The numbers game – hot topics in civil claims against accountants and auditors

In this episode, Jamie Smith QC, Helen Evans, and Anthony Jones survey the current state of play for claims against accountants and auditors following the Supreme Court’s decision in BPE v Hughes-Holland [2018] AC 599 and the two important cases handed down on consecutive days in January 2019: Manchester Building Society v Grant Thornton [2019] EWCA Civ 40 and AssetCo v Grant Thornton [2019] EWHC 150 (Comm).Jamie Smith QC starts by considering duty and scope, identifying the particular challenges which the audit context presents for the SAAMCo and BPE ‘information and advice’ dichotomy. In doing so, Jamie sets out a handy checklist to assist classification for SAAMCo/BPE purposes, drawing from the first instance and Court of Appeal decisions in the Manchester Building Society case. Jamie goes on to address the implications of the SAAMCo approach to scope of duty for the type of ‘common sense’ legal causation favoured by the Court of Appeal in Galoo  v Bright Graeme Murray [1994] 1 WLR 1360, asking whether Galoo retains any relevance in the current era, but offering a way to rationalise the outcome in that case.Helen Evans then reviews how contributory negligence operates for accountant and auditor claims, bearing in mind the impact fraud on the part of the subject company/its officers may have on the accountant’s culpability (including the recent approach of the Commercial Court in the AssetCo case). Addressing another means by which accountants may effectively reduce their liability, Helen explains how the law of contribution from third parties tends to operate in accountants’ cases. First, Helen examines so-called ‘net contribution’ clauses frequently found in accountants’ retainers, which seek to impose a ‘just and equitable’ proportionate limit on liability with the need for formal contribution proceedings. Then Helen looks at common grounds and targets for accountants’ contribution claims and the best strategy on deploying them.Finally, Anthony Jones reviews the means by which accountants can formally limit liability, looking first at the statutory audit context under the Companies Act 2006 and the technical requirements for liability limitation agreements (which anecdote suggests have failed to catch on). Considering general methods of limiting liability, Anthony looks at the role of important (but sometimes hard to define) ‘basis clauses’ and then more conventional explicit restrictions on liability as they tend to operate in the accountancy market, and how the Unfair Contract Terms Act 1977 ‘reasonableness’ test has come to be applied in the field.