Barings case could usher in proportional liability

On the one hand is the argument put forward this week by John Griffiths Jones, KPMG’s UK CEO, that without a liability cap another Andersen-style collapse of an audit firm must be considered inevitable.

On the other hand is the view of mid-tier firms, which says that a cap would be a self-serving move that would only benefit the Big Four yet damage the entire profession in the eyes of the public and investors.

Where the firms do see eye to eye, however, is on the issue of proportionate liability – an issue firmly back in the spotlight after last week when the Barings saga finally ground to a close after a decade of legal wrangling and argument.

Despite the High Court ruling that Deloitte & Touche was negligent in its audit work at the Singapore arm of merchant bank Barings, the firm was far from gloomy. Deloitte said confidently that the judgement had vindicated its audit work at Barings, with the judge primarily placing the blame at the feet of the former management of the bank.

Deloitte said the judge had made an ‘unequivocal determination’ that officers from Barings, which collapsed in 1995 under the weight of an £800m fraud perpetrated by rogue trader Nick Leeson, were responsible, not its auditors.

Justice Evans-Lomb found the firm negligent for its audit work during 1992 and 1993 at Barings Futures Singapore. Deloitte claimed they were ‘two very narrow technical issues’. And where the firm drew particular comfort, given the scale of potential claims, was that the ruling is likely to mean claims against Deloitte cannot now exceed £1.5m.

In all but name, the judge had effectively applied proportionate liability.

Is this the watershed needed to persuade the government to table a company law bill that would usher in proportionate liability? We should hope so.

It is, after all, a move that would placate all audit firms. And crucially it would appear less like a vested interest group acting in its own interests, than if a liability cap were to be introduced.


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