One of the most celebrated legal parables of modern times, devised by Lord Hoffmann in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191, centred on a doctor’s assessment of a mountaineer’s knee. Reassured by the assessment, the mountaineer embarks on an expedition that he would not have undertaken had he been aware of the true state of his knee. He suffers an injury – an entirely foreseeable consequence of mountaineering, which has nothing to do with the state of the mountaineer’s knee and for which the doctor cannot be held responsible, because he is liable only for the consequences of the information that he provided being wrong.
The litigation in Manchester Building Society v Grant Thornton UK LLP [2019] EWCA Civ 40; [2019] PLSCS 21 concerned advice given by a firm of accountants to a lender that was proposing to enter into interest rate swaps to hedge its risks in relation to fixed-interest lifetime lending to home owners seeking to release equity in their homes on terms that the loans and interest were not repayable until the owners entered into care or died. The accountants’ advice about the accounting treatment that would apply proved to be negligent and the lender had to close out the swaps, incurring substantial losses as a result. Were the accountants liable as a result?
In BPE Solicitors v Hughes-Holland [2017] UKSC 21; [2017] PLSCS 70 Lord Sumption distinguished between a duty to provide information to enable someone to decide upon a course of action and a duty to advise someone what to do. If the duty is to advise whether or not a course of action should be taken, a professional who is negligent will be responsible for all the foreseeable loss that is a consequence of that course of action having been taken. But, if his duty is only to supply information, the professional will be responsible only for the foreseeable consequences of that information being wrong. Furthermore, the Supreme Court took the view that the fact that information supplied by a professional is known to be critical to a decision whether to enter into a transaction, or not, does not of itself turn an “information” case into an “advice” case.
Was this an “advice” or “information” case? The Court of Appeal noted that, in an “advice” case, the adviser is “responsible for guiding the whole decision making process”. Whereas, in an “information” case, the adviser will not assume responsibility for the decision to enter the transaction. On the undisputed facts, and the findings of the judge at first instance, it was apparent that this was not an “advice” case. The accountants’ responsibility was limited to the giving of accounting advice, and never came close to responsibility for the decision to enter into the swaps.
So the accountants were liable only for the consequences of the information that they provided being wrong. And, in this case, the loss flowed from market forces (ie a sustained fall in interest rates) for which the accountants were not responsible. The closing out of the swaps had crystallised the loss, but did not create it. Furthermore, it would be striking indeed if the court were to conclude that an accountant who advises a client as to the manner in which its business activities may be treated in its accounts thereby assumes responsibility for the financial consequences of such activities.
Allyson Colby, property law consultant
