(Reuters) – The UK's Supreme Court on Friday upheld a £ 32m ($ 44.49m) default claim by the Manchester Building Society against its former auditor Grant Thornton in a landmark decision that could make it easier to sue against professional advisers
The Supreme Court said in a press release that Grant Thornton had incorrectly told the construction community that its accounts could be set up using a rule called hedge accounting to even out the volatility of swaps kept in society's books.
is based on the "wrong and negligent" advice, the construction association entered into long-term interest rate swaps as a hedge against the cost of borrowing to finance its mortgages, the court said.
This hid fluctuations in the construction association's capital position and led to a serious imbalance between the negative value of the swaps and the value of the mortgages they were intended to secure, the court added.
Grant Thornton realized his mistake in 201
"To remedy the situation, society closed the interest rate swap contracts early at a cost of over £ 32 million," the court said.
The High Court and the Court of Appeal had supported Grant Thornton in the negligence, but the Supreme Court unanimously supported the building community.
The appeal to the Supreme Court focused on whether society can recover the costs of damages to close the booty from Grant Thornton.
"Grant Thornton is responsible for the loss suffered by society from breaking the swaps early, subject to a 50% reduction in damages for contributory negligence."
The court said that the Manchester Building Society, which had not questioned that it was partly to blame, has the right to reclaim damages totaling £ 13.4 million, the court said.
Grant Thornton said that he was disappointed with the verdict but that it had always accepted that I's audits for society for 2006-2011 fall short of the high standards it strives for.
Squire Patton Boggs LLP, a law firm representing the Manchester Building Society, said the landmark decision simplifies the legal test for the scope of customs in occupational care cases, making it much easier to bring such lawsuits.
Grant Thornton is also facing a negligent allegation in relation to his reviews of the collapsed café chain Patisserie Valerie.