PRACTICAL LAW DISPUTE RESOLUTION: CASE OF THE MONTH

SAAMCO: application to professional negligence cases (Court of Appeal)

In a regular slot, Beverley Barton, Senior Editor in the Practical Law Dispute Resolution team, selects a case of particular interest reported on by Practical Law during the previous month.

Subscribers to Practical Law Dispute Resolution can access further analysis and practical guidance on this case, and other judgments, on the Practical Law Dispute Resolution website (www.practicallaw.com ).

Dismissing an appeal, on 30 January 2019, the Court of Appeal confirmed how the SAAMCO principle (the principle set out in South Australia Asset Management Corp v York Montague Ltd [1997] A.C. 191regarding the scope of liability in professional negligence cases involving the provision of advice, and those involving the provision of information) applies to professional negligence cases.
In particular, courts must specifically consider whether a case is an “advice” case or an “information” case, rather than just asking an open-ended question as to the extent of assumption of responsibility. This is because the scope of the duty, and the liability, is different in the two cases:

  • A case is an “advice” case if it can be shown that it had 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 was to consider all relevant matters and not only specific matters in the decision” and he was “responsible for guiding the whole decision-making process”. In an “advice” case, the negligent adviser would have assumed responsibility for the decision to enter the transaction and would be responsible for all the foreseeable financial consequences of entering into the transaction.
  • In an “information” case, responsibility would not have been assumed for the decision to enter the transaction. The negligent adviser/information provider would only be responsible for the foreseeable financial consequences of the advice and/or information being wrong. That involved a consideration of what losses would have been suffered if the advice and/or information had been correct.

In the present case, the Court ruled that:

  • The judge below had erred in failing to consider whether it was an advice or information case. However, he had reached the correct overall conclusion in relation to non-recoverability of the relevant losses and so the appeal was dismissed, with the effect that the bulk of the £32 million damages was irrecoverable.
  • An auditor who had given incorrect information concerning the accounting treatment of long-term interest rate swaps was not liable for the losses suffered on closing the swaps early, as the losses would have occurred even if the information had been correct.

This re-statement of the matters to be considered when applying the SAAMCO principle emphasises their importance. However, while the re-statement is helpful, it remains the position that decisions will be fact specific and may be difficult.

Uncertainty may be avoided if scope of duty is properly analysed in advance, and defined in professionals’ engagement terms.

(Manchester Building Society v Grant Thornton UK LLP [2019] EWCA Civ 40 (30 January 2019).)

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