The recent decision on Barings' claims against Deloitte & Touche (D&T) shows it is never too late to apply to knock out a claim.
Barings Bank collapsed on 27 February 1995 following Nick Leeson's disastrous trading activities. Claims of £1bn were brought against the auditors. Settlement attempts failed and the trial began in October 2001.
Since then claims against Coopers & Lybrand London and Coopers & Lybrand Singapore have been all but settled. Last week, the court struck out the claims brought by the London Barings companies against D&T which is now facing only a claim from Barings's Singapore company, Barings Futures Singapore (BFS).
D&T were the auditors of BFS in 1992 and 1993. The London companies' claims against D&T included damages for funds advanced by the parent companies to BFS to finance Leeson's activities and the loss in value of the Barings parent group companies.
In striking out the London entities claims against D&T, the court found the claimants had failed to plead that D&T was aware of the transactions or purpose for which its audit report would be used (that is the advances made to BFS about 15 months after the audit).
The advances claim also failed since this came under UK company law that identifies the company (in this case BFS) and not the shareholder (in this case BSL) as the proper claimant where the shareholder's loss is reflected in the loss suffered by the company.
All pretty technical, but the implications should be of great interest to underwriters of accountancy professional indemnity (PI) business. A decision against the strike-out application and in favour of a duty of care owed by a subsidiary company's auditors to a parent company's auditors covering such damages would have been an extremely dangerous precedent for group auditors.
The decision will encourage auditors and their PI underwriters facing claims in the melee of a group collapse.
