Grant Thornton UK LLP ("GT") have confirmed this week that they do not intend to seek permission to appeal against the Court of Appeal decision handed down on 27 August, AssetCo PLC v Grant Thornton UK LLP  EWCA Civ 115, having had their initial application for permission to appeal refused by the Court of Appeal.
GT had applied to the Court of Appeal to set aside the whole of the c £23 million damages award made in favour of AssetCo PLC ("AssetCo") by Bryan J at first instance in respect of the negligent audits of AssetCo's financial statements for 2009/2010. The Court of Appeal dismissed GT's appeal, save that it disallowed a damages award in AssetCo's favour of c £1.1 million, and ordered that AssetCo should give credit for £7.5 million of the £32 million for which GT argued AssetCo should have given credit, and which would therefore have reduced the damages award to zero. GT were ordered to pay 75% of AssetCo's costs of the appeal, and to make a payment on account of £250,000.
The appeal to the Court of Appeal proceeded on three main grounds:
- The judge should have held that AssetCo had failed to establish that the losses for which it claimed damages were within the scope of GT's duty of care and that its breaches of duty were the legal cause of those losses;
- The judge erred in his application of the principles for awarding damages for loss of a chance in finding that the counterfactual was established on a 100% basis; and
- The judge failed to give credit for benefits received by AssetCo.
In relation to the first ground, the Court of Appeal upheld the judge's finding that the trading losses suffered by AssetCo were both within the scope of GT's duty and legally caused by their breaches. It held that by failing to detect that the accounts were prepared on a wholly false basis it breached its duty to provide that information, and in so doing it deprived AssetCo of the very information that would have caused it to cease its loss-making activities . GT's negligence was not therefore merely the occasion for the losses which AssetCo continued to incur, but was the legal cause of those losses.
In relation to the second ground, the Court of Appeal dismissed GT's contention that the judge was wrong to treat as a certainty the third party contingencies which he assessed at not less than 90%, and rejected GT's challenge to four specific contingencies which GT submitted should have been assessed at a much lower level.
In relation to the third ground, the Court of Appeal affirmed that the relevant test for giving credit was whether the credit was legally caused by the wrong, as enunciated in The New Flamenco. Applying that test, the Court of Appeal rejected GT's submission that credit should be given for all but £7.5 million of the £32 million which was in issue. Credit was ordered to be given for the £7.5m which AssetCo raised by way of a share-placing shortly after the sign-off of the 2009 audited accounts, on the grounds that those funds were raised in the course of the continuation of AssetCo's unsustainable business, and the necessity of raising further funds arose from AssetCo's financial model which GT should have detected, had they not been negligent.
This case is a leading authority on scope of duty and legal causation in the context of auditor's negligence cases, and the application of the SAAMCO cap to auditors' negligence cases generally. It also provides helpful guidance as to the principles governing loss of chance claims, and giving credit for benefits received.
Subject only to quantifying the balance of costs due to AssetCo, this marks the end of a longstanding dispute, which Bryan J remarked was "fought up hill and down dale". AssetCo are likely to recover over £30 million in damages, interest and costs, having beaten their own Part 36 offers to settle the claim for a payment of £10 million (November 2016) and £17.5 million (July 2017) inclusive of interest but excluding costs.
Mark Davis and Eleanor Dixie acted for AssetCo in this case.