Auditors' Liability To Third Parties: An Alternative Approach

In Canada, the policy analysis at stage two of the Anns duty of care test has typically been limited to concerns about indeterminate liability. By way of contrast, the United Kingdom House of Lords has favoured a flexible approach in determining whether to impose a duty of care generally for negligence causing an economic loss. It allows for a consideration of a greater number of policy factors in cases involving auditors' liability to third parties.

In Customs Excise v. Barclays Bank, [2006] UKHL 28 ("Barclays Bank"), the Customs and Excise Commissioners obtained a Mareva injunction freezing assets of two customers of Barclays Bank. When the Bank allowed funds to be withdrawn from the "frozen" bank accounts in error, the Commissioners sued. The House of Lords found that the Bank owed no duty of care to the Commissioners and, in doing so, endorsed three distinct tests.

Firstly, the Court considered whether the Bank had assumed responsibility to the Commissioners, a test derived from the leading negligent misrepresentation case of Hedley Byrne v Heller, [1964] AC 465. Assumption of responsibility is assessed by an objective view of the facts and can easily be applied as a threshold test. If it is satisfied it is not necessary to apply any other test.

Secondly, the Court considered the three-fold test from Caparo Industries Plc v. Dickman, [1990] 2 AC 605: whether the loss to the plaintiff is a reasonably foreseeable consequence of the defendant's actions; whether sufficient proximity between the parties can be established; and whether it is fair, just, and reasonable to impose a duty of care when considering all of the circumstances. This allowed for a consideration of a variety of relevant policy...