The Supreme Court has recently revisited the law around the scope of a professional’s duty to its client, and how any claim for negligence should therefore be framed, in the cases of  Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21.

In the latter case, which concerned a case where a child was born with haemophilia following a GP's failure to diagnose the haemophilia gene in the child's mother, the Court confirmed that the principles discussed in Manchester Building Society v Grant Thornton apply equally to medical negligence cases as to other professional negligence cases, i.e. those principles are not confined to matters of pure economic loss.  A copy of our article on Khan v Meadows is here.  

In Manchester Building Society v Grant Thornton, the Court revisited the guidance set down in South Australia Asset Management Corp. v York Montague Ltd [1997] AC 191 (commonly referred to as ‘SAAMCO’), the landmark professional negligence case from 1997.  In that case, the Court had distinguished between ‘advice’ and ‘information’.  In the former, a negligent advisor would be responsible for all foreseeable loss arising from course of action taken as a result of negligent advice; in the latter, the negligent provider of information would be liable for all foreseeable consequences of the information being incorrect.

The appellant in this case argued that this was an “advice” case and that loss should be calculated accordingly.

Facts of the Case 

Manchester Building Society (“MBS”) offered fixed-rate lifetime mortgages to its customers, whereby the principal loan sum and interest only became repayable on the sale of the property or death of the borrower. MBS funded these mortgages by itself borrowing at variable rates of interest. To reduce its exposure to fluctuating interest rates, MBS entered into long-term ‘interest rate swaps’, financial derivatives where parties exchange fixed-rate and variable-rate interest payments on a notional sum.

Grant Thornton audited MBS’ accounts from 1997, and from 2006 advised that MBS could use the accounting practice of ‘hedge accounting’ whereby for the purposes of preparing its accounts, the value of the lifetime mortgages could be adjusted to offset changes in the value of the interest rate swaps as a result of forecasted market movements.  This had the effect of reducing the volatility of MBS’ reported financial position, which in turn reduced the ‘regulatory capital’ the FSA required MBS to hold to mitigate the risk of such volatility.  MBS prepared its financial statements for the years ending 2006 to 2011 on the basis of this advice.

In 2013, Grant Thornton recognised that MBS was not in fact permitted to apply hedge accounting and that its advice from 2006 had been incorrect.  As a result of having to correct its accounts, MBS had insufficient regulatory capital and had to terminate its interest rate swaps, at a value of circa £32 million.

The question for the Supreme Court to consider was whether MBS’ losses arising from terminating the interest rate swaps early fell within the scope of Grant Thornton’s duty of care and were recoverable.

The Decision

 While the first instance court and the Court of Appeal (applying SAAMCO) found that the element of loss arising from early termination of the interest rate swaps was not recoverable, the seven-strong Supreme Court unanimously disagreed and allowed MBS’ appeal, the majority judgment noting the following.

1. The provision of ‘information’ and ‘advice’ should not be distinguished

The Supreme Court stated that ‘advice’ and ‘information’ are not necessarily mutually exclusive, and in reality most professionals will operate somewhere in between the two, on a spectrum.  The question should not focus on whether the professional was giving advice or information, but should be the extent to which the professional advisor has contributed to claimant’s decision-making:

In our view, for the purposes of accurate analysis, rather than starting with the distinction between “advice” and “information” cases and trying to shoe-horn a particular case into one or other of these categories, the focus should be on identifying the purpose to be served by the duty of care assumed by the defendant. . . Ascribing a case to one or other of these categories seems to us to be a conclusion to be drawn as a result of examination of that prior question . . . “

2. The purpose of the professional’s advice is fundamental to the scope of the defendant’s duty

The Supreme Court held that the purpose of the advice sought should be paramount in establishing the extent of the duty of care.  In other words, the risk that the advice was supposed to mitigate against should be identified, and then it should be established whether the loss sustained by the claimant represented the ‘fruition’ of such risk.

In this case, the Court found that the purpose of Grant Thornton’s advice was to establish whether hedge accounting was permissible, in the context of its obligation to hold sufficient regulatory capital.  The risk that MBS sought to avoid was its exposure to regulatory capital demands, such exposure requiring MBS to terminate its interest rate swaps; accordingly the losses that flowed from such termination fell within Grant Thornton’s duty of care.

3. The use of ‘counterfactuals’ to establish liability should be limited

The so-called ‘SAAMCO counterfactual’ recognises that in order to establish the extent of loss that falls within the defendant’s duty of care, the question to be asked is what loss would the claimant have sustained had the defendant’s advice been correct.  However, the Supreme Court ‘s view was that applying the SAAMCO counterfactual is not always helpful, and can lead to complex (and unnecessary) hypothetical disputes over what might have been.  Accordingly such counterfactual analysis should not be the ultimate test to establish the extent of loss that falls within the defendant’s duty of care, but that it should be employed as a useful ‘cross-check’ where appropriate.

In SAAMCO, the counterfactual analysis was held to apply to ‘information’ cases only.  Given the Court’s desire in this case to abandon the distinction between information cases and advice cases, the SAAMCO counterfactual was no longer viable as the primary tool in professional negligence cases to establish what loss falls within the defendant’s duty.


 On the face of it, the departure from the comparatively rigid principles espoused in SAAMCO would appear to represent good news for claimants.  For example, whereas defendants could previously seek to reduce recoverable loss by arguing that they were giving information rather than advice, this line of argument will no longer be available.  Further, the reduction in importance of the SAAMCO counterfactual may well mean that claimants will be able to prove that greater proportions of their losses fall within the defendant’s duty. 

However, it is still incumbent on Claimants to show that the losses flow from a breach of the duty of care, and to establish the scope of that duty of case. 

The decision emphasises once more the importance for both professional advisors, and for those of instructing them, of being clear as to why advice is sought, the risks the advice is proposed to mitigate against, and the potential consequences if the advice is wrong.



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