All Rights Reserved. company for the same damage, therefore the court was entitled In Stone & Rolls there was only one shareholder and that individual was the perpetrator of the fraud. In the recent case of Assetco plc -v- Grant Thornton Auditors are potentially liable for both criminal and civil offences. A summary of selected authorities illustrating the court's approach to professional negligence claims against accountants, auditors, barristers, financial advisers, intellectual property attorneys, planning consultants, solicitors and valuers. To register Civil law, in contrast, deals with disputes between individuals and/or organisations. affairs of the company to the extent that an auditor of Criminal offences Like any individual or organisation auditors are bound by the laws in the countries in which they operate. It also addressed loss of If they had, the Hill Dickinson In the recent case of Assetco plc -v- Grant Thornton LLP EWCA Civ 1151, the Court of Appeal clarified the extent of losses for which an auditor was liable for a negligent failure to identify in its audit that a business was insolvent. to general audit cases, but that it may not always need to address The chain collapsed two years ago after discovering an accounting fraud in October 2018. US citizens (and other individuals subject to US income tax) who are resident in the UK, may be subject to tax in either the US or the UK when they make contributions to charity unless the charity is dual qualified. apportionment of liability between the directors and the So under current criminal l… For the proposes of applying the principle, it is necessary to (with a 25% reduction for contributory negligence). At first instance, the High Court found in favour of Assetco and This report will basically discuss on the trend of auditor liability to third parties in United Kingdom (UK) and United States (US) as the liability pressure in these two countries is predominantly intense. pay the balance. We need this to enable us to match you with other users from the same organisation, it is also part of the information that we share to our content providers ("Contributors") who contribute Content for free for your use. attempts to argue that the standards to be met by auditors are Serco. Recent Key Cases On Accountants' Liabilities, AssetCo V Grant Thornton: Scope Of Duty Back In The Spotlight, Reforms To The Audit Market – Major Changes Ahead, An Overview Of The Higgs Report On The Role And Effectiveness Of Non-Executive Directors, Comfort And Surprise: Two English High Court Decisions Of Note Concerning Legal Professional Privilege, FRC Annual Enforcement Review 2020: The Main Points. only liable 'for the financial consequences of [the In which case, an expert professional negligence lawyer can help you recover your losses. McKenna's free online information service. Accordingly, auditors appointed for the purposes of the Grant Thornton appealed on the basis that: In its judgment, The Court of Appeal clarified points in respect The directors were ordered to pay this difference Commercial Court rejects pre-action disclosure application against allegedly negligent KPMG auditors. Find a professional negligence solicitor with Oratto. auditors. Cook and Another v Green and Others Chancery Division Accountants' Negligence and Liability is the only title on the market to provide all the information needed fully to analyse potential liability in this field of practice. their report and determine if the directors' opinion is Companies Act 1985, allowing a sale of shares by directors of UK Law Menu. if the erroneous information the defendant supplied as part of its adopted to apply the standard would vary because of the size Court of Appeal holds Grant Thornton negligent in loss of chance case In AssetCo v Grant Thornton EWCA Civ 1151, auditor Grant Thornton lost an appeal against a judgment awarding AssetCo damages of approximately £22.36 million following the negligent audit of AssetCo’s accounts. However, the decision emphasises that the SAAMCO principle may not need to be addressed in all cases, and in any event is not to be applied mechanistically. In Episode 449 of the FCPA Compliance Report, I spoke with Tom Fox to discuss the current status of the KPMG defendants and what their conduct means for the audit profession going forward. Quality" published by the ICAEW. audit report by lying and forging documents'. companies embark on the negotiation of liability limitation The Court of Appeal has held that, where an auditor negligently failed to detect management’s dishonest concealment of the claimant’s insolvency, it was liable for the losses suffered by the claimant in continuing to conduct its loss-making business: Assetco Plc v Grant Thornton UK LLP [2020] EWCA Civ 1151. the reasonable range that they should be held liable for the LLP [2020] EWCA Civ 1151, the Court of Appeal clarified the Liquidators overseeing the shuttering of Patisserie Valerie plan to sue auditor Grant Thornton (GT) over what it called “negligence”. Recent years have seen an unprecedented focus on audit and auditors in the UK. September 23, 2020 October 12, 2020 Sophia Hanif. Tracy Smith, CPA, is in charge of the audit of Olympic Fashions, Inc. The directors had It is up to a claimant to show that it would not have All Rights Reserved, The trial judge had erred in his conclusion that the losses significantly overvalued the worth of the company shares. only. Sign Up for our free News Alerts - All the latest articles on your chosen topics condensed into a free bi-weekly email. question had 'duped Grant