CaseOutcomes
Professional services · United Kingdom

Manchester Building Society v Grant Thornton

Negligent accounting advice and swap losses

Appeal allowed · damages reduced

Outcome at a glance

The building society won its appeal over losses from closing interest-rate swaps. Grant Thornton was liable, subject to a 50% reduction for the society’s contributory negligence. [1, §§34–39; 2]

Allegations & issues

The society sought to recover swap close-out losses resulting from negligent advice that it could use hedge accounting. [1, §§1–5]

Key rulings & findings

The losses fell within the scope of the accountant’s duty, assessed by the purpose of its advice and the risk against which it should have protected. [1, §§13–17, 34–39]

Admissions

The appeal addressed the recoverable consequences of negligent advice; the outcome reported here is a judicial determination.

Disposition

Appeal unanimously allowed on 18 June 2021. [2]

Penalties, damages & redress

Civil damages, not a regulatory fine. Recoverable losses were reduced by 50% for contributory negligence. [1, §§36–39]

Restrictions & obligations

No professional licensing sanction was determined by this appeal.

How the advice affected the society’s business

The society used long-term interest-rate swaps alongside fixed-rate mortgage lending. Grant Thornton advised that hedge accounting could reduce the volatility those swaps created in the accounts. After interest rates fell, the swaps had negative market values. When the accounting advice proved wrong, the society stopped using that treatment and closed the swaps at a loss. [1, Facts]

The dispute was not simply whether the advice was negligent. It concerned which losses fell within the accountant’s duty: the society sought the market-value losses as well as transaction costs for ending the swaps. The lower courts had rejected recovery of the market-value losses. [1, Issue and Facts]

Why the appeal succeeded, but recovery was reduced

The Supreme Court focused on the purpose for which the professional advice was given. The scope of the duty depended on the risks the advice was intended to address, rather than an automatic division between advisers who give information and advisers who recommend an entire course of action. [2, Reasons]

The advice was intended to inform whether the society could pursue its proposed business model within its regulatory-capital constraints. The swap close-out losses fell within that purpose. However, the society’s own contribution to the loss remained relevant: damages were reduced by 50% for contributory negligence. Winning the scope-of-duty appeal did not mean recovering every pound claimed. [2, Reasons]

THE UNDERLYING RECORD

Primary sources

Read the full documents for their precise wording and context. Regulator summaries are identified separately from court records.

Court record · supremecourt.uk01 · Supreme Court · Case record and full judgment, §§13–17 and 34–39Court record · supremecourt.uk02 · Supreme Court · Press summary, 18 June 2021