The scope of duty question in Manchester Building Society v Grant Thornton: going strong five years on?

Introduction

It has been more than five years since the Supreme Court handed down its decisions in Manchester Building Society v Grant Thornton [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21 and which it said should be read and understood together. Manchester Building Society and Meadows involved negligent professional advice in the accounting and medical contexts, respectively. I will not consider Meadows here. In Manchester Building Society the Supreme Court introduced what it called the “scope of duty question” (I will here too) as a framework for assessing which and to what extent pleaded heads of loss are recoverable by reference to the scope of a professional adviser’s duty of care.

The Supreme Court said that the scope of duty question should be located within the “general conceptual framework” of the tort of negligence and is to be applied beyond the context of professional advice cases. The scope of duty question put to bed the distinction in South Australian Asset Management Corp v York Montague Ltd [1996] UKHL 10 (“SAAMCO”) between advice and information cases and asks courts to put to the forefront of their enquiries the purpose for which the advice is sought. It may be that courts have long before SAAMCO understood and applied the scope of duty question but certainly Manchester Building Society is to date its clearest and most concise iteration.

Manchester Building Society v Grant Thornton

In 2006 Manchester Building Society (MBS) issued a number of fixed lifetime mortgages which released equity to homeowners on terms that the interest was not repayable until the owner died or went to a care home. MBS purchased interest rate swaps to hedge the risk that the variable rate of interest it paid to acquire funds would exceed the fixed rate it received from the borrowers.

A change in regulation from 2005 required MBS to include the market value of the swaps on its balance sheet which would cause volatility in MBS’s financial position. MBS engaged Grant Thornton (as its auditor) to advise in relation to whether hedge accounting was in the circumstances possible. Grant Thornton advised that it could apply hedge accounting rules to the swaps. In around 2013 it became clear that MBS could not apply hedge accounting. This caused MBS to suffer a loss of around £32 million.

MBS brought proceedings against Grant Thornton seeking to recover the £32 million. At first instance MBS was unsuccessful because Grant Thornton had not assumed any responsibility to protect MBS from the loss (which was attributable to market forces). On appeal the Court of Appeal said Grant Thornton provided information and so were not liable for all the foreseeable losses flowing from MBS’s decision to enter into the swap contracts.

The Supreme Court overturned the Court of Appeal’s Judgment and held that MBS’s losses were of a type which Grant Thornton were retained to guard against and therefore awarded damages to reflect MBS’s net loss; albeit reduced by 50% because of its finding of contributory negligence by MBS.

Purposive Approach

Central to the scope of duty question is the Supreme Court’s critique of SAAMCO’s advice/information distinction which it said was potentially unhelpful and liable to mislead. In ‘information’ cases the professional adviser is giving the facts and it is presumed that the client will in effect decide ‘for itself’ the course of action based on those facts provided. By contrast, in ‘advice’ cases the professional adviser is in effect making the decision and hence liable for all the foreseeable losses which are a consequence of that course of action being taken.

It is not difficult to imagine the problems the courts have had in trying to apply this distinction sensibly in practice, and that was the crux of the Supreme Court’s concern. Therefore, the scope of duty question requires the courts to ask first and foremost what a defendant was in fact retained to do and for what purpose rather than (under SAAMCO) whether a professional adviser gave “advice” or “information". Manchester Building Society should therefore serve as a warning to professional advisers that they may no longer be able to rely in their defence upon the fact that they were merely providing information.

The Supreme Court in Manchester Building Society alluded to the possibility that the lack of conceptual clarity in SAAMCO (and as subsequently applied) has led the courts to base their judgments in policy over principle, insofar as they may (for instance) be persuaded to award damages in light of what the Supreme Court called the “gravity” or “causative potency” of a defendant’s negligence rather than by reference to and application of strict legal principle. The scope of duty question should to my mind encourage courts to make more structured and precise enquiries.

