Home Information Cases Electra Private Equity Partners v KPMG Peat Marwick (1997)

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Electra Private Equity Partners v KPMG Peat Marwick (1997)

Summary

In an appeal from a decision of Master Muncaster the issue was whether parts of a statement of claim should be struck out: the question which the judge asked himself was "is it perfectly clear that this claim cannot succeed?".

Facts

The action arose out of the investment of #10 million by the plaintiffs in 1992 in an Irish business called the Cambridge Group which, 18 months later, went into receivership. The defendants were two sets of accountants. The first were advisers to the plaintiffs. They submitted a report to the plaintiff on which the plaintiffs acted and made a placing agreement. The 2nd to 40th defendants were part of the KPMG International Group. They were auditors to the Cambridge Group and had no contractual relationship with the plaintiffs. They conducted an audit of the Cambridge Group which was completed on the day that the plaintiffs' decision was made and upon which, according to the plaintiffs, their decision to proceed was based. The issue in relation to the strike out was therefore whether the 2nd to 40th defendants owed a duty of care to the plaintiffs. The plaintiffs submitted that if there was a duty of care then at least an arguable case was established. The defendants contested this point both in principle and in substance.

Held

(1) If there was a duty of care then an arguable case of reliance would follow. (2) The liability of company auditors to third parties had been considered in recent years as part of the tort for negligent advice. They followed the dissenting judgment by Denning LJ in Candler v Crane Christmas (1951). (3) The line of cases established that a third party seeking to establish a case of negligence against company auditors in relation to their audit needed to show that they consciously assumed a responsibility for his benefit beyond the performance of their ordinary statutory duty to the company. For example, in Candler (supra) the accountants were not just performing a company audit but were actively involved in seeking a purchaser for the business and attended a meeting specifically for the purpose of satisfying the potential purchaser of the company's worth. (4) On the facts of this case, the plaintiffs had not been assisted by extraordinary inconsistencies in the versions formulated at different times. A case should not simply be struck out because of inconsistencies and obvious weaknesses. (5) However, on the other hand, it would be a serious injustice to force the defendants to face an expensive trial in respect of a case which the plaintiffs were unable to formulate in any coherent or consistent way. (6) The context was important and in this case the plaintiffs were experienced businessmen advised by solicitors who secured various warranties. (7) The weakness of the evidence made it incredible that events so dimly remembered could have been regarded by experienced professionals and businessmen, such as the plaintiffs, as determining their legal relationships. (8) The case was bound to fail on the correct principles and accordingly the relevant parts of the statement of claim as against the 2nd to 40th defendants would be struck out.

Appeal allowed. Leave to appeal refused.

Chancery Division
Carnwath J
Judgment date
6 November 1997
References

LTL 14/12/98 : [1998] PNLR 135

Practice areas

professional-negligence-and-regulation-discipline,Professional Negligence & Regulation/Discipline