Manchester Building Society v Grant Thornton UK LLP

In the Supreme Court appeal of Manchester Building Society v Grant Thornton UK LLP, the Court was required to determine the extent of the duty of care assumed by professional accountants when providing negligent advice. The appeal addressed the application of the scope of duty principle in the context of professional negligence, specifically focusing on the recovery of damages for economic loss. The case revolved around the negligent advice given by Grant Thornton, an accounting firm, to Manchester Building Society regarding the use of hedge accounting in the preparation of financial statements. This advice led to significant financial losses for the Society when it was later discovered that hedge accounting could not be used as advised.

The legal issues the Court had to decide included the proper approach to determining the scope of duty in professional negligence cases, the relevance of the distinction between 'advice' and 'information' cases, and the application of counterfactual analysis in assessing the extent of recoverable damages. The Court also had to consider the implications of contributory negligence by the claimant in the context of professional negligence claims.

The Court's reasoning was that the scope of duty in professional negligence cases should be determined by the purpose of the duty, judged objectively by reference to the reason why the advice was given. The Court emphasized that the purpose of the duty provides a principled and straightforward approach to identifying the extent of the defendant's liability. The distinction between 'advice' and 'information' cases was deemed unhelpful and potentially misleading, with the focus instead placed on the purpose of the advice given. The Court also clarified that counterfactual analysis, while useful as a cross-check, should not replace the primary analysis of the purpose of the duty.

In applying these principles to the facts of the case, the Court found that Grant Thornton's advice regarding the use of hedge accounting was intended to allow the Society to implement its business model within regulatory constraints. The negligent advice led the Society to incur losses when it had to unwind its swap contracts to protect its capital position. The Court concluded that the losses suffered by the Society fell within the scope of the duty of care assumed by Grant Thornton, given the purpose of the advice provided.

The final orders of the Court were that the appeal should be allowed, and the Society was entitled to recover its losses from Grant Thornton, subject to a 50% reduction for contributory negligence. This decision affirmed the importance of the purpose of the duty in determining the scope of liability in professional negligence cases and provided guidance on the application of the scope of duty principle in such contexts.