Liability needs a complete rethink

We live in a compensation culture that is at best out of control, where someone else is to blame for every misfortune, whether you trip over a paving stone, buy a house with cracked walls or lose money on an investment.

As Sir Peter says, there will always be problems, no matter how high the standard of work or how well regulated the system is – that is life. Absolute certainty is unattainable; and relative certainty needs to be balanced against the cost of achieving it.

You have to realise that everything has a risk attached to it. A system which encourages people to ignore these facts is downright pernicious.

But there are limits – on both sides. There must obviously be some system whereby innocent parties can be recompensed. Such redress must be timely, and it must be fair. The present system is neither; it is simply arthritic and inordinately costly. And so Sir Peter’s proposals merit serious consideration. But I do not for a moment underestimate the problems involved in his solution. How does one set the tariff? And should the concept of contributory negligence have a place in the system?

This is a much more complicated issue in financial wrongs, although it is not confined to them. For example, should a heavy smoker expect the same degree of compensation as a non-smoker? And, perhaps most importantly, how do you define the class of people who are entitled to compensation? How practicable this is, I cannot say, but my guess is that it will be somewhere between difficult and impossible.

With the prospect of proportionate liability as a legal principle fading into the middle distance, maybe now is the time to find an alternative basis. But it will not be easy. At least Sir Peter’s wake up call is timely, to be applauded and must act as a catalyst for some more out of the box thinking.

The potential and welcome change in auditors’ liability proposed in The company law review is but a small part of its proposals. However, the whole process shows that radical thinking about a complex and entrenched issue is not impossible. With the appointment of Lord Gordon Borrie as chairman of new accountancy watchdog the Foundation, the timing could not be better.

  • Gerry Acher is chairman of the audit faculty at the ICAEW, and London senior partner for KPMG.

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