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ADT v BDO Binder Hamlyn (1996) BCC 808

BDO were auditors of Britannia Security, an acquisition target of ADT. During negotiations ADT insisted on a meeting with Britannia and their auditors. The relevant BDO partner was asked at short notice to attend the meeting. He knew about the negotiations and was told he might be asked about the last audited accounts but was given no agenda or instructions. At the meeting, which lasted less than an hour, the BDO partner confirmed in answer to questions by ADT’s finance director that he “stood by” the audited accounts and that there was nothing else ADT needed to know. ADT proceeded with the acquisition but Britannia turned out to be worth far less than expected. ADT therefore sued BDO. At trial, BDO were found to have assumed a duty of care to ADT and were ordered to pay damages of £65 million, being the difference between the price ADT had paid for Britannia and what would have been paid had the accounts showed the true position. -

Barings plc v Coopers & Lybrand (2003). EWHC 1319

Deloitte were the auditors for Barings Bank in Singapore. In 1995 Nick Leeson brought down the whole of Barings Bank by engaging in unauthorised derivatives trading, producing huge losses. In an attempt to rectify the situation, he made massive unauthorised bets on the rise of the Japanese stock market. The Kobe earthquake caused the Japanese stock market to plummet, taking Barings with it. Leeson’s own misconduct could not be attributed to Barings; but his superiors had ‘notionally’ been responsible for supervising him. They had also authorised the release of large funds to him, and it was shown that they had failed in their responsibilities. This was particularly important in the later stages of Leeson’s fraud and cover-up. The court held Coopers and Lybrand (since merged with Deloitte) liable but ruled that damages payable should be reduced by 50% in the early stages of the fraud, rising to 80% in the later stages. -

Caparo v Dickman (1990). 2AC 605

Caparo bought the controlling number of shares in Fidelity plc, an electronics company, allegedly in reliance on its audited accounts. In fact Fidelity was not performing as the accounts showed and was making a loss rather than profits. Caparo sued Dickman, Fidelity’s auditors. It contended that as auditors, they should have known or foreseen that Fidelity was vulnerable to a takeover bid and that any potential acquirers would rely on the audited accounts in making their decision. The House of Lords ruled that auditors owe no duty to “members of the public at large who rely on the accounts in deciding to buy shares”. Nor do auditors owe a duty to any individual existing shareholder who chooses to buy more shares. The House of Lords’ ruling was that auditors owe a duty of care to the company whose accounts they are auditing and to the company’s shareholders collectively in their role as supervisors of the management of the company. In the absence of special circumstances, no duty is owed to anyone else. -