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Manchester Building Society v Grant Thornton UK LLP – SAAMCO revisited

24 June 2021

Zarah Rehman and Sheona Wood consider the implications for the professional negligence world of the long-awaited and much delayed judgment in Manchester Building Society v Grant Thornton.

On Friday 18 June, a seven strong Supreme Court handed down judgment in two cases, Manchester Building Society v Grant Thornton UK LLP and Khan v Meadows ( a case involving medical negligence). The judgments in the two cases were directed to be read together . The majority of the court in the Manchester Building Society ( " MBS ") case said they were taking the opportunity to provide general guidance regarding the proper approach to determining the scope of duty and the extent of liability of all professional advisers  and revisited the decision in SAAMCO (South Australia Asset Management Corp. v York Montague Ltd [1997] AC 191) as subsequently clarified in BPE v Hughes Holland and others [2017] UKSC 21.  The appeal centred around whether the loss suffered by MBS  fell within the scope of the duty of care owed by Grant Thornton in providing certain audit and accounting advice.


MBS is a small mutual building society, whose accounts were audited by Grant Thornton UK LLP from 1997 to 2012. MBS sold fixed interest "lifetime" mortgages in relation to which the principal loan amount and interest was only repaid on the death of the borrower or on the borrower selling their property. In order to hedge the risk to its business from variable interest rates for borrowing the money for these mortgages MBS entered into long term swaps.  In 2006, Grant Thornton incorrectly advised MBS that its accounts could be prepared using a method known as hedge accounting, which would allow it to reduce the volatility of the market-to-market value of the swaps on MBS's balance sheet. This was particularly  important because by doing so MBS could keep the capital it was required to have to show liquidity to its regulator at an affordable level. 

In 2013, Grant Thornton became aware of its error in advising that the hedge method of accounting could be used when it could not. This resulted in MBS having to restate its accounts, which showed reduced assets and insufficient regulatory capital. MBS was then required to close the interest rate swap contracts early, at a cost of over £32m. 

First Instance Decision

The trial judge held that MBS was not able to recover the £32m cost of closing the interest rate swap contract early from Grant Thornton as this did not fall within the scope of duty principle established by SAAMCO, but instead was loss incurred as the result of market forces which Grant Thornton had no control over. 

MBS appealed. 

Court of Appeal Decision

The Court of Appeal, whilst agreeing with the outcome of the first instance decision, decided that the judge at first instance had not applied the principles in SAAMCO with sufficient rigour. The Court of Appeal found that this was an " information" case, as opposed to an " advice" and held that the loss sustained by MBS was not within the scope of the Grant Thornton's duty of care. It also considered whether MBS could  prove that it would not have suffered the loss, had the advice given by Grant Thornton been correct but concluded that MBS was unable to do so. The Appeal was dismissed. 

Supreme Court Decision

The main issue for the court was whether MBS could recover the £32m cost of closing the interest rate swap contracts early. 

The Supreme Court unanimously allowed the appeal. The Court said it should "begin at the beginning" and looked at the purpose for which Grant Thornton's advice had been given . It found that, in effect, MBS had asked Grant Thornton whether it could use hedge accounting to implement its proposed business model within the constraints of its regulatory environment and Grant Thornton had said yes when the answer should have been no . It was therefore held that MBS had suffered a loss that fell within the scope of duty owed by Grant Thornton and therefore Grant Thornton was liable for the losses suffered by MBS as a result of the advice being wrong . 

The Court considered the issue of contributory negligence and agreed that a 50% reduction for contributory negligence should be applied as MBS's loss also arose from the mismatching of mortgages and swaps that the Court considered to be an "overly ambitious application of (MBS's) business model" by its management.   

The key question of law in cases involving all professional advice, said the Court, was to focus on the purpose of the advice or information and the risk this advice was intended to protect against bearing in mind that a claimant should be placed in the same financial position as it would have been in had the advice been correct .

The Court suggested in both the MBS and Khan cases that questions to be addressed in all cases involving professional advice were:

  1. Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence?
  2. What are the risks of harm to the claimant against which the law imposes on the defendant a duty to take care?
  3. Did the defendant breach his or her duty by his or her act or omission?
  4. Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission?
  5. Is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant's duty of care as analysed at stage 2 above?
  6. Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid?


This judgment will no doubt generate considerable debate concerning the scope of an adviser's duty, the purpose for which advice is given, the risk which is being protected against and the recoverable damages which follow in the event of a breach of that duty.

The Court's principal emphasis was that the principles in SAAMCO may well be applied in a more fluid manner than had been the case previously. 

The Court emphasised that the very wide variety of cases which are tried do not neatly fall into "advice" or "information" categories; instead there is a spectrum of advice given. At one end is a professional who provides one piece of advice in a transaction, at the other is a professional who makes all the decisions on behalf of a client . The Court considered that the more appropriate test should be "in the case of negligent advice given by a professional adviser one looks to see what risk the duty was supposed to guard against and then looks to see whether the loss suffered represented the fruition of that risk".

The Court was also keen to highlight the limits of  the counterfactual  when dealing with complex hypothetical circumstances. It was suggested that the counterfactual could be used as a cross check or sense check against any particular outcome but it must not be allowed to develop a hypothetical life of its own so that, as happened in this case, the parties spent considerable time and cost in dealing with, and attempting to disprove, a series of imagined  events advanced by both sides, which in such situations does little to move towards a final outcome. 

Whilst the outcome of the practical application of  these principles is awaited it highlights that there will be a great deal of focus on the precise detail of what an adviser is retained to do and for what purpose. As ever an important practical consideration will be to define, preferably in writing, what it is an adviser is retained to do  and for the adviser to consider what risks they are and are not being retained to protect against.

For further information please contact the authors, Zarah Rehman and Sheona Wood

Further Reading