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The Supreme Court dilutes the role of SAAMCO in determining the scope of professional duties and recoverable damages

Posted: 23/06/2021

On Friday 18 June 2021, the Supreme Court handed down its judgments in the twinned cases of Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21.

The cases were heard by the same expanded panel of seven judges. As explained in the opening paragraph of the Manchester Building Society judgment, the reason the appeals were heard together and by an expanded panel was to enable the court to provide some definitive ‘general guidance regarding the proper approach to determining the scope of duty and the extent of liability of professional advisers in the tort of negligence’.

The end result, as discussed below, is a significant simplification of the approach to be adopted by the courts in considering the scope of a professional’s duty and also potentially a substantial widening of the circumstances in which claimants may be able to recover compensation from negligent professionals.

While the court states it is desirable that the two judgments should be read together, for the purposes of this article we refer principally to the Manchester Building Society judgment as the judgment in Khan v Meadows, in which a doctor negligently advised a patient that she was not at risk of passing on haemophilia to any child she might have, addresses the application of the relevant principles in a medical negligence context.


Manchester Building Society’s (MBS) appeal concerned whether losses suffered by MBS as a result of negligent auditing and accounting advice fell within the scope of Grant Thornton’s duty of care.

The management team of MBS had, based on their own assessment of the commercial market, determined that a business model matching long term interest rate swaps and lifetime mortgages would be commercially attractive. While they appreciated that the value of swaps was subject to constant variation with fluctuating interest rates and that they would have to make payments to swaps counterparties reflecting those varying interest rates, they believed those interest payments would be matched by those to be received by MBS under the mortgages. MBS would, therefore, be protected over the life of the swaps against such fluctuations.

However, one distinct commercial aspect that MBS was concerned about was the appropriate accounting treatment of the swaps and mortgages. Under the FSA’s regulatory regime as it was at the time, MBS was required to maintain a substantial level of capital to ensure its continuing viability, referred to as ‘regulatory capital’. The more MBS’s financial activities were subject to volatility, the higher the level of regulatory capital it was required to have in place as a safeguard. This was monitored by the FSA via MBS’s accounts.

Grant Thornton had negligently advised MBS in 2006 that it would be able to take advantage of ‘hedge accounting’, an accounting approach which the firm advised would allow MBS to reduce the volatility of the value of the swaps as shown on MBS’s balance sheet. MBS therefore proceeded to acquire and issue the lifetime mortgages and entered into the swap transactions.

In 2013, it transpired that Grant Thornton’s advice had been incorrect and MBS could not take advantage of hedge accounting. MBS’s balance sheet was therefore affected by volatility which had resulted from fluctuations in the value of the swaps, including, in particular, the period following the 2008 financial crisis. On correction of the accounting errors, MBS no longer held sufficient regulatory capital and was required to close out the swaps incurring a significant loss.

Commercial Court and Court of Appeal decisions

The Commercial Court awarded some limited damages to MBS under certain specific heads of loss but both the Commercial Court and Court of Appeal more generally found in favour of Grant Thornton in relation to the swap break costs which comprised the vast majority of the losses claimed, albeit each on different grounds.

The Court of Appeal, in particular, held that the test laid out in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 (SAAMCO) and Hughes-Holland v BPE [2017] UKSC 21 had to be strictly and literally adhered to.

Firstly, the court had to determine whether Grant Thornton, as professionals, had provided ‘information’ or ‘advice’. Under SAAMCO, if a professional had provided ‘advice’ in regard to the whole transaction, that professional could be liable for ‘all the foreseeable consequences of entering into the transaction’.

If, however, a professional had merely provided certain ‘information’ then the court must apply the counterfactual test: ie for each item of loss, the claimant must prove that it would not have suffered that loss if the incorrect advice or information had in fact been correct, as described by the professional. Applying that analysis - referred to as the SAAMCO Cap - Grant Thornton was not liable in the Court of Appeal for the majority of MBS’s losses.

The Supreme Court judgment

The Supreme Court, however, ruled unanimously in favour of MBS even though Lord Leggatt and Lord Burrows each reached that decision on a different basis from the majority of five who gave the leading judgment: Lord Hodge, Lord Sales, Lord Reed, Lord Kitchin and Lady Black. In doing so, the majority in the Supreme Court broke away substantially from the strict application of SAAMCO adopted in the Court of Appeal and the approach which has been taken by the courts more generally since SAAMCO was handed down.

Firstly, the Supreme Court held that the distinction between ‘advice’ and ‘information’ cases should be dispensed with altogether. This distinction was considered to be too rigid and liable to mislead. The majority held that, in reality, the varied range of cases constituted a ‘spectrum’, and that rather than seeking to ‘shoe-horn’ a particular case into one of these arbitrary categories, the court should simply ask, on an objective basis, what purpose the duty of care assumed by the defendant was supposed to serve. In other words, is the loss something which the professional advice was supposed to guard against?

Secondly, it followed that a SAAMCO-style counterfactual analysis should not be determinative of the amount of damages recoverable. The majority held that an analysis using the counterfactual as a tool as deployed in SAAMCO was merely designed to assist with determining the wider scope of duty question. Therefore, once it is accepted that the scope of duty inquiry turns on identifying (objectively) the purpose of the duty of care assumed, a SAAMCO-type counterfactual analysis is reduced to nothing more than a cross-checking tool.

Applying those simplified principles, the Supreme Court held that MBS’s loss fell within the scope of Grant Thornton’s duty and was recoverable in contract and in negligence, subject to a deduction for contributory negligence.


While the court purported that it was actually following the decision in SAAMCO (and subsequently Hughes-Holland v BPE), in reality the Supreme Court has departed markedly from the approach adopted in those and subsequent decisions.

The effect of the MBS decision is to reduce the SAAMCO analysis and damages cap from being the established principles on which losses should be assessed in all such cases where a question of scope of duty arises to merely being a one-off analysis based on its own particular circumstances and context, and not one to be strictly and literally applied in all subsequent cases.

As the majority explain at paragraph 9 of the judgment: “Some confusion has arisen from references in the cases to ‘the SAAMCO principle’, whereas on proper analysis SAAMCO is not a distinct principle but rather is an illustration in a particular context of the scope of duty principle.”

The effect of the Supreme Court’s decision appears to be that, for all intents and purposes, the strict SAAMCO analysis is now gone, replaced by a much more simple and straightforward question. What purpose was the duty of care assumed by the defendant objectively intended to serve and was it intended to guard against the loss actually suffered?

Defendants from across the full spectrum of professional advisers have long been relying upon a strict application of the SAAMCO analysis in defence of claims following the failure of transactions, in particular where those professionals have only advised on a discrete and/or limited aspect of the overall transaction, ie so-called ‘information’ cases.

The Supreme Court has now removed that distinction and replaced it with a simplified and more common-sense new approach of simply examining whether the loss is something which the professional advice was supposed to guard against. This appears to significantly widen the gap through which claimants can seek to recover their losses from the failures of careless professionals to advise them fully. It will also allow more claimants to bring viable claims where they would not have been able to do so previously.

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