A new six-stage test for negligence liability
MBS v Grant Thornton
This article is a very brief consideration of a complicated legal issue.
Wynn Williams acts extensively for professional advisers who have been accused of negligence. Lawyers, accountants, brokers, valuers, building inspectors, and engineers all offer advice to clients, knowing that their advice will be relied upon. If their advice is wrong, clients can suffer significant losses.
A landmark decision in this area was released by the UK Supreme Court earlier this year: Manchester Building Society v Grant Thornton.
Although it is an English case, MBS v Grant Thornton
is of great interest to New Zealand practitioners; the six-stage test for professional negligence is closely applicable to the New Zealand legal regime.
The ‘SAAMCO’ approach to negligent professional advice
A 1996 House of Lords decision referred to as ‘SAAMCO’
set the test to establish whether an adviser is liable for a clients’ loss due to their bad advice. Firstly, the case differentiated ‘advice’ from ‘information’. Professionals providing ‘information’ to someone so they could make their own commercial decision was differentiated from professionals providing ‘advice’ about which decision to make. Those providing ‘information’ were narrowly liable for losses as a result of that information being wrong. Those providing ‘advice’ were liable for all foreseeable losses as a result of the client taking the course of action recommended.
SAAMCO also established a test called the ‘counterfactual’. To claim loss in respect of the negligent advice, a plaintiff had to show that if they received the correct advice, they would not have suffered the loss. The case also limited liability to losses caused by the bad advice; losses which would have happened anyway, even with correct advice, could not be claimed from the adviser.
There’s a lot to commend SAAMCO’s differentiation of information and advice, and the counterfactual. They’re logical and ensure that only proximately-caused loss is recoverable. However, the SAAMCO approach was criticised for being simplistic and overly rigid. Plaintiffs needed to show that had the advice been right, no loss would have occurred – but in reality, loss often has various overlapping clauses so plaintiffs struggled to satisfy the counterfactual test.
removes the distinction between ‘advice’ and ‘information’, calling the distinction too rigid and artificial. However, the case does not completely dispose of the SAAMCO counterfactual, rather using it to ‘cross-check’ a result once the following six questions have been addressed
- Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence? (the actionability question)
- 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)
- Did the defendant breach his or her duty by his or her act or omission? (the breach question)
- Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission? (the factual causation question)
- 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)
- 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)
Consideration of these six questions will be familiar to lawyers involved in negligence litigation. They are fairly standard when assessing liability, though formerly drawn from other sources. To have clear elements for such claims set out in one Supreme Court judgment will be welcomed by lawyers.
International market response
Initial comments from the UK insurance market suggest that some claims, previously impossible under the SAAMCO counterfactual test, may now be permitted under MBS v Grant Thornton.
When a law change leads to increased claims exposure there is always a corresponding hardening of the market – that is, obtaining insurance cover becomes more difficult as insurers seek to limit their risk. Should this happen, there will be knock-on consequences for New Zealand both as a result of the UK Supreme Court’s influence and the New Zealand insurance market’s links to Lloyds.
Wynn Williams acts extensively for professional advisers who have been accused of negligence. If you need advice in this area, please contact Richard Hargreaves
 Manchester Building Society v Grant Thornton UK LLP
 UKSC 20
 South Australia Asset Management Corp v York Montague Ltd
 UKHL 10 (20 June 1996)