Law for Business - Case Study Example

Finally in respect of creditors of the company the court held the no duty was owed to them. The approach had been criticized by many and had been thought to be unjustified as it was thought that reliance would be placed on the accounts of the company which is indeed due to the auditors’ manuals and other material. However, in favour of the decision a few other points for such a decision are the floodgates argument; the lack of proximity between an auditor and an investor also leads to the conclusion that no claim lies against the auditors; and the placing of undue burden on the auditors and therefore duty is only limited to the company.. (Deakin et al 2008) Another important aspect that was considered in the decision of Caparo for accountants liability as well the standard duty of care requirement was the fact that the three tier test was required to be satisfied so as establish a duty of care.

This test was a reformed test for negligence.The first requirement for the establishment of duty of care was that it must be reasonably foreseeable that the conduct of defendant would cause damage to the claimant. Secondly, there must be sufficient proximity between the parties and finally ‘the situation must be one in which the court considers it fair, just and reasonable the law should impose a duty of care of a given scope on the one party for the benefir of the other’. (Elliott et al 2007) Another important aspect that had been considered by the House of Lords have held in La Banque Financiere de la Cite v Westgate Insurance Co Ltd was that if there had been an omission to speak it would not lead to construing of liability.

A further important authority in respect of negligent misstatement is that of Hedley Byrne v. Heller2 wherein it was construed by the courts that there was no negligent misstatement on the basis that the facts portrayed that there had been disclaimer within the remarks that is the use of the term without responsibility which led to the possibility of a duty of care to be extinguished. There had been a controversial decision of Royal Bank of Scotland plc v Bannerman Johnstone Maclay, wherein the absence of the disclaimer of liability was considered to be pivotal so as to establish a duty of care and holding the auditors liable.

The facts of the case were that BJM were auditors of APC Ltd and RBS was the principal lender of APC Ltd and due to such lending RBS had an equity interest in APC. One of the requirement of RBS in their facility letters was the provision of audited financial statements by APC to RBS within six months of the end of financial year. Such copies were provided to RBS so as to assist them for lending decision. Subsequently RBS bought an action against BJM for the losses that were suffered by RBS as a result of reliance on such audit accounts which had inaccuracies.

There was an application made by BJM to strike out the claim as there was no duty of care owed to RBS. It was decided by the court as a preliminary issues that what had been pleaded by RBS was sufficient to lead to a duty of care. Thus it was found that even though there was no direct contact between the parties BJM could have disclaimed liability when it came to know that RBS would be seeing the audited accounts for lending decisions. Thus the important reason was the absence of th