Lloyd's Maritime and Commercial Law Quarterly
CONTRIBUTORY NEGLIGENCE: A VIABLE DEFENCE FOR AUDITORS?
By P. S. Marshall * & A. J. Beltrami*
… auditors are facing an increasing number of claims involving larger amounts of money. The sheer scale of the potential exposure is striking, and auditors are prevented from negotiating limits to their liability. Insurance is not available at the levels the larger firms require. The costs and risks increase costs of audits for clients and are likely to have adverse effects on the service provided.
So states the recent Report of the Study Teams on Professional Liability chaired by Professor Andrew Likierman.1 The solutions advanced include a recommendation that the law on contributory negligence should be clarified by legislation so as to remove any doubt over the applicability of the defence to claims framed in contract as opposed to tort.2 Among the various proposals put forward this one appears to have some chance of adoption, given that it is broadly in line with some of the conclusions reached in both a recent Report and Working Paper of the Law Commissions.3 However, even if this recommendation were to be put into effect fully, it remains uncertain what the result might be, given that it is at present unclear precisely when contributory negligence can be raised as a defence in an action against auditors irrespective of the form in which the proceedings are brought.
Although there has been a spate of recent decisions in England on the general applicability of the defence of contributory negligence to claims in contract, there has been little consideration of the difficulties in adopting this form of defence in cases involving auditors, where special considerations are involved in view of the unique position of the auditor as a certifier of the veracity of financial statements. However, these peculiar characteristics of the office have been considered in this context in other common law jurisdictions and their experience offers some insight into the potential problems as well as possible approaches to their solution.4
* Barristers.
1. “Professional Liability, Report of the Study Teams” (HMSO, April 1989), 10.
2. Ibid.
3. “Report on Civil Liability—Contribution”, Scottish Law Commission, Scot. Law Com. No. 115 (HMSO, 1988); “Contributory Negligence as a Defence in Contract”, Law Com. W. P. No. 114 (HMSO, 1990).
4. In many common law jurisdictions, in particular in each state in Australia and in New Zealand, the statutory basis of contributory negligence as a defence is almost identical to that in England (see J. Swanton, “Contributory Negligence as a Defence to Actions for Breach of Contract” (1981) 55 A.L.J. 278, 280). This, combined with the similar nature of the role of the statutory auditor in other common law jurisdictions, suggests that this is one of the areas in which a comparative survey is useful.
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