The ruling overturned the Court of Appeal’s judgment that the defendant was only responsible for the foreseeable financial consequences of the advice being wrong.
The decision signals an intensifying focus on the duties owed by accountants, and is ‘a reminder that the courts and regulators expect more from them than a box ticking approach,’ according to Janine Alexander, partner, Collyer Bristow.
‘Auditors and their insurers should not assume that the full extent of losses caused by unexpected extreme market forces cannot be laid at their door―the Supreme Court has confirmed that it will all depend on the nature of the particular error made and its connection to the loss. This case is an example of one where the link was sufficiently close to justify liability notwithstanding the severe impact of the global financial crisis on the loss-making transactions.
‘The same will apply to losses incurred in the context of market disruption caused by COVID-19.’
Browne Jacobson senior associate Nicholas Saunders said: ‘While the defendant was not responsible for the decision to enter into the relevant swaps (a pure “advice” scenario), as a matter of fact it also understood that its advice was needed and would be relied upon for this purpose.’
Alain Orengo, partner, Plexus Law said the judgment provided guidance ‘in particular, in identifying the purpose to be served by the defendant’s duty, as well as the important distinction between a professional giving “advice” or providing “information”.
‘While this outcome is unlikely to produce a raft of claims, the decision has a potential for wide application and is likely to be scrutinised by financial professionals, particularly within the auditing sector, and their insurers.’
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