Further clarity on scope of duty in professional negligence cases

Background

MBS v GT concerned an auditor’s negligence. GT were auditors for MBS who tried to protect itself against the risk involved in certain mortgage products by entering into interest rate swap contracts. GT advised MBS that it could use ‘hedge accounting’ to allow MBS to reduce the volatility of the swaps shown on its balance sheet. Relying on the advice, MBS proceeded to enter into the swaps and mortgages, but by 2013 it was discovered that the advice had been incorrect, and MBS had to terminate the swap contracts at a cost of c. £33 million. MBS argued that it would not have incurred this loss but for GT’s advice.

K v M concerned a medical expert’s negligence. Ms M sought advice from Dr K to find out whether she was the carrier of haemophilia as she wished to have a child, but not a child with haemophilia. She was led to believe by Dr K that any child she might conceive would not have the disease. This was incorrect and she later had a child with haemophilia and autism. The autism was unrelated to the haemophilia.

Traditionally, professional negligence cases have been decided using the SAAMCO test. Devised by the House of Lords in South Australia Asset Management Corpn v York Montague Ltd, the test distinguished between ‘information’ cases and ‘advice’ cases. In an ‘information’ case, the defendant would only be liable for losses sustained as a result 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.

Supreme Court – change of direction?

On appeal to the Supreme Court, the potentially rigid information/advice distinction was dispensed with. Instead, the court focused on six key questions:

• Is the harm (injury, loss or damage) actionable in negligence?
• What are the risks of harm to the claimant for the defendant’s breach of duty to take care?
• Did the defendant breach his or her duty by his act or omission?
• Is the loss a consequence of the defendant’s act or omission?
• 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?
• 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)?

In answering the above, the Supreme Court held in MBS v GT that the purpose of GT’s advice was to allow MBS to decide whether it would use hedge accounting for a specific purpose. GT incorrectly said that MBS could, and the losses claimed fell within the scope of GT’s duty.

In K v M it was held that Dr K was only liable for losses falling within the scope of duty to advise Ms M on whether she was a carrier of haemophilia and not for additional costs associated with bringing up a child with autism.

What does this mean in practice?

The correct starting point when assessing a professional’s scope of duty is the purpose of the duty. This is fact-specific and attention must be paid to the particular circumstances of a given case, including the terms of any retainer and instructions provided by the client.

Our dedicated insurance team has experience advising a range of clients on professional negligence claims and can help you to navigate the process. If you would like to find out more, please get in touch at c.hanson@capitallaw.co.uk.