Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 is the leading modern authority on scope of duty in professional negligence, and it arose from accountancy work. Grant Thornton negligently advised the society that it could use hedge accounting to smooth the volatility of interest-rate swaps in its accounts. When the error was discovered the society had to break the swaps at a substantial cost and sued its auditors.
The Supreme Court used the case to restate how scope of duty is assessed. The governing question is the purpose for which the advice was given - what risk did the professional undertake to protect the client against. The counterfactual test from SAAMCO becomes a cross-check rather than the primary tool. The court set out a sequence of questions covering whether the loss is actionable, the scope of the duty, breach, factual causation, and whether the loss falls within the scope of the duty.
The society recovered the cost of closing out the swaps, because that loss fell squarely within the purpose of the advice - the accounting treatment was the very thing Grant Thornton had been engaged to get right. The court did, however, reduce the award for contributory negligence.
Manchester Building Society confirms that scope of duty is now analysed by reference to purpose, not merely the mechanical but-for counterfactual. For accountants this is significant, because so much of their work involves technical treatment - accounting standards, tax positions, valuations - where the purpose of the engagement defines the risk assumed. A firm that understands the purpose of each engagement understands the loss its PI policy may be asked to meet.
The decision reinforces that an accountant's exposure is defined by what the engagement was for. Clear engagement letters that state the purpose and limits of the work help both to resist over-broad claims and to define the cover required. Apex sets out this thinking on the accountants PI guide, and the purpose-of-advice analysis applies with equal force to financial advisers.
Manchester Building Society is notable not only for its scope-of-duty analysis but for the reduction the court made for the society's own conduct. Even where a loss falls squarely within the purpose of the advice, the client's contribution to its own predicament can reduce the recovery under the Law Reform (Contributory Negligence) Act 1945. For auditors and accountants, this means a claim can be substantial in principle yet materially reduced in practice where the client's board took decisions that compounded the problem.
The practical message for accountants is that the courts will hold them to the purpose of what they agreed to do - no more, but no less. A firm that gives technical advice on accounting treatment, tax structuring or regulatory capital is undertaking to get that specific thing right, and losses that flow from getting it wrong are likely to be within scope. Defining that purpose tightly at the outset is the firm's strongest protection, and it is also the information a PI insurer uses to understand the risk it is being asked to carry.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.