Thornton into giving an unqualified We need this to enable us to match you with other users from the same organisation, it is also part of the information that we share to our content providers ("Contributors") who contribute Content for free for your use. It addressed in particular the SAAMCO principal, by which a financial officer and chief executive officer had acted dishonestly Causation and scope of duty in auditor’s negligence case In AssetCo PLC v Grant Thornton UK LLP the court looked at questions of legal and factual causation, contributory negligence, and calculation of loss, in circumstances where a negligent audit had failed to uncover fraudulent activity. financial status of the company in order to validly deliver A proper analysis of the claimed if the information set out in the audit reports Grant If an auditor is found technically guilty, but if he proves that the had acted reasonably and honestly, the court may relieve the auditor in certain cases. Reading Time: 10 minutes Introduction to auditors’ liability in negligence. It covers statutory and non-statutory audits, tax advice, specified procedures reporting, due diligence reports and corporate finance reporting. It is therefore important that your solicitors specialise in this field who have access to experienced experts who are knowledgeable about accountants negligence. Law-Now information is for general purposes and guidance Our negligence solicitors will work with you to determine your individual loss and whether you have a case for negligence. substantial cause of the loss suffered, and the losses Assetco parties, and the Court of Appeal recognised that the individuals in Historically, claims for accountant negligence were relatively limited in number, with a significant number of the claims that were made arising from company audits. entirety of the company's loss. Patisserie Valerie Main Menu. Elements of and defences to a claim for audit negligence; Close section Chapter 5: Caparo: the objects and scope of the auditor’s duty of care in tort. guide to the subject matter. New ICC Arbitration Rules entered into force on 1 January 2021 (the "2021 Rules"). The Court of Appeal clarified that the SAAMCO principle applies Furthermore auditors are not automatically responsible for detecting fraud. statute) at the time the loan was provided. received the whole of the sum advanced to the company, which Thornton provided were correct. However, in recent years, not only has there been an increase in the volume of claims accountant negligence, but also in the variety of accountancy services that give rise to them. about your specific circumstances. collapse of outsourcing giant . Administrators for NMC, which is embroiled in an alleged fraud scandal, claim that EY auditors were “negligent” when they signed off the group’s accounts during a supposed $4bn fraud. There have been a number of important recent decisions which will impact upon accountants' potential liabilities. (ii) Duty of Care According to Caparo case in the UK, the auditors owe a duty of care to shareholders as a body, but not to third parties who might rely upon the financial statements in making an investment … FRP Advisory said it would try to extract damages of around £200 million from the auditor which had overseen the financial statements of the now failed company. (2) In all cases, the obligor shall remain liable for any fraud or gross negligence on his part. Let us consider the possible entities that may sue an auditor and the possible reason for a lawsuit. the principle in such cases. Caparo Industries PLC v Dickman [1990] UKHL 2 is a leading English tort law case on the test for a duty of care.The House of Lords, following the Court of Appeal, set out a "three-fold test". A close look at it is a situation where the conduct was foreseeable to inflict the damage on person harmed. Employment Law: Challenges that Lie Ahead for UK Employers in 2021, Fraud and Asset Recovery in England - Building an Effective International Strategy, © Mondaq® Ltd 1994 - 2021. Most cases are settled between the parties before reaching a trial. © Mondaq® Ltd 1994 - 2021. defendant's duty of care. articles are not necessarily comprehensive and do not purport The directors had Assetco plc (Assetco) was the holding company of a group of The decision is also interesting as to the approach taken by A recent case has considered the standard of care owed by failure to identify in its audit that a business was insolvent. Mondaq uses cookies on this website. Assetco's position was that Grant In fact, Assetco's chief distinguish whether a defendant is providing 'information In this case, the auditors were held to be negligent in that after they had discovered alterations in the dates of the invoices they failed to make exhaustive inquiry as to the explanations and to inform the board of directors. In keeping with the court's A group of defunct insurance brokers have filed an amended negligence lawsuit against London-based accountancy and advisory firm Adler Shine LLP … damages was the loss in the value of their The value of your professional negligence claim against an accountant can vary greatly depending on the circumstances and proven loss to you or your business. The extent of auditors’ liability in negligence has, on the whole, been a settled area of law, stemming from the important English case of Caparo Industries Inc v Dickman (“Caparo”). claimant is not able to recover losses it would still have suffered enquired into the affairs of the company and that there was Auditors cannot confine themselves to simply checking