The Court of Appeal has set out six steps to be considered when applying the ‘SAAMCo’ scope of duty principle in auditors’ negligence cases.
The Court of Appeal has set out six steps to be considered when applying the ‘SAAMCo’ scope of duty principle in auditors’ negligence cases:
In this case, Grant Thornton incorrectly advised Manchester Building Society concerning the accounting treatment of long-term interest rate swaps and lifetime mortgages. When Grant Thornton’s negligence was identified, Manchester Building Society had to break the long term swaps at a cost of £32.7 million, due to the negative market to market value of the swaps at the time.
The main question which the Court of Appeal was asked to determine was whether Grant Thornton was liable for the market to market cost of breaking the swaps. The trial judge held that Grant Thornton was not liable as it had not assumed responsibility for such losses. The Court of Appeal disagreed with the trial judge’s analysis and held that the judge should have considered whether it was an ‘advice’ or ‘information’ case.
The Court of Appeal held that this was an ‘information’ case and therefore Grant Thornton was only responsible for the foreseeable financial consequences of the advice being wrong. Manchester Building Society therefore had to show that that the market to market cost would not have been suffered if the advice had been correct. Manchester Building Society’s case was that if the advice had been correct they would have held the swaps rather than breaking them when the negligent advice came to light. At the time of trial, the value of the swaps had declined further and Manchester Building Society failed to demonstrate that it would have undertaken steps to offset the losses on the swaps. Therefore Manchester Building Society failed to establish that it would have been better off if the advice had been correct and the claim failed.
The analysis set out by the Court of Appeal should make ‘SAAMCo’ easier to apply in financial negligence cases. This decision should be helpful to insurers of auditors and accountants, as it should enable, more accurate reserving and claims to be settled earlier as there is more certainty regarding the loss recoverable.
This article is the second in a series to help firms take a practical approach to complying with the ‘cross-cutting rules’ within the new ‘Consumer Duty’ (CD) framework. The article summarises what it seems the Financial Conduct Authority (FCA) is seeking to achieve from the applicable rules (section 2 below) and potential complications arising from legal considerations (section 3).
Claims arising from interest-only mortgages have been farmed in volume. Many such claims to date have sought to drive a narrative that interest-only mortgages are an inherently toxic product and brokers were negligent simply for suggesting them. Taylor is a helpful recalibration, focussing instead on what the monies raised by the mortgage product were being used for and whether the client understood the inherent risks.
In a judgment handed down yesterday the Supreme Court has affirmed that a so called “creditor duty” exists for directors such that in some circumstances company directors are required to act in accordance with, or to consider the interests of creditors. Those circumstances potentially arise when a company is insolvent or where there is a “probability” of an insolvency. We explore below the “trigger” for such a test to apply and its implications.
The Supreme Court has unanimously dismissed the BTI v Sequana appeal and reviewed the existence, content and engagement of the so-called ‘creditor duty’; being the point at which the interest of creditors is said to intrude upon the decision-making of directors of companies in financial distress.