UK Supreme Court win for Manchester Building Society
The UK Supreme Court has today (June 18) given a landmark judgment in favour of Manchester Building Society in its long-running legal action with its former auditor, Grant Thornton.
The Supreme Court has awarded damages of approximately £13.4m to the society.
Costs and interest on damages have not yet been assessed. Until a determination is made, it is not possible to assess fully the impact on the society’s capital position.
The case, which dates back to 2013, arose from negligent advice given by Grant Thornton concerning the use of ‘hedge accounting’ to reduce the volatility of the mark-to-market value of swaps in its accounts.
The error forced the society to close out its long-term swaps, which caused a multimillion-pound loss and meant that it had to source emergency funding.
The case was heard in October 2020 by a seven-judge panel of the Supreme Court, who unanimously determined that the losses suffered by the society were within the scope of Grant Thornton’s duty.
The judgment has significantly reformulated the legal test for the scope of duty of care owed by professional advisers to their clients.
David Harding, chairman of Manchester Building Society, said: “It was always clear to the society that our claim had merit and that it was in the interests of our members to pursue the claim up to the highest court to recover compensation from Grant Thornton.
“The society wishes to thank the solicitors and bar team who worked alongside us from beginning to end and who were absolutely committed to the case.”
The Squire Patton Boggs team representing Manchester Building Society was led by litigation partner Anthony Taylor and included director Peter Lees and associate Alex Villers.
Anthony Taylor said: “The legal test for scope of duty in professional negligence had become narrow and difficult to navigate.
“The over emphasis on the counterfactual test had introduced both uncertainty and undue barriers to recovery in cases involving complex facts.
“We, therefore, welcome the simplification of the test provided by the court in this judgment.
“We are very grateful to our client, Manchester Building Society, for entrusting this important case to us and allowing us to navigate the society through the lower courts and to a successful resolution of the claim before the UK Supreme Court.”
In 2018 the High Court awarded the society just £315,345, plus interest, of its original £49m legal claim.
In May that year it was told it would have to pay almost £2m in court costs, raising concerns for the long-term prospects of the building society.
There have been subsequent appeals and in October 2020 the Supreme Court heard the society’s latest appeal, which it has now ruled on.
A spokesperson for Grant Thornton UK said: “Grant Thornton is disappointed by the judgment of the Supreme Court today, which overturns the earlier rulings of the High Court and the Court of Appeal, relating to the legal test applied in such cases.
“We always accepted that our audits of the society for the 2006-2011 years fell below the high standards that we strive for and regret the errors in the society’s financial statements that arose from hedge accounting; which our audit team identified and brought to the attention of the society and the Prudential Regulation Authority in 2013.”