The Supreme Court has handed down its judgments in Manchester Building Society v Grant Thornton [2021] UKSC 20 (MBS) and Khan v Meadows [2021] UKSC 21 (Khan). Both cases focussed on the way you assess a professional’s liability and clarified the Supreme Court’s position on a number of key cases, including South Australia Asset Management Corpn -v- York Montague Limited [1997] AC 191 (SAAMCO). The decision also commented on Hughes-Holland –v- BPE Solicitors [2017] UKSC 21 (BPE), which has been used by professionals to attempt to limit their liability.

In this article, we focus on the MBS decision as this has the greatest impact on lenders’ professional negligence claims. The decision on Khan is a clinical negligence matter.

In summary, we now have a new six part test for assessing damages and, potentially, a more favourable position for lenders who have suffered losses attributable (or partly attributable) to their professionals.

The facts

The cases were heard by a seven-Judge Supreme Court, demonstrating the importance of the issue. Although the outcomes were unanimous, the reasoning in each case was split into a majority judgment and two minority judgments – reflecting the complexity of the issue and underlying differences in view as to the nature of the SAAMCO principle.


The facts of MBS are complicated, but in a nutshell:

  • MBS provided lifetime mortgages to customers at a fixed rate of interest.
  • Grant Thornton (GT) provided negligent advice to MBS on whether its accounts could be prepared according to what is known as “hedging accounting”.
  • To fund the lifetime mortgages, MBS borrowed wholesale funds at a variable rate of interest. In reliance on GT’s advice, they entered into long-term interest rate swaps to hedge against the cost of borrowing at variable rates.
  • When the issues was realised several years later, MBS had to restate their accounts. The consequences were that they had insufficient capital from a regulatory standpoint and had to close out the swaps early – resulting in a net loss of over £26 million.
  • Negligence was admitted and it was accepted that “but for” the negligent advice MBS would not have suffered the loss they suffered. The issue was whether the loss was within the scope of GT’s duty of care applying the SAAMCO principle. The High Court and Court of Appeal held it was not.
  • The Supreme Court reversed that decision and MBS were awarded damages of £13 million (after a 50% deduction for contributory negligence).

What has changed as a result of the MBS decision?

The SAAMCO principle on capping damages is no longer the appropriate test.

The Supreme Court has reformulated the test for assessing what damages are owed by professionals. The court set out a series of six questions, which should be answered when assessing loss.

The focus of those questions is to

  • Assess what the purpose of the professionals advice was (ie what were they asked to do)
  • Analyse whether the loss stems from their negligence (ie a “but for” test)
  • Consider whether there is a sufficient nexus between the harm suffered and the subject matter of the professional’s duty of care and whether there was any other causes of the loss

The aim of the Supreme Court’s six questions is to provide the Courts with the mechanism to properly assess what damages a professional is responsible for.  This is different from the SAAMCO principle, which often involved convoluted counter-factual scenarios and arriving at arbitrary caps.

This is not to say the SAAMCO counterfactual analysis (i.e. what would have happened had the professional’s advice been correct) is now redundant. Instead, this analysis should only be used as a cross-check on the resulting damages.

Impact on lender claims

This decision will lead to opportunities to seek high damages in certain cases where lenders are able to demonstrate that the professional is responsible for a greater share of the loss.

For example

  • There will be limited impact on standard valuer claims and the losses recoverable will remain capped at the difference between their negligent overvaluation, compared to the true value of the property. The situation could be different if the valuer assumed a greater responsibility than pure valuation. This may be in situations where they are asked about the trading potential of a business or the viability of developments.
  • There will be limited impact on solicitor claims where they have negligently failed to spot a defect in title or security. The loss is likely to be capped to the reduction in value of the security caused by such defects. However, the extent of the recoverable loss against solicitors could increase for claims where they have failed to identify issues that go to the borrower’s bona fides (for instance, not contributing to the deposit) or mortgage fraud flags.

The decision in particular expressly removes the arbitrary and unhelpful (as commented by the Supreme Court) distinction between “advice” and “information” cases, which has been applied rigidly by professionals post BPE. This should lead to a better, and earlier assessment of the losses caused by professionals.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions

Date published

28 June 2021

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