By Richard Highley & Francesca Muscutt
|Published 13 July 2026
The Wine Enterprise Investment Scheme Ltd (in Liquidation) v Crowe UK LLP is a key case for auditors facing possible claims arising from companies tainted by director dishonesty.
The decision clarifies auditors owe no duty to report suspected fraud directly to shareholders, even where the directors are implicated.
The Wine Enterprise Investment Scheme Ltd ran an investment scheme offering investors tax relief. The Company issued shares, attracting around £4.23 million from investors between 2012 and 2016, but it entered into Members' Voluntary Liquidation in January 2020 with just £6.50 in assets. As the judge noted, the investors ended up "sans wine" and "sans song".
The Company was a Ponzi scheme run by two dishonest directors. A significant feature of the operation was that substantial investment monies were allegedly deposited in a Bermudan company, Lilliput Holdings Limited (Lilliput) and these were recorded as deposits in the Company's financial statements. Lilliput was a fictitious company which held no funds, and the investors' monies were diverted by the directors elsewhere.
The liquidators brought a claim against the Company's auditors, Crowe UK LLP (Crowe) alleging Crowe had negligently failed to act on clear warning signs of dishonesty during their audits between 2012 and 2018. They argued that had Crowe properly discharged their duties as auditors, in a counterfactual world, the directors' fraud would have been identified, the Company would have taken action and the losses would have been avoided.
Crowe admitted that it was in breach of duty (although not to the extent alleged), accepting it had not carried out adequate enquiries in respect of Lilliput or shown sufficient professional scepticism. However, it denied that any such failures caused the company’s losses.
Despite the admitted failings, the claim in large part failed on causation, damages being restricted to certain losses arising from just one audit.
The liquidators initially pleaded a case that Crowe ought to have reported its concerns to the Company and the Company would then have taken action through its shareholders. The Court held establishing what would have happened in this 'counterfactual world' involved a host of speculative variables and unknowns, including what information Crowe would have shared with the Company (controlled by the two dishonest directors), what information the Company would have then shared with the shareholders, and ultimately what the shareholders would have done with this information. The Court rejected the allegation as too speculative as well as not properly pleaded.
The Court also rejected the liquidators' argument that the auditors should have reported the fraud directly to the shareholders. The Court refused a late application to amend the claim to include this argument, finding this would introduce a new cause of action late outside relevant limitation periods. Importantly, it also found the claim had no real prospect of success, when there was no such duty arising from the Companies Act 2006, Auditing Standards, or case law, even where auditors believe the directors are fraudulent. Such a duty would also run contrary to Crowe's terms of engagement, which, as is standard, made clear Crowe was only reporting to the Company and its shareholders as a collective body. Interestingly, it also found the duty would give rise to practical and legal difficulties such as obtaining and using the shareholders' personal data to contact them directly, and providing them with information risked infringing defamation laws and "tipping off" the directors (a criminal offence under s333A of the Proceeds of Crime Act 2007 ("POCA")).
Finally, on loss and quantum the Court restricted its award of damages to just one audit, finding Crowe's failure to detect the fraud would have enabled some wine stock to be preserved.
It significantly reduced damages payable by Crowe to £101,965.95 plus interest, representing a 50% discount for the Company's contributory negligence.
We consider this a case study in the dangers for Claimants failing to plead a clear counterfactual world. They attempted unsuccessfully to develop an unpleaded case in the run up to trial, and had they focussed on causation from the outset, early settlement might have been achievable. As is often the case in complex professional negligence claims, a case will often be incapable of early settlement when causation arguments (particularly unrealistic causation arguments) remain undeveloped until much later in an action.
It is very helpful to the accountancy profession to have a court so clearly reject the argument that the auditors had a duty to report directly to shareholders, even where management are fraudulent.
Finally, it is notable that a 50% reduction on damages awarded was given for contributory negligence. This is a higher discount than that given on certain other cases against professionals and challenges the view of certain commentators that there is a trend towards lower discounts being given for contributory negligence.
