UKSC Clarifies 'Scope of Duty' Test

Updated: Feb 21

By Christelle Sim


https://www.scconline.com/blog/post/2021/06/23/clinical-negligence/


Background


A fundamental principle of the law of negligence is that a claimant can only recover losses that fall within the scope of the duty of care owed by the defendant. In cases where a professional adviser has provided negligent advice, their liability is limited only to losses from which it should have protected the claimant. Not all losses that follow their negligence are recoverable. This is often referred to as the scope of duty principle. The leading case in this area is South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (“SAAMCO”).


In SAAMCO, the House of Lords distinguished between a duty to provide information to enable someone to make a commercial decision (“information” case) and a duty to advise someone on the course of action to take (“advice” case). In an “information” case, the defendant would only be liable for losses sustained as a direct consequence of the information being incorrect. In an advice case, liability extends to all foreseeable loss arising as a result of that course of action being taken. Under the “SAAMCO cap” on liability for “information” cases, a claimant cannot recover losses that would have been incurred from any event—i.e., had the information been correct.


The SAAMCO principle has constantly been condemned, in terms of its operation and its basis—whether it should be considered in terms of the scope of duty, causation or remoteness of damages. There is also doubt on how or whether the principle would apply to a wider class of professional adviser apart from the field of property valuation, where the principle originated.


Recently, the Supreme Court in Manchester Building Society v Grant Thornton UK LLP and Khan v Meadows provided clarification on determining the scope of a professional adviser’s duty of care. Both cases were handed down together.


Facts


Manchester Building Society v Grant Thornton UK LLP (“MBS” v “GT”)


MBS was a small mutual building society that had employed GT to audit MBS’ accounts. MBS issued lifetime mortgages at fixed rates to customers funded by loans borrowed at variable rates of interest. To manage the interest rate risk on these variable rates, MBS entered into interest rate swaps. In 2006, GT advised MBS that its accounts could be prepared using the practice known as ‘hedge accounting’, which would help to reduce volatility in MBS’ balance sheet and the capital reserve requirements caused by the swaps.


In 2013, it was discovered that GT's advice to use hedge accounting was not permitted. As a result, MBS had to restate its accounts, revealing its insufficient capital reserves. Consequently, MBS had to terminate all of its interest rate swaps early. MBS did so at a cost of about £32.7m, including the then (negative) mark to market value of the swaps, as well as early termination transaction costs of approximately £285,000. [1] MBS claimed damages from GT for the losses suffered due to GT’s negligent advice.


GT admitted negligence because but for the negligent advice MBS would not have suffered the loss. However, by the SAAMCO principle, GT denied that the loss was within the scope of its duty of care.


Khan v Meadows


Prior to conceiving her son, Adejuwon, Meadows had concerns that she may be the carrier of the haemophilia gene. To ascertain this, she consulted Dr Khan. Following the results of her blood tests, she was led to believe by Dr Khan that she was not a carrier of haemophilia, and thus decided to conceive. However, the blood tests taken were limited to determining whether Ms Meadows had haemophilia and not whether she was a carrier of the gene with a risk of passing this on to her future child. The question is whether Dr Khan is liable for all costs related to Adejuwon’s disabilities arising from the pregnancy or only those associated with his haemophilia.


Decision by UKSC


In MBS v GT, the Court found that the loss suffered by MBS was the very loss that the MBS had wanted to prevent by seeking GT for advice. Therefore, this fell within the scope of GT’s duty of care. The issue was whether MBS would still have incurred a loss had it acted the same way in maintaining the swap arrangements if GT’s initial advice had been correct. Since this was not the case, UKSC ruled in favour of MBS and held that the loss was recoverable.


In Khan v Meadows, the Court found that the risk of Meadow’s baby being born with haemophilia was the risk that Dr Khan had taken, and which Meadows had wanted to prevent. The risk of autism was unrelated to the case and thus the loss associated with the child’s autism was irrecoverable. The issue was whether Meadows would have incurred the loss if she had acted the same way by having the baby if Dr Khan’s advice had been correct. The answer was yes because the baby would still have been born with autism. Therefore, the loss arising from the autism was irrecoverable.


The majority reasoned out the scope of duty as a central issue:


  • The scope of the duty of care assumed by a professional adviser is governed by the purpose of the duty and judged objectively according to the reason why the advice is being given.

  • It is appropriate to look at the risk the duty was supposed to prevent and check if the loss suffered represented the fruition of that risk.

  • The “advice” and “information” labels from SAAMCO are redundant. While they may be suitable for cases at either end of the spectrum of involvement and responsibility for decision-making, it is inappropriate to attempt to force anything in between into two categories.

  • The SAAMCO counterfactual (SAAMCO cap on liability for “information” case) should be used merely as a cross-check but should not form part of the court’s primary analysis.


The majority then suggested six questions which may add clarity to future cases where scope of duty is an issue: [2]

  1. Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence (the actionability question)?

  2. What are the risks of harm to the claimant against which the law imposes on the defendant a duty to take care (the scope of duty question)?

  3. Did the defendant breach his or her duty by his or her act or omission (the breach question)?

  4. Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission (the factual question)?

  5. Is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant’s duty of care as analysed at stage 2 above (the duty nexus question)?

  6. Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause (including novus actus interveniens) in relation to it or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid (the legal responsibility question)?


The Supreme Court’s decision is undeniably significant. However, this does not discount the existence of the SAAMCO principle, which remains a fundamental tenet of the tort of negligence in relation to claims against valuers and other professionals. Instead, the recent development of the law only shapes the approach of its application to be more nuanced and flexible.





References:

[1] Ed Davies, James Levy and David Capps, ‘Landmark ruling: Supreme Court clarifies the test for determining the scope of duty in professional negligence cases’ (Ashurst, 20 July 2021)

<https://www.ashurst.com/en/news-and-insights/legal-updates/landmark-ruling---supreme-court-clarifies-the-test-for-determining-the-scope-of-duty> accessed on 18 January 2022

[2] Sian Fisher, ‘Supreme Court explores scope of duty in clinical negligence claims’ (Clyde & Co, 24 June 2021)

<https://www.clydeco.com/en/insights/2021/06/supreme-court-explores-scope-of-duty-in-clinical-n> accessed on 18 January 2022