The impact of Manchester Building Society v Grant Thornton on professional negligence claims

The case of Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 has changed the legal approach towards professional negligence claims.  Upon hearing the case, the Supreme Court followed on from the principle set out in South Australia Asset Management Corporation v York Montague Ltd [1996] UKHL 10 (known as the SAAMCO case). 

In the SAAMCO case, emphasis was placed on causation by focusing on whether the claimant’s loss was a result of the defendant’s breach of the duty of care owed to the claimant.  Although causation was also considered in Manchester Building Society v Grant Thornton, more focus was placed on the scope of the defendant’s duty and the purpose for which the professional advice was given, as opposed to solely examining the element of causation.

The Facts

Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 involved negligent advice that was given to Manchester Building Society by the accountancy firm Grant Thornton who were its auditor.  In 2006, the accountancy firm advised the building society that it could apply an accounting treatment known as “hedge accounting” to reduce the volatility of the mark to market contingent liability risk of long-term interest rate swaps on its accounts, regulatory capital and assets.  Thereafter, the building society entered into numerous fixed rate mortgages hedged against long-term swaps under which it paid a fixed rate but received a variable rate; relying on this professional advice.  

The Negligent Advice

The professional advice provided to the building society had been defective as noted when interest rates went negative following the financial crash of 2007-2008. This forced the building society to close out the swaps and resulted in break costs loss of £32.5 million. The negligent advice also led to the misstatement of the building society’s accounts as well as a false representation of its regulatory capital and assets due to the use of the recommended hedge accounting method. Thus, the accountancy firm negligently failed to recognise that there was no hedging relationship between the swaps and the lifetime mortgages that the building society hedged.

The Judgment  

The Supreme Court’s approach in relation to this case was based on assessing the scope and purpose of the defendant’s duty as well as the extent of liability of professional advisers.  Thus, the judges found that the purpose for which the accountancy firm gave its advice about the use of hedge accounting was to confirm that this method could be used to counter the volatile risk created by interest swap transactions and its consequences for the building society’s regulatory capital and assets. 

Therefore, it was held that the building society had suffered a loss that was recoverable as it fell within the scope of duty of care owed by the defendant.  Although damages were reduced by 50% due to contributory negligence, the building society was entitled to recover damages of £13.4m. 

The judges ultimately stated:

“…the scope of the duty of care assumed by a professional adviser is governed by the purpose of the duty, judged on an objective basis by reference to the reason why the advice is being given.”

– para 13, Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20

Do I have a claim against a professional?

Professional negligence occurs where a property professional fails to perform his responsibilities to the required standard. A professional negligence claim brought by the professional’s client may be based on one or more of the following:

  • Breach of a contractual term (express or implied).
  • Breach of duty of care owed in the tort of negligence.
  • Breach of fiduciary duty.
  • Breach of statutory duty.

Where a duty is owed in contract or tort, you must establish that there has been a breach of that duty. You must show that the professional did not comply with the requisite standard owed. Broadly speaking, negligence is established if the professional has made an error which no reasonable member of his profession, operating in similar circumstances, would have made. Where such errors cause a financial loss, claims can be pursued against the relevant financial adviser.

Book a Meeting with our Professional Negligence Lawyers

If you have a claim against a professional and want expert legal advice, get in touch so we can assess the legal merit of your case. We can often take on such claims on a no win no fee basis (such as a CFA or DBA) once we have discussed the claim with you and then assessed and advised you on the merits of the proposed professional negligence action. Our expert legal team of leading Professional Negligence Solicitors & Barristers can provide urgent help, advice or representation to you. Just call our Professional Negligence Lawyers on 02071830529 or email us now.

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