How exposed are auditors post Stone Rolls? asks Malcolm Dowden
The narrow majority ruling of the House of Lords in Stone & Rolls Ltd (in liq) v Moore Stephens (a firm) [2009] UKHL 39, [2009] All ER (D) 330 (Jul) leaves auditors potentially exposed to negligence claims for failure to spot fraudulent conduct in anything other than “one man companies” or small businesses controlled by individuals or families.
It upheld the striking out of a claim against the auditor of a company that had been used as the vehicle for fraudulent transactions involving false letters of credit.
Although brought by the liquidator in the name of the company, the claim was funded by a third party for victims of the fraud.
The company, along with its sole shareholder and “directing mind”, was sued by the principal victim of the fraud.
Neither the shareholder nor the company could satisfy that judgment, and so a claim was brought against the auditors. The claim was to recover losses, amounting to £89m, incurred because the auditors—allegedly in breach of their duty of care—failed to spot and report the fraudulent
