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In last year’s Supreme Court decision in Hughes-Holland v BPE Solicitors [2017] 2WLR 1029, Lord Sumption postulated two extreme cases to illustrate whether losses were within the scope of a defendant’s duty: one involving a valuer or conveyancer and the other an investment adviser. However, Lord Sumption recognised that “between these extremes, every case is likely to depend on the range of matters for which the defendant assumed responsibility and no more exact rule can be stated”[at para 44]. There has since been uncertainty about how to apply the Hughes-Holland principle to negligence cases involving other professionals.

The High Court has now dealt with the application of the Hughes-Holland principle in an accountant’s negligence claim, where Grant Thornton UK LLP accepted the advice it provided to Manchester Building Society was negligent (Manchester Building Society v Grant Thornton UK LLP [2018] EWHC 963 (Comm)). Whilst the Defendant accountants admitted that the advice they gave the Claimant building society was negligent, they argued that their advice had not caused the building society to suffer any loss.


The Claimant building society needed to “hedge” its interest rate risk, which it did by purchasing a number of interest rate swaps. As the building society had issued listed instruments, it became necessary to prepare its accounts in accordance with the International Financial Reporting Standards (IFRS) for 2005 onwards. From 2006 onwards, the building society used “hedge accounting” to adjust the value of its mortgages on the balance sheet in an attempt to eliminate or reduce the volatility risk.

A few years later, in 2013, the building society discovered that it could not properly use hedge accounting. As a consequence, it suffered a severe loss of profit and it was forced to close out the swaps. The building society then looked to its accountants to recover that loss, claiming that in 2006 it had received negligent advice as to the hedge accounting policy. The Defendant did not deny that the advice provided was wrong but contended that, had it not been negligent, the building society would have taken out an alternative form of hedging and would have suffered more losses than it had done.

Issues before the Court

The first issue before the Court was whether the Defendant’s negligent advice had caused the Claimant to suffer the costs of breaking the swaps in 2013. Whilst it was the Defendant’s case that, had it not been negligent, the Claimant would have taken out an alternative form of hedging and suffered more losses, there was insufficient evidence before the Court to make this conclusion. The absence of such evidence made it difficult for the Court to accept that there had been, on a balance of probabilities, counterparties willing to provide the Claimant with an alternative form of hedging for its equity release in 2006. The Court therefore held that it was more likely than not that, but for the negligence of the Defendant, the Claimant would not have suffered the costs of breaking the swaps in 2013.

The Court then turned its mind to whether the Claimant’s losses had been within the scope of the Defendant’s duty. Applying Lord Sumption’s guidance in Hughes-Holland the Court held that it would be a striking conclusion to reach that an accountant who advised a client as to the manner in which its business activities might be treated in its accounts had assumed responsibility for the financial consequences of those business activities. The Court was comfortable that the loss had flowed from market forces for which the Defendant had not assumed responsibility. Therefore, the Defendant was liable for the relatively modest termination or penalty costs of breaking the swaps. In considering the scope of the Defendant’s responsibility, the Court was of the view that little was to be gained by considering whether this was an “advice case” or an “information case”, which are the labels that have historically been used in professional negligence cases. The Court found that the nature of the advice given by the Defendant was that the Claimant could use hedge accounting. It was therefore given, in the circumstances, that where the Defendant knew that the Claimant wished to use it to protect itself from volatility in the fair value of interest rate swaps and the consequences that such a volatility had on the balance sheet of the Claimant, that the losses incurred when breaking the swaps were attributable to that negligent advice, because the balance sheet was fully exposed to volatility in the fair value of the interest rate swaps and they had to be closed out at a cost which reflected their fair value. The Court held that the Defendant had assumed responsibility for those losses: they were not only reasonably foreseeable consequences of the Defendant’s negligent advice but also flowed from the particular feature of the Defendant’s conduct which made its advice wrongful.

The Court accepted that the Defendant did not give any advice about the wisdom or otherwise of entering the swaps, but it must have appreciated that unless hedge accounting could be deployed, the volatility caused by changes in the fair value of the swaps could adversely affect the Claimant’s position. This did not fit neatly into one of the “information” or “advice” cases referred to in Hughes-Holland, as whilst the Defendant was providing “information” it owed a duty of care in respect of one prospective consequence of the Claimant entering into the transaction, namely the volatility risk to which the Claimant’s balance sheet was vulnerable from changes in the fair value of interest swaps. Thus, had the information or advice provided by the Defendant been correct, the Claimant’s balance sheet would not have been vulnerable to that volatility. The Court was at pains to point out that its approach was not to make the Defendant an “insurer” in respect of the Claimant’s business. However, the Court admitted that the question raised by Lord Sumption in Hughes-Holland was not an easy one to answer and that the Court’s mind had “waivered” during its consideration of this question.

Finally, the Court considered to what extent the Claimant had been contributorily negligent. The Court held that the Claimant had been negligent in deciding to buy 50 year swaps because the duration of the swaps had greatly exceeded the likely duration of the lifetime mortgages, so the Claimant would have had to be able to replace or substitute redeemed mortgages with new mortgages. In addition, a memorandum to the Claimant’s board from the former CEO suggested that the Claimant would not have been confident that it would be able to replace redeemed mortgages. As a result, the Court held that the Claimant would bear 25% of the damages and the Defendant 75% of the damages for which the Defendant was liable. The Claimant was thus awarded the sum of £315,345 plus interest.


Whilst it is helpful to see the application of the Hughes-Holland principle in an accountant’s negligence case, the Court was at pains to point out that the principle set by Lord Sumption was not easy to apply to cases involving professionals other than valuers, conveyancers or financial advisers. There is still some way to go before practitioners have clarity on the application of the Hughes-Holland principle to claims involving other types of professionals.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.