Auditors who were in a position to advise a company’s directors as to the legality of them making loan payments to a shell company which was acquiring there shares had a duty so to advise. The directors of a company sued them for failing to warn them that a loan made by the company might constitute a breach of section 151 of the Companies Act 1985 and thus should have led to a qualified audit report: their claim was for the loss which disqualification proceedings consequent upon the breach of section 151 had caused them. The auditors sought to strike out the claim on the ground that it was no part of auditors’ duties to protect directors personally from the consequences of their mistakes and wrongdoing. The auditors succeeded.
Held: On appeal the court allowed the directors’ appeal. The complaint involved an allegation that the existence of the loan should have led to a qualified report: ‘I remind myself that this is an application to strike out . . In my view the liability of professional advisers, including auditors, for failure to provide accurate information or correct advice can, truly, be said to be in a state of transition or development. As the House of Lords has pointed out, repeatedly, this is an area in which the law is developing pragmatically and incrementally. It is pre-eminently an area in which the legal result is sensitive to the facts. I am very far from persuaded that the claim in the present case is bound to fail whatever, within the confines of the pleaded case, the facts turn out to be. That is not to be taken as an expression of view that the claim will succeed; only as an expression of view that this is not one of those plain and obvious cases in which it could be right to deny the plaintiffs the opportunity to establish their claim at trial.’
Judges:
Chadwick LJ
Citations:
Times 18-Dec-1997, [1997] EWCA Civ 2837, [1998] 1 BCLC 143, [1998] PNLR 276
Statutes:
Jurisdiction:
England and Wales
Cited by:
Cited – Equitable Life Assurance Society v Ernst and Young (A Firm) ComC 10-Feb-2003
The company complained that its auditors had failed to give appropriate warning of the Society’s exposure to risk in awarding larger bonuses than were justified, and that had the true position been known, it xould have put itself up for sale . .
Cited – Equitable Life Assurance Society v Ernst and Young CA 25-Jul-2003
The claimant sought damages from its accountants, saying that had they been advised of the difficulties in their financial situation, they would have been able to avoid the loss of some 2.5 billion pounds, or to sell their assets at a time when . .
Cited – Binod Sutradhar v Natural Environment Research Council CA 20-Feb-2004
The defendant council had carried out research into a water supply in India in the 1980s. The claimant drank the water, and claimed damages for having consumed arsenic in it.
Held: There is a close link between the tests in law for proximity . .
Cited – Pegasus Management Holdings Sca and Another v Ernst and Young (A Firm) and Another ChD 11-Nov-2008
The claimants alleged professional negligence in advice given by the defendant on a share purchase, saying that it should have been structured to reduce Capital Gains Tax. The defendants denied negligence and said the claim was statute barred.
Lists of cited by and citing cases may be incomplete.
Professional Negligence, Company
Updated: 12 November 2022; Ref: scu.143236