Date: Mon, 19 Nov 2007 14:35

From: Andrew Tettenborn

Subject: Alice in Wonderland (or how to extract millions from auditors)

-------- Original Message --------
Subject:  RE: Alice in Wonderland (or how to extract millions from auditors)
Date:  Mon, 19 Nov 2007 07:20:24 -0700
From:  Phil Lister
To:  'Andrew Tettenborn'

McPherson discusses a Canadian case which says you can't do this - Hart Building Supplies v DeloitteTouche 41CCLT (3rd) 240, 2004BCSC55, on the identification doctrine. I am not liable for stopping you from doing wrong. So it’s doubtful if that's good authority here. See his article on the whole area at 45 Alberta Law Review 171 (the August 2007 loose part, just out).

-----Original Message-----
From: Andrew Tettenborn
Sent: Monday, November 19, 2007 3:56 AM
Subject: Alice in Wonderland (or how to extract millions from auditors)

If you're scammed by a company, obviously you can sue the company. But can you also sue its auditors for negligently failing to take steps to stop their client scamming you? At first sight, obviously not: that's just the sort of third-party claim that Caparo v Dickman [1990] 2 AC 605 is meant to strangle at birth.

Except that ... er... it seems you now can. In Stone & Rolls Ltd v Moore Stephens [2007] EWHC Comm 1826 SR scammed its bank out of a cool $170 million in a slick letter of credit fraud. The bank got judgment against it, but of course found no assets. Nothing daunted, the bank then bankrolled SR's liquidator to sue SR's auditors for damages (i.e. SR's liability to the bank of $170 million), which it could then pass on to the bank.

Langley J held it could do so, despite (a) the blatant avoidance of the duty of care argument in Caparo, and (b) the peculiarity of a corporate criminal effectively saying, in the best traditions of the hopeless underclass, "you negligently failed to stop me being wicked."

Does anyone share my initial view that all this is straight out of Alice in Wonderland, and (for want of a better word) plain screwy?

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