Case Study: A Successful Application

The Privy Council’s decision in Charles B Lawrence & Associated v Intercommercial Bank Limited (Trinidad and Tobago) [2021] UKPC 30 is an example of the way the scope of duty question has been applied in practice. In very brief summary, the Appellant was a valuer of land. The Respondent was a bank which was approached by Singapore Automotive Trading Limited to advance a loan to Singapore. Rafferty Development Limited was the guarantor of the loan. Rafferty instructed the Appellant to value the land. In short, the Appellant negligently (1) overvalued the land and (2) stated that the land enjoyed vacant possession when it did not.

The Privy Council accepted that the loss suffered by the Respondent should be split into “…two distinct losses…”; being (1) the loss suffered because the land was overvalued and (2) the loss suffered because the title to the land was defective. The second loss was outside of the Appellant’s duty of care because it is the responsibility of a conveyancer to investigate issues relating to the legal title of the land.

Despite the fact that the loss suffered by the Respondent was reasonably foreseeable, this was not in itself sufficient to satisfy the Privy Council that such loss was within the scope of the Appellant’s duty. The Privy Council paid very close attention and reasoned by reference to the purpose of the Respondent’s retainer, without being distracted by considerations such as foreseeability, voluntary assumption of responsibility (and so forth) which it may otherwise have been, had it been bound to apply SAAMCO.

Limited Applicability of the Scope of Duty Question

As mentioned above, the Supreme Court in Manchester Building Society stated that the scope of duty question should apply generally and not exclusively to economic loss cases. This has not played out in practice and the scope of duty question has in all probability very limited application beyond professional advice claims. By way of some examples…

Anan Kasei v Neo [2023] EWCA Civ. 11 concerned an enquiry into damages for the negligent infringement of a patent. The Court said that different policy considerations apply in different cases and it is necessary to assess the nature of the cause of action which will then dictate which losses “are to be laid at the defendant’s door”. The Court referred to “other filters” by which to decide the scope of duty question.

Knights v Harrison [2021] EWHC 2653 (QB) concerned alleged negligent advice in relation to tax schemes. The Court considered that the voluntary assumption of responsibility was the most appropriate test on the facts.

Armstead v Royal & Sun Alliance Insurance Co. Ltd [2024] UKSC 6 concerned the recovery of hire charges for a replacement car following a road traffic accident. The Court held that Manchester Building Society is not appropriate in cases concerning physical damage and bodily injury, and that it should be limited to cases involving professional advice.

Ickenham Travel Group v Tiffin Green [2024] EWHC 27 (Comm) was a case about a negligent auditor and related to the understatement of accounts. This was therefore a professional advice claim, to which the Court did apply the scope of duty question, by reference to the purpose of the retainer. However, the Court made much of the reasonable foreseeability of the loss. This is precisely what the Court in Manchester Building Society wanted to move away from and this case suggests that the scope of duty question may (even in professional advice cases) be just one analytical tool among many in the courts’ toolkit.

Conclusion

Despite the Supreme Court’s vision that it would enjoy broad application, in practice the scope of duty question will be (at least for now) applied more or less exclusively to professional advice claims and beyond this context its mention in judgments will likely be academic. There may in the future be scope for courts to adapt the scope of duty question to give it broader application but this remains to be seen.

However (and regrettably for the Justices in Manchester Building Society) even in the context of professional advice the scope of duty question may not in practice be the only analytical tool at the courts’ disposal. This may come as little surprise: tort law is firmly rooted in policy and the facts of each case can and do dictate which tools are available to a court when making its decision. Perhaps then the scope of duty question is just another analytical tool in the negligence toolkit.

What is clear is that the scope of duty question is a very clear warning to professional advisers that, by reference to the purpose of the retainer, a claimant can recover those losses for which a defendant had not assumed responsibility or caused in fact. Professional advisers may face a risk of liability to which they were not exposed under SAAMCO; and the different reasoning of the Court of Appeal and the Supreme Court in their respective decisions in Manchester Building Society is testament to this.

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