PwC fails to ward off multimillion negligence claim

PwC has failed in a High Court bid to ward off a pending multimillion euro negligence claim against the Big Four firm

The firm had asked Mr Justice Fancourt to strike out the claim and grant them summary judgment. However, in a complex judgment running to more than 18,000 words, the judge refused.

The case has been brought against PwC and Windward Prospects Ltd by BTI 2014 LLC ([2019] EWCA Civ 112). But the judge said that Windward was ‘only a nominal defendant’.

‘The claim against the first defendant, PwC, related to the audit of the 2007 and 2008 annual accounts of the second defendant (then known as Arjo Wiggins Appleton Ltd, or AWA) in October 2008 and May 2009 respectively,’ he said.

But the judge said it had been stayed for several years pending the outcome of related proceedings by BTI against AWA’s former parent company, Sequana SA and the directors of AWA (the directors).

It was revived following the decision of the Court of Appeal in the other related proceedings. PwC applied to strike out the claim and alternatively for summary judgment to be entered in its favour. The hearing took three days of legal argument at the court in London last month.

Explaining the background of the case, the judge continued: ‘BTI, which is a wholly-owned subsidiary of BAT Industries plc (BAT), sued Sequana and the directors as assignee of AWA, claiming recovery of very large dividends paid by AWA to Sequana in December 2008 (€443m – ‘December dividend’) and May 2009 (ca.€135m, ‘May dividend’).

BTI is now seeking damages from PwC to cover both the dividends, amounting to €578m.

‘The dividends were paid against the background of PwC’s audit of AWA’s annual accounts in October 2008 and May 2009. That claim failed.

‘Rose J held that the accounts relied on by the directors for payment of the dividends were proper accounts for the purposes of Part 23 of the Companies Act 2006 CA 2006) and that accordingly the dividends could not be recovered from the defendants. BTI did not appeal that decision.’

However, he said that BTI now accused PwC of negligently auditing AWA’s 2007 and 2008 accounts and thereby causing AWA’s losses.

PwC tried to either strike out that claim or alternatively to seek summary judgment in the firm’s favour. It argued that the claim was an abuse of process, had no real chance of success and the damages claimed were for losses that, if they were incurred, fell outside the scope of PwC’s duty to AWA. The firm claimed that AWA had suffered no loss and that the claim was bound to fail.

Addressing all the points the judge said there had been no abuse of process and there was clearly an arguable case as the terms of the PwC audit report had been relied on.

PwC argued that, as a matter of law, loss suffered by AWA by the payment to Sequana of the disputed dividends was not loss that PwC owed AWA a duty of care to prevent.

In rejecting that argument he said: ‘The scope of PwC’s duty and the extent to which losses are referable to breaches of that duty need to be carefully examined in this case in the light of the true facts.’

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