’ and ‘consequential losses’, remains elusive: see McGregor on Damages (n 131) para 3-008, suggesting, in the context of contracts and torts concerning property, a division between normal losses and consequential losses, the former being a loss that every claimant in a like situation will suffer, and the latter a loss that is special to the circumstances of the particular claimant. In contract, a normal loss is typically the loss that corresponds to the diminished value of the goods or services that were not provided at all, provided late, or that were defective. The distinction is not the same as that between the first and second rule of Hadley v Baxendale, as a consequential loss within this meaning may very well be a loss that fits within the first rule. However, the available judicial authorities equate consequential losses, so far, to losses within the second rule: ibid para 3-009. The matter is mostly discussed in the context of exclusion clauses. As to services, it may be asked, using this definition, whether perhaps all losses are consequential losses, thus rendering the term less useful. In the present book, the term ‘special losses’ or ‘special damages’ is used within the meaning of the second rule in Hadley v Baxendale.
155  UKHL 48,  3 WLR 345.
156 Quoted by Lord Hoffman in ‘The Achilleas’  3 WLR 345, 348.
157 ‘The Achilleas’ (n 156).
158 ‘The Achilleas’ (n 156) 353–54.
159 Overseas Tankership (UK) ltd v Morts Dock & Engineering Co Ltd (‘The Wagon Mound’)  AC 388, 426.
160 ‘The Heron’ II (n 149) 386.
162 Phillips LJ on the meaning of Hedley Byrne in Reeman and Anor v Department of Transport  PNLR 618, 624.
163  2 AC 605, 617.
164 Caparo (n 163) 627, Lord Bridge concluding on the basis that it ‘is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless.’
165 Phillips LJ in Reeman  PNLR 618, 625. See also the speech of Lord Bingham in Customs v Barclays  1 AC 181, 189–90, noting, on the matter of the test of tortious liability in negligence for pure financial loss, that the
parties were agreed that the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant (what Kirby J in Perre v Apand Pty Ltd (1999) 198 CLR 180, para 259, succinctly labelled ‘policy’). Third is the incremental test, based on the observation of Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424, 481, approved by Lord Bridge of Harwich in Caparo Industries plc v Dickman  2 AC 605, 618.
166  1 Lloyd’s Rep 157.
167 Aneco Reinsurance (n 166)188.
168 SAAMCO v York Montague (n 142) in which the plaintiff lender sued a defendant valuer for providing the lender with a negligent overvaluation of the property offered as security for a loan. It was not disputed that, had it known the true value of the property, the lender would not have lent. Further, a fall in the property market after the date of the valuation greatly increased the lender’s ultimate loss. Lord Hoffman considered (211) that a ‘plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered. Both of these requirements are illustrated by Caparo Industries plc v Dickman  2 AC 605’.
169  1 WLR 1627 in which Lord Nicholls (1631) said that the defendant ‘is not liable for all the consequences which flow from [the plaintiff] entering into the transaction. He is not even liable for all the foreseeable consequences. He is not liable for consequences which would have arisen even if the advice had been correct. He is not liable for these because they are the consequence of the risks [the plaintiff] would have taken upon himself even if the … advice had been sound. As such they are not within the scope of the duty owed to [the plaintiff] by [the defendant].’
170 Aneco Reinsurance (n 166) 197.
171 Customs v Barclays (n 165).
172 Customs v Barclays (n 165) 198.
173 Customs v Barclays (n 165) 199.
174 A position already taken by Lord Millett in an earlier case, Bristol & West  Ch 1,  who noted that ‘in this class of case the plaintiff must prove two things: first, that he has suffered loss; and, secondly, that the loss fell within the scope of the duty he was owed. In the present case the society must prove what (if any) loss was occasioned by the arrangements which the purchasers had made with the bank.’
175 See Lord Hoffman in Customs v Barclays (n 165).
176 See Lord Hoffman in ‘The Achilleas’ (n 156).
177 See also the argument put forward by John Cooke and David Oughton, The Common Law of Obligations (3rd edn, OUP 2000), 300, observing that as ‘the policy of common law appears to be more generous to a plaintiff suffering physical harm as opposed to one suffering financial loss, the Wagon Mound (n 159) rule might not be appropriate. The most likely rule would appear to be a version of “The Heron” II test involving the foreseeability of a loss to a substantial degree of probability’. It would appear from the decisions in Customs v Barclays and ‘The Achilleas’ that Lord Hoffman agrees, although the test is to be one of reasonable assumption of responsibility, construed against the background of the conduct of the plaintiff and the defendant, and all other relevant facts.
179 Lord Browne-Wilkinson, Target Holdings (n 178) 438–39:
[citing McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 126] at p. 163: ‘In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, ie, the plaintiff’s loss of opportunity. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach.’ (Emphasis added.) In my view this is good law. Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach.
180 Henderson (n 37) 205, saying that the
liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others. Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on different manifestations of the duty, in truth the duty of care imposed on bailees, carriers, trustees, directors, agents, and others is the same duty: it arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description of the trade or position which they hold.
Lord Browne-Wilkinson’s speech is cited in agreement by Millett LJ, in Bristol and West  2 WLR 436,  Ch 1, 16.
182 See paras 5.60ff above (on manifestation of losses).
183 ‘The Achilleas’  3 WLR 345; see also paras 3.85ff. Support for this approach can be found in Lord Hoffman’s considerations in SAAMCO v York Montague (n 142) 211–14, observing that, although it had been established that the plaintiff lender would not have entered into the loan had the defendant valuer provided him with a correct valuation, the law does not ‘penalise wrongful conduct by shifting on to the wrongdoer the whole risk of consequences which would not have happened but for the wrongful act’.
184 For example, the law on penalties and certain statutory controls such as the Unfair Contract Terms Act 1977; see Chitty on Contracts (n 2) para 26-001.
185 See Chitty on Contracts (n 2) para 26-001, citing Robinson v Harman (1848) 1 Exch 850, 855; Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39; and British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd  AC 673, 688–89.
186 cf Cooke and Oughton (n 177) 326.
187 See paras 5.60ff (on manifestation of losses).
188 Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory  AC 91, 106. See also Chitty on Contracts (n 2) para 26-007.
189 Chitty on Contracts (n 2) para 26-042, citing Davies v Taylor  AC 207, 213 (a tort case).
190 Chitty on Contracts (n 2) para 26-048.
191 Paula Lee Ltd v Robert Zehil & Co Ltd  2 All ER 390.
192 Chitty on Contracts (n 2) para 26-001, referring to the ‘net loss’ approach. See also Lord Hoffman in SAAMCO v York Montague (n 142) 218, noting on the point of the likely outcome of an alternative transaction, that ‘in principle there is no reason why the valuer should not be entitled to prove that the lender has suffered no loss because he would have used his money in some altogether different but equally disastrous venture’.