Judgment has now been handed down by Mr Justice Bryan in the long running case of AssetCo plc v Grant Thornton UK LLP. Fire and emergency services provider AssetCo sought damages of approximately £30 million plus interest and costs against accounting firm Grant Thornton for the negligent conduct of AssetCo's audits in 2009 and 2010. This is the latest in a series of well-publicised high-value actions against firms of auditors, at a time when the audit industry is facing widespread scrutiny.
In 2017 Grant Thornton submitted to a fine of £3.5 million (before settlement discount) by the Financial Reporting Council in respect of the conduct of the audits. Mr Robert Napper, Grant Thornton's audit partner, was struck off from the Institute of Chartered Accountants of England and Wales for three years with no automatic right of reinstatement and submitted to a fine of £200,000 (before settlement discount).
Grant Thornton admitted breach of duty, but denied, nonetheless, that their breaches caused AssetCo any loss. They argued instead that had they not been negligent and the true position of AssetCo's finances had been revealed at the time of the relevant audits, AssetCo would have become insolvent in 2009 or 2010. Grant Thornton alleged, therefore, that in fact AssetCo were better off as a result of their actions since AssetCo managed to survive despite the financial problems they encountered as a result of Grant Thornton's admitted negligence.
The case went to a six week trial in June 2018. In the judgment handed down on 31 January, AssetCo was awarded damages in excess of £20 million. A further hearing is due to take place to determine the precise quantum of Grant Thornton's liability, together with liability for interest and costs. The awarded sum is largely comprised of sums spent by AssetCo in pursuit of its flawed business model under the stewardship of its previous fraudulent management, which the Court has held would not have been wasted had Grant Thornton not been negligent. The judgment can be found here.
This case raises important questions of law, namely in relation to the scope of auditors' duty, legal causation and the correct approach to the quantification of damages when a claimant's recovery depends upon the actions of an independent third party. As such, it has potentially serious ramifications for the audit profession generally. Grant Thornton has indicated that it will seek permission to appeal.
The Claimants were advised by Mark Davis, Eleanor Dixie and their team at Mishcon de Reya, who instructed Mark Templeman QC of Essex Court Chambers, and Richard Blakeley and Tom Pascoe of Brick Court Chambers. The Defendants were represented by James Roberts and his team at Clyde & Co, who instructed One Essex Court members Davis Wolfson QC, Simon Colton QC and Stephanie Wood.
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