Scope of duty and the corporate veil
Published 26 February 2015
Our alert published last year (click here for more details) recorded a first instance decision concerning accountants' scope of duty. Because of their comparative rarity and also their significance to future claims against accountants, any accountants' case which involves consideration of the scope of duty of care is of potential interest.
The judge found, on the facts of that case, that accountants who provided a due diligence report to a company Swynson Ltd (Swynson) on an investment proposition did not owe a duty to the individual investor behind the company (Mr Hunt). The court found that a duty was owed to Swynson alone. Any reliance placed by Mr Hunt on the accountants' work was in his capacity as a shareholder or agent/officer of Swynson to "look through" Swynson to find a duty of care was owed to Mr Hunt would require the corporate veil to be lifted. There was no reason, applying relevant case law, to do so.
This case does emphasise, yet again, the paramount importance of the engagement letter in English law. The defendants' letter was addressed to Swynson and not Mr Hunt. Without such a letter the defence to Mr Hunt's claim would have been far less likely to succeed. For Mr Hunt, having made the initial investment through Swynson and having arranged for Swynson to contract with the defendant, he faced the risk of a decision such as this, with the courts respecting the corporate veil.
We now understand that that case will be subject to an appeal, due to be heard later this year.