Claims against Accountants
In the case of Arrowhead Capital Finance Ltd v KPMG LLP  EWHC 1801 the Court of Appeal dismissed claims against accountants KMPG when its client was dissolved last year, and found they didn’t owe a duty of care to an indirect investor, Arrowhead. The client’s business was dependent on compliance with measures set out by government authorities. KPMG was brought in to ensure compliance. When it was discovered that the business had failed to comply, it collapsed.
The investors claimed that the accountancy firm must have known that they were relying on the accountancy firm’s assurances on its compliance, and therefore, the firm was liable to the investors for their losses.
Proceedings were issued against the accountants, and the accountants, KPMG, made an application to strike out a claim under CPR3.4(2),
‘(2) The court may strike out a statement of case if it appears to the court –
(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;
(b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or
(c) that there has been a failure to comply with a rule, practice direction or court order.’
The Defendant applied under (a) that the Claimant’s stated case disclosed no reasonable grounds for bringing the claim, or in the alternative for summary judgement pursuant to CPR24.2.
‘The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –
(a) it considers that –
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial.’
The issues to be decided was whether KPMG owed a duty a care to Arrowhead, who was not their client, but an investment fund which loaned money to a special purpose vehicle, which in turn loaned money to KPMG’s client, and performing a service which it was engaged; and the second ground was whether the claim was statute barred, on the grounds that damage had been caused more than six years before 30 August, 2011, when the claim form had been issued.
In his decision, the Judge did say that in certain circumstances, the Defendant’s consent and knowledge of the fact his advice was being passed on by the client to the third party would be reliant on it, for the purpose of making an investment, could be sufficient to enable a third party to “demonstrate sufficient purpose and proximity” and that the context may also show it fair, just and reasonable in some circumstances to impose a duty of care owed by the Defendants to the third party. He thought that was more likely to occur in situations where the third party was the consumer rather than in a business transaction where the claimant was a sophisticated investor.
In this case, however, he said he would be prepared to assume that Arrowhead was able to satisfy the requirement of foreseeability and proximity. However, he didn’t consider that it would be fair, just and reasonable to impose a duty of care on KPMG. He thought it wouldn’t be fair, just and reasonable to impose a duty which resulted in unlimited liability, when it was obvious to all concerned that KPMG’s relationship with its client was governed by an engagement letter, which no doubt had limitations on the extent of their liability, and an exclusion of liability to third parties and second that the business in which Dragon proposed to engage was a high risk business, and third that KPMG would not have been prepared to accept such responsibility of Arrowhead if it had been asked to do so.
In the circumstances, the judge found that KPMG held no duty of care to Arrowhead.
In relation to limitation, the Judge quoted Section 2 of the Limitation Act 1980, which provided that:
- “An action founded on tort shall not be brought after the expiration of six years from the date in which the cause of action occurred.”
In this case, the Judge found that the damage had occurred at the latest by November 2004, which was more than six years before the commencement of the action.
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