In this Court of Appeal case, the basis upon which a professional advisor can be held liable for losses flowing from negligent advice was clarified.
Grant Thornton provided negligent advice regarding the accounting treatment of interest rate swaps. This resulted in their client breaking the swaps early and incurring mark-to-market losses of £32.7m and transaction fees. The Court of Appeal re-affirmed the principles set out in SAAMCO (and Hughes-Holland v BPE ) as follows:
- Firstly, a distinction had to be made between whether the adviser was providing ‘advice’ or ‘information’.
- If ‘advice’, the scope of duty (and corresponding loss) would be wide. If not ‘advice’, it must be an ‘information’ case and the scope of duty is much reduced.
- The decision as to whether to proceed with the transaction remains with the client, and the adviser is only responsible for the foreseeable financial consequences of the advice being wrong.
- In this case, the Court held this was ‘information’ not ‘advice’. The losses arose from market forces, not the negligent accounting and the appeal was dismissed.
Stephenson Harwood comment
The scope of a professional’s duty needs to be clearly defined at the outset. Where an adviser’s role is nuanced, it’s important to clarify whether or not it is taking responsibility for the decision to enter into the transaction and / or “guiding the whole decision making process”.