Ratio Decidendi
The scope of duty principle (SAAMCO principle) applies to determine the extent of a professional adviser's liability. The adviser is liable only for losses falling within the scope of the duty they assumed. A distinction must be drawn between 'advice' cases and 'information' cases.
Facts
Manchester Building Society relied on Grant Thornton's negligent audit advice regarding hedge accounting. When the accounting treatment proved wrong, the Society had to close out its hedging arrangements at a loss of £32 million.
Judgment Summary
The Supreme Court clarified the SAAMCO principle. The court should ask what purpose the duty of care was supposed to serve, what the adviser's responsibility was, and whether the loss fell within the scope of that duty. The counterfactual test should ask what loss would have been suffered even if the advice had been correct.
Key Quotes
"The purpose of the SAAMCO principle is to determine the extent of the adviser's liability. The adviser is not liable for all the consequences of the claimant entering into the transaction, but only for those consequences which are attributable to the information or advice being wrong."
— Lord Hodge and Lord Sales
Subsequent Treatment
Restated and clarified the SAAMCO scope of duty principle for professional negligence claims.