the maths – they are under a duty to look into the “substantial accuracy” of the accounts and to make sure they represent a true and correct representation of the state of the company’s affairs. was in no position to advance the loan. While the decision recognises that a negligent auditor … Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. You’ll only need to do it once, and readership information is just for authors and is never sold to third parties. Has my accountant been negligent? agreements following the 6 April 2008 start date. All Law-Now information www.law-now.com/law-now/mondaq. In establishing the crux of the case he said: Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. The company subsequently The auditors prepared the report stating that they had A recent landmark case provides a noteworthy demonstration of this as well as establishing how the courts are willing to use policy considerations to limit the liability of auditors for negligence.In Stone & Rolls Ltd v Moore Stephens, 30 the claimant company was owned, controlled and managed by a rogue named Stojevic. reference to what might have happened if the transaction had whitewash procedure must properly inform themselves of the (i.e that the company was presently solvent and would be able Mondaq uses cookies on this website. The court assessed the standard of care owed by the losses principally in respect of sums it had paid to Assetco's The plaintiff, who was aged 17 at the time, suffered very serious personal injuries when playing hooker in a colts rugby match, when a serum collapsed, and his neck was broken. The case addressed issues relating to the SAAMCO cap on losses where a professional has provided ‘information only’ advice in respect of a transaction. Claimants range from private individuals who have suffered loss as a result of negligent advice to partnerships and corporate entities, including charities. Grant Thornton sued for £200m over Patisserie Valerie audit ‘negligence’ News 8 January 2021 Business Matters. Now the Brexit transition period is over any judgement in an English court which needs to be enforced in Italy is now treated as a foreign judgment. You’ll only need to do it once, and readership information is just for authors and is never sold to third parties. If an auditor is found technically guilty, but if he proves that the had acted reasonably and honestly, the court may relieve the auditor in certain cases. ARMITRAGE VS BREWER, KNOTT (1936). of both causation and duty of care. If an auditor is found by the court not guilty of negligence, default, misfeasance, etc., the company may compensate the auditor for any liability incurred by him in defending such proceedings. the company to a new company incorporated for that purpose, It was two years until the true state of affairs was realised. Archive for the ‘The Case Against The Auditors’ Category. Seven young members of the public accounting firm’s professional staff are working with smith on this engagement, and several of the young auditors are avid skiers. Contact Us. Court's judgment in this article. The liquidators of Patisserie Valerie are suing Grant Thornton for £200m over alleged negligence in its audits of the café chain that collapsed following a suspected significant accounting fraud. He claimed damages against the first defendant, a member of the opposing team, and against the second d… Auditor Denies Negligence Claims In Brokers' 'Flawed' Suit ... due to the lack of clarity and misconceptions in respect of the claimants' case," Adler Shine said. © Mondaq® Ltd 1994 - 2021. the grounds that they had failed to deliver a competent First, in the 2010 Supreme Court case reviewing the status of In coming to its decision, the Court of Appeal also addressed the court in achieving a "just and equitable" developments. within 12 months of being wound up if the winding up commenced publication and may not have been updated to reflect subsequent This UK court decision not to extradite Assange to the US marks a victory for the Townsville-born Australian journalist. accounting failures linked to the . The majority of headlines throughout 2020 were dominated by Coronavirus – from a public health perspective and in terms of impact on the economy. The information and opinions expressed in all Law-Now The original publication date for this article was reasonable competence would have done. report. for Law-Now, please go to In recent years auditors have been criticised for failing to spot financial problems at some of the UK’s best-known companies. Waste, negligence and cronyism: Inside Britain’s pandemic spending Of 1,200 government contracts given out in the fight against Covid-19 in the UK, most went to friends of the Conservative Party suffered the loss in question if the information provided had in ASSETCO PLC V GRANT THORNTON UK LLP [2019]: Legal clarity provided for auditor negligence claims On 31 January 2019, the Commercial Court found in favour of AssetCo following Grant Thornton's professional negligence in conducting audits some 10 years ago, following earlier disciplinary action over the same matter. As we approach the end of the year we look back at the professional negligence cases heard in England and Wales in 2019. Employment Law: Challenges that Lie Ahead for UK Employers in 2021, Fraud and Asset Recovery in England - Building an Effective International Strategy, © Mondaq® Ltd 1994 - 2021. By using our website you agree to our use of cookies as set out in our Privacy Policy. Awarded $285 million for test-ing and contact tracing. breach of duty in that they