SAAMCo and the scope of an accountant’s duty

We consider the decision in Manchester Building Society v Grant Thornton UK LLP, in which the Court of Appeal confirmed that the distinction between “advice” and “information” is still the starting point when looking at the extent of liability in negligence claims against professionals.

Summary

In Manchester Building Society v Grant Thornton UK LLP, the court considered SAAMCo principles in the context of a negligence claim against an accountant. At first instance, the court had appeared to diminish the importance of the distinction between “advice” and ‘information” cases, and instead chose to consider whether, in all the circumstances, the professional had reasonably assumed responsibility for the losses in question. The Court of Appeal rejected the lower court’s approach, reaffirming that the starting point for ascertaining the scope of the professional’s duty must be to assess whether the professional provided “advice” or simply “information”.

Background and the first instance decision

The dispute concerned auditing services provided by Grant Thornton (GT) to Manchester Building Society (MBS) between 1997 and 2012. Our analysis of the first instance decision, which includes a detailed account of the relevant background, can be found here.

At first instance, the court considered earlier authorities which applied the distinction between “advice” and “information” cases, including South Australia Asset Management Corp v York Montague Ltd. (SAAMCo) and BPE v Hughes-Holland. In essence, where the professional has provided “advice”, he or she can be liable for all foreseeable loss that is a consequence of the advised action. Where the professional has provided ‘information”, he or she can only be responsible for the foreseeable consequences of that information being wrong (the so-called SAAMCo cap)

The court called into question the usefulness of the “information’/“advice” distinction, observing that ‘information” and “advice” are not necessarily distinct nor mutually exclusive. Rather than consider whether the case concerned “information” or “advice”, the court opted to assess whether, in the round, the accountant can reasonably be seen to have assumed responsibility for the losses in question. Taking that approach, the court found that GT had not assumed responsibility for the losses in question.

On appeal

MBS appealed the decision on several grounds, including that: (1) the judge had erred in approaching the issue of liability as a question of ‘assumption of responsibility’ rather than considering whether this was an “information” or “advice” case; and (2) on proper analysis, this was an “advice” case (and, therefore, GT was liable for all the reasonably foreseeable consequences of its advice being wrong, which included the losses in question).

Regarding (1), the Court of Appeal found that the judge had erred in assessing whether the professional had “assumed responsibility” for the losses in question in the circumstances, rather than whether the case concerned the provision of ‘advice” or “information”. The Court of Appeal considered that the first instance decision overstated the blurred nature of the line between “advice” and “information’ and commented that there remained a “clear and important distinction between the two categories” for the purposes of ascertaining the scope of a professional’s duty.

By reference to the clarification given in BPE v Hughes-Holland, the Court of Appeal neatly summarised the proper application of the SAAMCo principles as follows:

  • it is “first necessary to consider whether it is an “advice” case or an “information” case”, because “…the scope of the duty, and therefore the measure of liability, is different in the two cases”
  • an “advice case” is one in which it can be shown that it has been “left to the adviser to consider what matters should be taken into account in deciding whether to enter into the transaction”, that “his duty is to consider all relevant matters and not only specific matters in the decision" and that he is "responsible for guiding the whole decision making process”.
  • If it is an “advice” case, then the negligent adviser will have assumed responsibility for the decision to enter the transaction and will be responsible for all the foreseeable financial consequences of entering into the transaction.
  • If it is an “information" case, the negligent adviser/information provider will only be responsible for the foreseeable financial consequences of the advice and/or information being wrong, which involves consideration of what losses would have been suffered had the advice been correct.

The Court of Appeal found that this was plainly an “information” case. GT had not been involved in the decision to enter into the swaps, but had simply provided information relevant to that decision. It followed that GT was not responsible for the financial consequences of the transaction as a whole, but only those flowing from its accounting “information” being wrong.

Guide for practitioners

The Court of Appeal decision returns a degree of certainty to the approach for ascertaining the scope of a professional advisor’s duty and the application of the SAAMCo cap. Professional advisors should feel more confident in distinguishing between scenarios in which they are simply providing information to be used in commercial decision-making (an information case) from those scenarios in which they are advising on the commercial decision itself (an advice case), and the differing scopes of duty that will apply in each.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.