We consider the decision in Manchester Building Society v Grant Thorton UK LLP, which is a further example of the court’s pragmatic approach to SAAMCo and the advice and information distinction.


In Manchester Building Society v Grant Thornton UK LLP, the court considered SAAMCo principles in the context of a negligence claim in respect of an accountant’s advice. The court held that, although the losses in question were foreseeable, the defendant had not assumed responsibility for those losses.


Manchester Building Society (MBS) issued lifetime mortgages. There was an interest rate risk inherent in this arrangement, which MBS hedged by obtaining interest rate swaps (the Swaps).

MBS engaged Grant Thorton UK LLP (GT) to audit its accounts between 1997 and 2012. Changes in applicable accounting rules meant that, from 2005 onwards, the Swaps were to be included on the Claimant’s balance sheet, with the effect that the capital, as recorded in MBS’s balance sheet, would be "volatile".

This, in turn, necessitated MBS holding an increased amount of regulatory capital; MBS adopted “hedge accounting” from 2006 to offset this.

Following the 2008 financial crisis, and associated reduction in interest rates, the Swaps were no longer an asset on MBS’s balance sheet, but a liability. MBS closed out the Swaps at a significant loss and claimed against GT for those losses (£48.5m). GT admitted that it had failed to advise that MBS could no longer apply “hedge accounting” after April 2006, and that the audits of its accounts conducted by the Defendant between 2006 and 2011 were negligent as they approved the use of “hedge accounting”.


Although GT admitted its negligence it argued that its negligence did not cause MBS’s losses.

GT considered MBS would have suffered the same losses in any event because it would have hedged this risk by employing alternative forms of hedging, namely “balance guaranteed swaps”, from which the losses in question would have flowed in any event. Considering the nature of the "balance guarantee swaps" market, the court accepted that it was more likely than not that, but for GT’s negligence, MBS would not have suffered the costs of breaking the swaps in 2013.

Further, and significantly, GT argued that it did not assume responsibility for the commercial and financial decisions taken by MBS following its negligent accounting. It did not advise MBS to hedge the interest risk by way of the Swaps, it simply made an error in failing to tell MBS in 2006 that “hedge accounting” was no longer applicable.

It was also held that GT’s negligent acts or omissions were sufficiently closely connected to the losses to constitute an effective cause in law. Although decisions regarding the accounting principles and rules to be applied to a company’s financial position did not directly affect the volatility or otherwise of the Swaps, the accounting principles did affect the Claimant’s regulatory capital and that it was “this volatility of the balance sheet which lead to the [Swaps] being closed in 2013”.

Scope of duty

GT argued that MBS’s losses did not fall with the scope of GT’s duty of care (seeking to rely on South Australia Asset Management Corp v York Montague Ltd. (SAAMCo), as applied in BPE v Hughes-Holland).

The court considered the much-cited principles established in SAAMCo and, in particular, the distinction between situations in which advice, as opposed to just information, is provided. Whilst applying the principles established in SAAMCo, the court emphasised that the distinction was not to be adhered to slavishly. From Hughes-Holland, in which it was held that the two categories of "advice" and "information" are not to be considered “distinct nor mutually exclusive”, the court cited the following example: “information given by a professional man to his client is usually in the form of advice, and most advice will involve conveying information.”

The court was persuaded that the case at hand was to be considered an "information" case, noting that: (i) the use of hedge accounting had been adopted to protect the balance sheet from volatility and its consequences; (ii) the claimant’s services were rendered in circumstances in which the defendant knew that the claimant wished to use the Swaps to protect itself from volatility; and (iii) the losses incurred in breaking the swaps were fairly attributable to that negligent advice because, when the hedge accounting was shown not to be available, the balance sheet was left exposed to volatility. While the court was persuaded by MBS’s witness evidence, it ultimately concluded that the advice provided by GT had not influenced MBS’s commercial decisions.

Despite being persuaded that the losses in question were foreseeable, the court considered that the question as to whether the losses ought to be recoverable must be assessed “in the round”. Ultimately, the court took the view that it would be “striking” to find that an accountant who advises a client as to the manner in which its business activities may be treated in its accounts has assumed responsibility for the financial consequences of those business activities.

Further, the court noted that, whilst it could certainly be said that the losses flowed from the particular feature of GT’s conduct that made it wrongful, the very same loss could have been sustained for other reasons not connected to GT, including that if the swap counterparty decided to close out those Swaps. This indicated that, when looked at sensibly, GT had not assumed responsibility for the losses; the losses had flowed from market forces for which GT was not responsible.

Considerations for professional advisors

This is a very fact specific case and the decision does not provide definitive guidelines as to when losses will be recoverable in respect of negligent advice. However, this case should provide professional advisers with a degree of comfort. It indicates that the court will take a common sense approach when applying SAAMCo principles and will ask, ultimately, whether it would be reasonable to hold the adviser responsible for the losses in question.

Importantly, (in line with SAAMCo), it draws a distinction between the "information" provided and the commercial decisions made on the basis of the information provided, regardless of the fact that the information giver was aware of the commercial landscape that its client was operating in. In a classic application of the floodgates principle, the court limited the losses caused by a negligent professional with reference to the losses for which it assumed responsibility.