Summary

A claim for damages for breach of duty of care brought by a director against a company's auditors was struck out where the director had failed to indicate any special circumstances or a special relationship which would give rise to a duty of care.

Facts

The applicant auditors (P) applied to strike out a claim by the respondent (M) for damages for breach of duty of care.

M was director of a company which provided IT services, and P had been engaged as its auditor. M alleged that there had been a breach of duty in that P had failed to report alleged accounting irregularities to her, advise the company's board or the market of alleged financial uncertainty at the company, provide her with disclosure of accounting records, or give reasons for its resignation. M also alleged that P had removed an adverse report from its final report without giving reasons. M pleaded within the particulars of claim at para.10 that she was "obliged to comply with all fiduciary, statutory and common law duties as a director" and that "breach of ... those duties would expose [her] to sanctions and risk of debarment as director". She referred to P's duties to her as auditor in para.11, and in para.12 she alleged that P as auditor was "an office holder and, therefore, was under a duty of care towards [her because] it would be an offence [by P] to knowingly and wilfully authorise or permit by failure by [her] to comply with [the Companies Act 1985] s.222(1)".

P submitted that M had no arguable case.

Held

(1) M's pleaded case did not raise an arguable case of a duty of care owed by P to her as the director of the company being audited. Paragraphs 10, 11 and 12 did not indicate any special circumstances or a special relationship which would give rise to a duty of care and para.11 did not suggest any intention on the part of the auditors that a director such as M should rely on the audit, Caparo Industries Plc v Dickman [1990] 2 A.C. 605, South Australia Asset Management Corp v York Montague Ltd [1997] A.C. 191 and Anthony v Wright (Investments: Auditing) [1995] B.C.C. 768applied, Coulthard v Neville Russell (A Firm) [1998] B.C.C. 359 and Siddell v Smith Cooper & Partners [1999] Lloyd's Rep. P.N. 79 distinguished, as in those cases the directors had specifically sought advice from the accountants involved (see paras 28-31 of judgment). (2) Although the pleading also referred to breach of contract, the contract between P and M was not particularised. Further, P's letter of engagement made it plain that it did not assume responsibility in connection with any other purpose for which the report might be used. The case in contract had to be hopeless (para.32). (3) Although M argued there was a breach of a statutory duty by P as auditor, no argument was advanced as to why such a breach was intended by parliament to give rise to a private action for damages. Any such argument would have to overcome all the difficulties indentified in Caparo, Anthony, Coulthard and Siddel, Caparo, Anthony, Coulthard and Siddel considered (para.33).

Application granted