In June of this year we wrote an update on our series of articles looking at the accountability of auditors and the courts’ continued unwillingness, or perhaps inability, to break down the legal barriers that protect auditors from negligence claims. That update focussed on a case in which the Supreme Court said that, “The scope of an auditor’s duty and its relationship to the illegality defence may one day need to be revisited by this court”.
It looked as though a case with the potential to lead to an examination of the scope of an auditor’s duty was finally to be heard with the trial of the claim by Cattles Plc against PwC listed to commence on 5 October. The claim was one of negligence against PwC, with Cattles alleging that PwC’s failure to spot massive losses in Cattles’ loan book led to a string of profit warnings and the company’s shares being suspended in 2009. The claim was for £1.6bn, was listed for a 16 week trial and was reported as “one of the largest negligence lawsuits filed against a professional services firm in the UK”. Cattles claimed that PwC’s alleged negligence had caused losses to it and its creditors and that it was in the best interests of Cattles’ creditors to pursue the claim. It was predicted that this case would be the one to, “revisit and clarify the law relating to claims against auditors”. Alas, as is often the case, the claim settled shortly before the trial was due to commence.
The terms of settlement are confidential and so we cannot know why the parties decided not to proceed to trial. Well-advised parties to litigation should be constantly assessing the benefits and disadvantages of seeing a claim through to the end and there are many potential reasons for settlement, including avoiding the time, expense and unpredictability of a long trial. In this case, we cannot know which side was more keen on settling and who benefited most from it; however, one potential advantage that PwC may have gained from settling is to sidestep any risk of a review of the legal basis for claims against auditors, that may have opened the floodgates for similar claims against it and its Big 4 companions.
