118 7: The law of torts and professional negligence Part B The law of obligations
BCCI (Overseas) Ltd v Ernst & Whinney 1997
The facts: In this case, the defendants audited the group holding company's accounts, but not those of the
claimant subsidiary. The claimant tried to claim that the defendants had a duty of care to them.
Decision: No duty of care was owed to the subsidiary because no specific information is normally
channelled down by a holding company's auditor to its subsidiaries.An auditor’s responsibility can be extended to other parties in limited circumstances. In Law Society v
KPMG Peat Marwick 2000 it was held that an accountant which reported on a solicitor’s client accounts
owed a duty to the solicitor’s regulator as well as to the solicitor. This is because a solicitor is legally and
professionally required to obtain an accountant’s report on their client accounts by their regulator (then
the Law Society, now the Solicitors Regulation Authority), and the regulator may be liable to pay
compensation to clients of a solicitor who has mismanaged their accounts.
UK accountancy firms have been investigating ways of limiting liability in the face of increasing litigation.
KPMG, for example, incorporated its audit practice in 1995.
In 2000, the Limited Liability Partnerships Act 2000 was passed, and limited liability partnerships have
been permitted under law since 2001.
This protects the partners of accountancy firms from the financial consequences of negligent actions as
their liability to third parties (previously unlimited) can now be limited.