MBS v Grant Thornton – The Court of Appeal upholds decision on scope of recoverable damages in professional negligence cases




[2019] EWCA Civ 40

This important decision of the Court of Appeal sets out valuable guidance on the application of the ‘SAAMCO’ principle to professional negligence claims involving the provision of advice and/or information.

The factual background is well summarised at paragraphs 1-9 of the Judgment, but in essence, the case came on appeal from the decision of Teare J that the auditor who had provided negligent information in relation to long term interest rate swaps was not liable for losses incurred as a result of the financial crisis. The court limited the extent of the loss recoverable from the tortfeasor. This made waves at the time, and it is of little surprise that the case went up to the Court of Appeal.  Although the higher court was critical of Teare J’s analysis, his decision was upheld and the appeal dismissed. This was an “information” case and the losses would have occurred even if the information provided had been correct.

The starting point is an understanding of the the SAAMCO principle properly applied:  “a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong.”

SAAMCO distinguishes between the provision of information given to enable a party to make decisions based upon it, and the giving of advice as to which course of action ought to be pursued. In this case, the Respondent auditor provided information that was then used as the basis for entering into a relatively complicated arrangement whereby the Appellant bank hoped to protect itself from the volatility of the market. As a result of the financial crisis, the arrangement could not be pursued and the bank had to close its positions, paying out on the losses incurred. The claim against the auditor was therefore whether or not those losses could be recouped from the auditor.

The Appellant contended that following the recent decision of the Supreme Court in Hughes-Holland v BPE Solicitors [2017] UKSC 21 [2107] 2 WLR 1029, this was an “advice” type of case where the auditor should be responsible for all of the foreseeable consequences of entering into the arrangement. The Respondent defended based on position that they had been involved in the provision of “information” only.

Teare J did not consider that this distinction was helpful but preferred to consider whether or not the auditor had “assumed responsibility” for the losses suffered such that it could be held liable. He cited Lord Sumption’s judgment in Hughes-Holland thus:

“Turning to the distinction between advice and information, this has given rise to confusion largely because of the descriptive inadequacy of these labels. On the face of it they are neither distinct nor mutually exclusive categories. Information given by a professional man to his client is usually a specific form of advice, and most advice will involve conveying information.”

The Appellant bank cited this as a ground of appeal with which the Court agreed.

The Judge erred in not distinguishing between “advice” and “information” because, on application of the SAAMCO principle, the measures of loss for which a negligent party may be responsible differs on the basis of that finding. The Judgment very helpfully sets out the consequences of the distinction and so it’s worth setting out that paragraph in full here:

53. In summary, in the light of the clarification provided in Hughes-Holland and subject to the full exposition there provided, the application of the SAAMCO principle may generally be addressed by considering the following:

    • (1)  It is first necessary to consider whether it is an “advice” case or an “information” case. This is a necessary first step because the scope of the duty, and therefore the measure of liability, is different in the two cases.
    • (2)  It will be an “advice” case if 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”.
    • (3)  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.
    • (4)  If it is not an “advice” case, then it is an “information” case and responsibility will not have been assumed for the decision to enter the transaction.
    • (5)  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.
    • (6)  This involves a consideration of what losses would have been suffered if the advice and/or information had been correct. It is only losses which would not have been suffered in such circumstances that are recoverable.

However, in applying the various factors to be extracted from previous authority dealing with the distinction (Aneco Reinsurance Underwriting Ltd v. Johnson & Higgins Ltd [2001] UKHL 51, Main v Giambrone [2018] PNLR 17) Hamblen LJ decided that this was not an advice case. It was an information case. The losses that flowed, for which the Appellant could recover were limited as described above. The Judge concluded:

97. If, as I have found, this is an “information” case it follows that GT did not assume responsibility for the swap transactions but only for the financial consequences of its advice as to hedge accounting being wrong. MBS has not proved that the MTM losses would not have been suffered if that advice had been correct and the judge was accordingly correct to dismiss that claim.

98. Whilst, as discussed above, it is possible to envisage circumstances in which a damages claim would have succeeded, as the judge observed at [179] it would be: “…a striking conclusion to reach 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…”

The guidance that this decision gives to courts as to the importance of making the distinction between information and advice cases is vital. In doing so, courts will be expected to properly understand the scope of recoverable loss (which Lord Sumption referred to in Hughes-Holland as “the SAAMCO cap”). This will prove invaluable to practitioners and courts alike, even as it no doubt will frustrate those who have been on the receiving end of incorrect information from trusted professionals.

Setting aside the detail above, this is a case which made “headlines” back in September 2018 because it limited the scope of what could be recovered even when there was a finding of negligence. Causation and recoverability of loss have been areas dogged by uncertainty in these kinds of cases since Aneco (interestingly, Lord Sumption in Hughes-Holland plainly made his negative view of that decision known, and he was leading Counsel in both that case and in SAAMCO).

There can be no doubt of the care that the courts must now take to carefully assess the scope of loss in professional negligence cases, especially where there has been a finding of negligence. This decision, in my view, demonstrates the extent to which this is a quickly evolving area.

by Francesca O’Neill



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