The Court of Appeal has confirmed that an auditor was not liable for break costs incurred as a result of its negligent advice in relation to the accounting treatment of interest rate swaps, as those costs fell outside the scope of the auditor’s duty of care – upholding the decision of the High Court (considered here), but on different grounds: Manchester Building Society v Grant Thornton UK LLP [2019] EWCA Civ 40.

The judgment helpfully clarifies the approach to be taken in cases involving the application of the principle established in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 (SAAMCO) as expanded upon in Hughes-Holland v BPE Solicitors [2017] UKSC 21.

In particular, the court should consider at the outset whether it is an “advice” or an “information” case. It will be an advice case if the adviser is responsible for considering what matters should be taken into account in deciding whether to enter into the transaction, and for guiding the whole decision-making process. Otherwise, it will be an information case, and the adviser will be responsible only for the foreseeable consequences of the information being wrong. This will require the claimant (who has the burden of proof) to prove the counter-factual, namely that loss would not have been suffered if the advice had been correct. Applying the relevant counter-factual scenario so as to determine which, if any, losses are recoverable will remain a complex exercise in many cases.

For more information, please see our Banking litigation ebulletin on the decision.