Good News for Auditors?

The judgment of Mr Justice Evans-Lombe handed down on 20 March 2002,

allows the proceedings brought by Baring Futures (Singapore) (ìBFSî)

against Deloitte & Touche (Singapore) (ìD&Tî), its former

auditors, to proceed to full trial in May of this year. However, the

judgment itself has some important implications for companies, for

auditors and for insolvency practitioners in terms of representations

given to auditors by representatives of a company.

As a preliminary issue, D&T had argued that the claim against them

in respect of the 1992 and 1993 audits of BFS was bound to fail as, in

both of these audits, they had relied on representation letters addressed

to them and signed by the Finance Director of BFS, Mr Simon Jones. Mr

Jones, they said, had signed these letters recklessly and thus

fraudulently and it amounted to deceit. D&T said that this provided

them with a complete defence of circuity of action and/or set-off

extinguishing BFS' claim.

Mr Justice Evans-Lombe held that, although certain of the

representations in the letter were inaccurate and Mr Jones an

unsatisfactory witness, D&T had failed to show that Mr Jones was

recklessly fraudulent in signing the representation letters and therefore

did not succeed on the preliminary issue.

Although this was sufficient to determine the preliminary issue, the

Judge went on to deal with the issues of law which had been argued before

him, namely: (1) materiality; (2) inducement; (3) causation and (4)

vicarious liability.

Materiality: the Judge said that he was satisfied that the

representation letters were material, in the sense that D&T would

not have signed their audit opinions on the statutory accounts without

receiving them; although he did not decide...