Teal blue header image

Negligent advice or information in assessing loss? SAAMCO reaffirmed

The Court of Appeal has unanimously dismissed an appeal relating to the assessment of loss arising from an accountant's negligence.

In so doing, it has provided clarity on the correct approach to assessing quantum in professional negligence claims and reaffirmed the application of the principles of SAAMCO.

Manchester Building Society (Appellant) v Grant Thornton UK LLP (Respondent) [2019] EWCA 40 (Civ) highlights again the necessity for the courts to distinguish between "advice" and "information" cases. When assessing loss in "information" cases one must only consider loss that would have been suffered if the negligent advice had been correct.


Manchester Building Society (MBS) issued a number of fixed interest lifetime mortgages to homeowners, which released equity on terms that the loan and interest were only repayable when the owner either entered a care home or passed. In order to hedge the risk that the variable rate of interest it paid to acquire funds would exceed the fixed rate which it received from borrowers, MBS also purchased long term swaps.

In 2005, accounting standards changed, which meant that MBS was required to record the swaps on its balance sheet. Grant Thornton (GT) – MBS's auditors – advised in 2006 that MBS could apply hedge accounting rules to reduce the volatility. MBS relied on GT's advice and applied these rules. MBS also continued to enter into further lifetimes mortgages and further swaps.

7 years later, in 2013, a new partner at GT identified that MBS could not, in fact, apply the hedge accounting rules. Unfortunately, given the fall in interest rates following the 2008 financial crisis, MBS did not have sufficient regulatory capital to cover its exposures and it was faced with the difficult decision to close out the swaps it held at their then fair value, causing a substantial loss of £32.7 million (in addition to the break costs).

First instance decision

MBS claimed that the losses it had incurred were as a result of having to correct GT's negligent advice on the accounting rules, and that but for this advice, it would not have had to close out the swaps.  

The Judge considered the principles set out in SAAMCO and Hughes-Holland v BPE Solicitors. However, instead of using the usual dichotomy of "advice" or "Information" to apply to the service provided by GT, the Judge considered the fact that Lord Sumption in Hughes-Holland had described these two definitions as being descriptively inadequate. Instead, he considered that the relevant question was whether GT had assumed responsibility for the losses.

The Judge did not find the question of assumption of responsibility easy. He agreed that GT was negligent in failing to advice MBS correctly, that causation in fact and law was established, that the losses were reasonably foreseeable and that they were not too remote. However, in using the assumption of responsibility test, the Judge eventually found that as the losses flowed from market forces, which GT had not assumed responsibility for (much like in a classic valuer negligence case where it is readily understood that the valuer does not assume responsibility for fluctuations in the property market) and GT had not assumed responsibility for the fair market value losses. The Judge therefore held that GT was only liable for the transactional costs of breaking the swaps early, which was £285,460.

The appeal

MBS appealed the decision, arguing that the Judge should have followed the SAAMCO and Hughes-Holland approach by classifying the service provided by GT as either "advice" or "information". Had the Judge done so, MBS argued that this was an "advice" case with all consequent losses flowing from it or, if it was found to be an "information" case, the losses were still within GT's scope of duty.

The three judges unanimously agreed that the SAAMCO "advice" / "information" distinction is key to analysing professional negligence cases. There is a clear distinction between

  • A duty to provide information, which allows someone else to decide upon a course of action; and,
  • A duty to advise that person as to what action they should take by 'guiding the whole decision making process'.

The latter duty requires the adviser to consider all the consequences of that course of action and will be responsible for all foreseeable losses resulting from it. The former (to supply information only) is limited to the information itself and the adviser will only be liable for the foreseeable consequences of the information being wrong. 

This decision makes it clear that, unless the adviser has been "left to consider what matters should be taken into account in deciding whether to enter into the transaction" and has "considered all relevant matters and not only specific matters in the decision", the case must be considered to be an "information" type case. In other words, anything that is not clearly an "advice" case must by definition be an information case.

The first instance Judge had therefore erred in his approach. He should have considered whether this was an "advice" or an "information" case. Although GT did give accounting advice, GT was not responsible for "guiding the whole decision making process". GT's responsibility was limited to the accounting advice only and did not extend to other considerations for the whole of the lending or swaps business.

Assessing the loss on an "information" case

The Court was then required to consider the application of what is often referred to as the 'SAAMCO cap' – an advisor is only responsible for the foreseeable financial consequences of the information (or advice) being wrong. In order to determine this, it is necessary to exclude all losses which would have been suffered in any event if the information or advice had been correct.

This required the counter-factual position to be considered. If MBS's complaint was that it had to close out the swaps, then the counter-factual to that would be that MBS continued to hold them. To prove loss, MBS needed to be able to show that it wouldn't have suffered a loss if it had continued to hold the swaps, but it was unable to do so.  Indeed, by the time of the trial, the position under the swaps had in fact worsened.

The reason that the swaps were closed out at such a heavy loss was because of external market forces, namely the fall in interest rates due to the 2008 crash. The closing out of the swaps in 2013 only sought to crystallise the loss which was at that time "out of the money", but it did not create the loss.

GT remained liable for the break costs themselves.


Whilst the first instance Judge erred in the way he applied the relevant tests, he reached the correct overall conclusion that the fair value losses were not recoverable. The Court of Appeal has provided much needed clarity following the confusion created by the first instance decision.

The "advice" / "information" distinction does have its flaws, not least as information cases still involve professionals providing advice (in the everyday sense of the word). A better terminology might be "advice as to the course of action" and "information on which to base a decision", although neither trip off the tongue!

The case also underlines once again the importance of carefully identifying the evidence required to establish the claimant's case as to the quantum of loss, something often overlooked in the desire to establish liability.

Contribution: Lynsey Robinson

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Insights & events View all