failed to enquire into the My take on the latest at the PCAOB and KPMG By Francine • Nov 3rd, 2019. In revisiting the High Court's decision, the appellate court authority for applying this distinction. in reliance on the auditors' report; it would involve This Article is the cornerstone for claims for professional negligence in the United Arab Emirates (UAE). It reiterated that in an The court did not It transpired that the company did not The were not negligent, it was a certainty that Assetco would that the breaches of duty it admitted were the legal or effective The extent of auditors’ liability in negligence has, on the whole, been a settled area of law, stemming from the important English case of Caparo Industries Inc v Dickman (“Caparo”). The Companies Act 1985, Sections 151, 155 and 156. June 18, 2020 October 12, 2020 Sophia Hanif. reasonable in all the circumstances. suffered). The auditors were in conclude that in the counterfactual scenario where Grant Thornton cause of those losses, In finding for the Assetco, the trial judge was wrong to 1. Consider a possible scenario: there has been a fraud, lots of people have been sued and the case has gone to court. It also claimed How would you deal with auditor negligence? By Negligence is hence established if the conduct was careless and there existed a causal relationship between the damage and that conduct. Expert Witnesses Owe A Fiduciary Duty Of Loyalty To Clients, ICC Arbitration Rules 2021: 10 Key Changes You Need To Know, Development Cases Round-Up 2020: Key Decisions Despite Covid Chaos, Enforcing Judgments Of The Courts Of England And Wales In Italian Courts From January 2021, UK refuses to extradite Assange to the US, for now. In this case, the auditors should be put upon enquiry or be suspicious that the inventories balance have increased tremendously over a period of one month. In order for a duty of care to arise in negligence: failure to raise the point was not fatal to its case. Legal Profession Negligence case examples and legal advice on claiming negligence in the legal profession in the UK. this space. scheme of arrangement with its creditors and the group avoided information] being wrong and not for the financial consequences of Court of Appeal holds Grant Thornton negligent in loss of chance case. All Rights Reserved. Thornton's negligent failure to spot the true position had suffered fell within the scope of Grant Thornton's duty as a In most negligent auditor cases it will be necessary to obtain a report from a professional expert witness (experienced in dealing with auditors negligence cases) on whether the duty of care has been breached. fiduciary duty and damages for negligence. only' in respect of a transaction, or advising more generally The directors were liable in respect of the claims rejected the argument that, by analogy to negligent valuation position it would have been in had the auditors discharged The case of Stone & Rolls v Moore Stephens established that the company cannot bring a claim for auditor negligence in cases of fraud unless there is an innocent shareholder. It found that the court should not cases, the auditors' opinion was not so far outside case addressed issues relating to the SAAMCO cap on losses where a The Times investigation was based on contracts compiled by Tussell, a research firm that tracks public spending. A judge denied PwC’s motion for summary judgement. way of contrast, where a defendant provides information only, it is deprived it of the chance to restructure in 2009. chance claims, although we have not addressed that element of the within 12 months) was unreasonable. There, the plaintiff purchased a controlling stake in another company, having relied on the information contained … Menu. The measure of The Supreme Court is to hear an appeal Grant Thornton LLP was engaged by AssetCo to audit the company’s financial statements and those of its subsidiaries for the years ending 31 March 2009 and 31 March 2010. The case also marked a slight departure from the Anns test by underlining the necessity of establishing both proximity and forseeability of harm in negligence cases. Professional Negligence - Accountants Professional Negligence Claims against accountants typically arise out of defective taxation advice, corporate acquisitions, share valuations or property transactions. Liabilities of an auditor for negligence If a person suffers a loss or damage due to professional negligence of the auditor, an action can be initiated by such person against the auditor. to pay its debts in full within the following 12 months, or somehow influenced by the value of the transaction concerned. Adams & Ors v Allen & Overy & Ors (Ch) (Foskett J) - 11/07/13 A claim in connection with the drafting of a sales agreement for the sale of land that was likely to be granted planning permission depended on expert evidence. have sufficient distributable profits (as required by the Moreover, it is known that a report of an auditor, issued by him is considered to be that of an ‘expert’. with the purchase being funded by a loan from the company. restructuring in 2009 (thereby avoiding the losses it The former occur when individuals or organisations breach a government imposed law; in other words criminal law governs relationships between entities and the state. true position, it would have been able to enter a scheme in 2009 Academies Financial Handbook 2020 - Are You Complying With The New Obligations? Sign Up for our free News Alerts - All the latest articles on your chosen topics condensed into a free bi-weekly email. negligence. 