Manchester Building Society v Grant Thornton [2021] UKSC 20; [2021] 3 WLR 81
By Sam Knight, Underwriter
(Estimated reading time: 6 minutes, 14 seconds)
This case arose from negligent advice given by the Claimant’s auditor, exposing them to a £32.7 million loss. The key question for the court was whether the scope of the duty owed by the auditor to the Claimant encompassed the losses claimed, or whether the advice given was insufficient to expose the auditor to liability.
The Supreme Court ultimately decided that the auditor’s negligent advice fell sufficiently within the scope of their duty of care to the claimant. This decision has restated the law applicable to professional advisor negligence claims and has practical implications for solicitors and counsel in pursuing them.
Where To Start – Questions to be Asked
Lord Hodge DPSC and Lord Sales JSC advanced a six-stage approach at para 6 of the judgment, and it would prove prudent for practitioners to follow the recommended line of questioning:
‘(1) Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence? (the actionability question)
(2) What are the risks of harm to the claimant against which the law imposes on the defendant a duty to take care? (the scope of duty question)
(3) Did the defendant breach his or her duty by his or her act or omission? (the breach question)
(4) Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission? (the factual causation question)
(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? (the duty nexus question)
(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 (including novus actus interveniens) in relation to it 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? (the legal responsibility question).’
This provides a new starting point and set of criteria to be established for a successful professional negligence claim against an advisor; following that structure will bring your case analysis in-line with the Supreme Court’s re-evaluation of the applicable law.
Preliminary Points on Actionability
It was held that before examining the scope of any duty of care in a professional advice case, the actual extent of loss arising from the negligent advice must be uncovered. This can be done on a simple ‘but for’ basis asking – for example, but for my advice that you should read this judgment in full, would you have lost out on billable hours?
The key is to determine which losses ‘flowed from the alleged breach of duty’ (para 12). Temple Legal Protection recently underwrote a case whereby negligent advice on the formal creation of land rights in a conveyance caused serious loss to the purchaser. Unravelling the case and applying Manchester Building Society, it was clear that such losses flowed directly from the alleged breach of duty, bringing them within the boundaries of the dispute.
The remainder of the article considers ‘The Scope of a Professional Adviser’s Duty of Care’, ‘The Distinction Between ‘Advice’ and ‘Information’, Contributory Negligence and some conclusions on a much-needed simplification of the law relating to professional advice cases.
The Scope of a Professional Adviser’s Duty of Care
Having determined which losses actually fall within the parameters of the dispute, the scope of the professional adviser’s duty of care needs to be considered.
The court rejected the use of counterfactuals outlined in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (SAAMCO) as the correct method of ascertaining the scope of a duty of care. Instead, they referred to the duty’s purpose in order to decide whether the loss claimed was covered, but retained the SAAMCO principles as a means of cross-checking any analysis.
To determine whether the scope of a professional adviser’s duty of care encompasses a particular type of loss you must now refer to the purpose of the duty, judged on an objective basis by reference to the purpose for which the advice was given.
In short, as Lord Hodge DPSC and Lord Sales JSC put it: ‘see what risk the duty was supposed to guard against and then… see whether the loss suffered represented the fruition of that risk’ (para 17).
This greatly simplifies the test and represents a common-sense restructuring of the law on professional negligence in advice cases. The test examining the purpose of a duty of care is far simpler and more accessible than balancing counterfactuals under SAAMCO, but retains the protection a detailed SAAMCO analysis can offer as a cross-checking mechanism in more complex cases.
If loss is the result of an adviser’s negligence and their advice was meant to prevent it: it’s probably going to be within the scope of their duty of care.
The Distinction Between ‘Advice’ and ‘Information’
In another rejection of the established SAAMCO principles, the court dropped the distinction between ‘advice’ and ‘information’ cases, describing it as ‘too rigid and, as such, liable to mislead’ (para 18).
It seems uncontroversial to say that each case will turn on its merits and, if the advice or information given played a key role in causing the transaction and subsequent loss, it is nonsensical to say that they are any different.
‘As Lord Sumption JSC points out in Hughes-Holland, para 39, both “advice” and “information” cases involve the giving of advice’ (para 22).
It is more important to determine the overall scope of the duty of care owed by the professional adviser. Labelling one kind of information as ‘advice’ and another as ‘information’ when they perform the same basic function is tedious and immaterial to the case at hand.
If I advise you that the green fruit on your desk is an apple, and that you should eat it because apples have great health benefits, I have both given advice and conveyed information.
Contributory Negligence
However, whilst it may be easier to establish that a professional adviser’s duty of care is sufficient to encompass the losses in dispute, a word of warning regarding contributory negligence must be given.
In Manchester Building Society the damages were reduced by 50% for contributory negligence on the basis that the actual conduct of the Society was ‘an overly ambitious application of the business model by the society’s management’ (para 39).
What this seems to suggest is that whilst losses may fall within the scope of a professional adviser’s advice or information (and the distinction has been removed), the court is unwilling to accept that the implementation of negligent advice is always the entire fault of the professional adviser. If you act on information you wanted to hear or didn’t stop to fully consider the implications, you could be looking at a reduction in your damages.
Better, perhaps, that you consider whether you are allergic to the apple before you eat it.
Conclusions
In essence the decision in Manchester Building Society represents a much-needed simplification of the law relating to professional advice cases. The Supreme Court has restructured how the scope of a duty of care is determined in-line with common sense and removed the needless distinction between advice and information in such cases.
The six-stage model, referred to at para 6 of the judgment, gives a painless approach to pursuing professional negligence claims against advisors, and should be pursued in practice accordingly.
If you would like more information on our litigation insurance and disbursement funding products for professional negligence, or you have any other legal expenses insurance query, please email matthew.pascall@temple-legal.co.uk or call him on 01483 514428.
