The case of Manchester Building Society v Grant Thornton UK LLP  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  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 UK LLP  UKSC 20, 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.
Manchester Building Society v Grant Thornton UK LLP  UKSC 20 involved negligent advice that was given to a building society (Manchester Building Society) by an accountancy firm (Grant Thornton). In 2006, the accountancy firm advised the building society that it could apply an accounting treatment known as “hedge accounting” to reduce the volatile risk of entering into long-term interest rate swaps on its accounts, regulatory capital and assets. Thus, the building society entered into numerous fixed rate mortgages hedged against long-term swaps as a result of obtaining and relying on this professional advice.
The Negligent Advice
In 2013, the accountancy firm realised that the professional advice provided to the building society had been incorrect, as hedge accounting could not be applied due to the financial crash of 2007-2008. This forced the building society to close out the swaps and resulted in a 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 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.”
– Paragraph 13, Manchester Building Society v Grant Thornton UK LLP  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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LIMITATION ACT 1980 – WARNING
The Limitation Act 1980 sets out strict statutory deadlines within which you must bring litigation claims. Your legal rights will become irreversibly time-barred if you fail to take legal action (or defend a claim on time). Therefore, you should seek specific legal advice about your legal dispute at the very first opportunity so that you understand the time you have left. Failure to take advice or delay in taking action can be fatal to your prospects of success.