The Gazette 1989

408 / 482

GAZETTE DECEMBER 1989
tions additional to his statutory
duties they do not attract liability
under Statute.
Should the company go into
liquidation, Section 298 provides
that a creditor, the liquidator or a
member may apply to the court to
have the conduct of any "officer",
including the auditor, examined. If
the court finds that the officer has
". . . misapplied or retained or
become liable or accountable for
any money or property of the
company, or been guilty of any
misfeasance or breach of trust . . . "
it may compel the officer concerned
to repay or restore the company
property in whole or in part, with
interest.
Section 198 of the new Bill states
that there is an onus on every
company to keep proper books of
account and that the directors must
take ail reasonable steps to ensure
the company meets the Section's
requirements. Section 194 obliges
the company auditor to inform the
company and the Registrar if he
forms the opinion that the company
is in contravention of Section 198
by "failing to cause to be kept
proper books of account".
Failure to keep proper books of
account may in a subsequent
liquidation lead to the personal
liability of any one of the officers for
the debts of the company where it
is proved to the Court's satisfaction
that the officer was in default
(Section 200). It could be argued
that the auditor who has served a
notice under Section 194 has ex-
hausted his obligations in ensuring
that proper books of account are
kept and that he cannot be subse-
quently held liable under Section
200 if the company failed to keep
proper books of account.
Contractual Liability
An auditor may be liable to the com-
pany in damages if he fails to fulfil
his contractual obligations. This is
true, not only of substantive
breaches, but also of the failure to
reach professional standards in
carrying out his contractual obliga-
tions. The terms of his contract are
normally contained in an express
service agreement with the com-
pany with further terms possibly
laid out in the company Articles and
other contract documents. The
auditor has no contractual relation-
ship with the members of the com-
pany and so will not incur any
contractual liability to them for
breach of contract, although he may
incur concurrent liability on agency
or negligence principles (Caparo
Industries -v- Dickman, post).
Where a company sues its own
auditor for breach of contract, it
must prove a consequential loss and
damages will be compensatory.
Damages will usually be minimal in
such cases as it is difficult for the
company to prove that it suffered
losses that it would not otherwise
have suffered, as a result of its
reliance on inaccurate figures which
the auditor certified as being correct
in his audit of the accounts.
Tortious Liability
If an auditor knowingly gives false
information to any party about the
company's financial standing he will
be liable in damages for fraud at
Common Law. If he has acted in a
negligent rather than a fraudulent
manner, his liability will be the same
as any professional who knows, or
ought to know that his skill and
judgment are being relied upon.
If he fails to exercise reasonable
care he may be liable in damages
not only to the company, but to
shareholders and third parties (in-
cluding investors) who, he foresaw,
or should have foreseen, would rely
on the accuracy of the certified
accounts and opinions expressed by
him in his capacity as auditor. He
may be liable under the ordinary
principles of negligence and/or the
principles governing negligent mis-
statement. In a case of Anns -v-
Merton London Borough Council
[1978] A.C. 728, Lord Wilberforce
said at p. 751: "Through a trilogy of
cases in this House, Donoghue -v-
Stevenson, Hedtey Byrne &
Company Limited -v- Heller and
Home Office -v- Dorset Yacht
Company Limited., the position has
been reached that in order to
establish that a duty of care arises
in a particular situation it is not
necessary to bring the facts of that
situation within those previous situ-
ations in which a duty of care has
been held to exist, rather, the
question has to be approached in
two stages. First, one has to ask
whether, as between the alleged
wrongdoer and the person who has
suffered the damage there is
sufficient relationship of proximity
or neighbourhood, such that in the
reasonable contemplation of the
former, carelessness on his part
James Nash F.S.S. DIP
Forensic Document Examiner
and
Handwriting Consultant
38, Monastery Rise,
Clondalkin, Dublin 22.
Telephone: (01) 571323
may be likely to cause damage to
the latter in which case a prima
facie duty of care arises. Secondly,
if the first question is answered
affirmatively, it is necessary to
consider whether there are any
considerations which ought to
negative or reduce or limit the scope
of the duty or the class of persons
to whom it is owed or the damage
to which a breach of it may give rise
(see the Dorset Yacht case per Lord
Reid).
In an unreported decision deliver-
ed on the 25/11/'80 (McSweeney
tV- Bourke) Ms. Justice Carroll
expressed her reluctance to extend
financial advisers' liability for negli-
gent mis-statement beyond those to
whom the statement was actually
made, saying at p. 17:
"Irrespective of contract, the
adviser has a primary duty of care
to the client and there may or may
not be a duty to third parties. If the
advice given is not given negligently
vis-a-vis the client in the first in-
stance but is given with all due care,
there is no breach of duty to the
client. If an adviser is not negligent
vis-a-vis the client and does not
purport to advise any person other
than the client, I do not see how a
third party who knows of the advice
given to the client and carries out
steps outlined in that advice (ultim-
atley to his own detriment) can
claim that the advice was negligent
in relation to him".
In later cases the High Court has,
however, accepted that an auditor's
liability to third parties hinges on
foreseeability, namely "was it fore-
seeable that reliance would be
placed on the auditor's advice or
opinion by the third party?" In Kelly
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