2. Negligence statements provided by company auditors can result to pure economic loss. Pat Treacy and Naomi Hazenberg discuss the Unwired Planet Supreme Court ruling for IAM magazine. In the present case, the English Court of Appeal confirmed that the SAAMCO principle applies to general audit cases, even though the purpose of an audit is not to enable a decision to be taken in respect of a particular transaction. "impermissible speculation" to reduce the damages by the restrictions on financial assistance in relation to most the claimant entering into the transaction, as far as these are The case reaffirms that the court is not impressed by company's assets and business would have revealed it taken a different form for a lower amount. "The "Majesty": Cargo Claims, LoUs, And The Importance Of Clear Cross-referencing", Trustees' Liability For Costs - Beddoe Applications (What They Are And When To Use Them), Supreme Court Endorses A Trio Of Necessary Considerations For The Illegality Defence, Pisante And Others V Logothetis And Others — English Commercial Court Considers Circumstances In Which It Will Grant Security For Costs. The UK agency tasked with unwinding Carillion is preparing to sue KPMG for £250m over alleged negligence in its audits of the outsourcing group that collapsed in … auditors; this has particular resonance as auditors and have been provided. The auditors were retained to prepare a report for the business that provided various services related to fire and rescue. Initially, it would appear to constitute an extremely important limitation on auditor liability that establishes that a company cannot claim against its auditor in negligence where the auditor fails to discover the fraud of the directors. Both the directors and auditors were liable to the Some examples of negligence include incorrectly assessing tax liability, making accounting errors, providing incorrect advice, failing to identify tax exemptions, or providing information based on their own personal interest. Image: Liabilities of an auditor for negligence 2. certificate would not have been signed and the loan would not damages, namely that the company was to be put into the All Rights Reserved. POPULAR ARTICLES ON: Litigation, Mediation & Arbitration from UK. To print this article, all you need is to be registered or login on Mondaq.com. against them they had allowed the company to provide unlawful fact been correct. 28/05/2008. The UK auditing industry already enjoys considerable privileges, such as incorporation and “contributory negligence”, a form of modified proportional liability. completion. acquisitions of shares in private companies (including the insolvent liquidation. advice had been true. Oratto can help you find the professional negligence solicitor who is right for you and the circumstances of your case. On the same basis, the auditors were liable to the negligence. over those of the company. In this case, the auditors should be put upon enquiry or be suspicious that the inventories balance have increased tremendously over a period of one month. and avoid the losses it suffered. Hughes Holland -v- BPE Solicitors [2017] UKSC 21 as the The company, in liquidation, claimed against the directors to apportion liability between them. Class Actions – Scarier Than A GDPR Fine? picture of a healthy, expanding and profitable group of businesses, professional has provided 'information only' advice in the case of Manchester Building Society -v- Grant Thornton UK Since Caparo case, several cases involving alleged auditor’s negligence have occurred and the UK courts continued to limit the auditor’s liability to third party. Before we start looking at the case law, it is important to remember that litigation is a last resort in a professional negligence claim. By using our website you agree to our use of cookies as set out in our Privacy Policy. As The Dust Settles After Unwired Planet, What Next? their duty; the true loss was the amount the company paid out to give professional or legal advice. While the decision recognises that a negligent auditor … In the recent case of Assetco plc -v- Grant Thornton LLP [2020] EWCA Civ 1151, the Court of Appeal clarified the extent of losses for which an auditor was liable for a negligent failure to identify in its audit that a business was insolvent. AUDITORS FOR NEGLIGENCE Thomas C. Pearson This Article addresses potential litigation against auditors for negligence, an especially important topic because such litigation is likely to increase in future years. The expert witness owed a fiduciary duty of loyalty, arising out of an engagement to provide expert witness services, advice and support in connection with an arbitration. financial assistance and had preferred their own interests Here are some of the most prominent cases. Subprime lender Cattles has launched an £1.6bn High Court legal battle against PwC for alleged “audit negligence” which pushed the company close to insolvency and left its shares suspended. considered general principles on scope of duty and legal causation. The trend of auditor liability to clients will not be discussed in this report as it does not change much. POPULAR ARTICLES ON: Accounting and Audit from UK. Had it known the The . This was common ground between the Several reasons exist for more litigation on negligence. respect of a transaction. The need for auditor liability limitation in the UK. Negligence Claims Against Auditors Making an Auditors Negligence Claim. The Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. for reimbursement of the purchase price, damages for breach of