Negligence

Duty of care - accountants reporting on solicitors' accounts - duty of care owed to Law SocietyLaw Society v KPMG Peat Marwick and Others: CA (Lord Woolf CJ, Ward and Clarke LJJ): 29 June 2000

The defendant accountants prepared annual accounts reports for a firm of solicitors which the solicitors then provided to the Law Society in accordance with s.34 of the Solicitors Act 1974.

Following the discovery of fraud by two partners in the solicitors' firm, substantial payments were made from the compensation fund maintained by the Law Society.

The Law Society, as trustee of the fund, commenced proceedings against the defendants, claiming damages on the ground that the defendants had negligently prepared the accounts reports and, as a result, it had not exercised its powers of intervention into the firm which would have reduced the amount paid out of the fund.

On a preliminary issue, Sir Richard Scott V-C ([2000] 1 All ER 515) held that the defendants had owed the Law Society, as trustee of the fund, a duty of care when preparing the accounts reports.

The defendants appealed.Gordon Pollock QC and Rhodri Davies QC (instructed by Herbert Smith) for the defendants.

Lord Goldsmith QC and Matthew Collings (instructed by Wright Son & Pepper) for the Law Society.Held, dismissing the appeal, that the question of whether a duty of care was owed by the accountants to the Law Society as trustee of the compensation fund had to be examined against the test laid down in Caparo Industries Plc v Dickman [1990] 2 AC 605, namely, reasonable foreseeability of damage, proximity and whether it was fair, just and reasonable to impose such a duty; that the intervention by the Law Society, which an adverse accounts report could trigger, protected both the public and the compensation fund; that it was made clear to the accountants that the reports were required so that protective steps could be taken and it was obvious that if protective action was not taken because a report did not draw attention to non-compliance with the account rules that could have adverse consequences on the fund; that there was no reason why there should not be a private law duty owed to the Law Society, the performance of which would assist it to perform its public or regulatory duty; and that, accordingly, the defendants had owed a duty of care to the Law Society.

(WLR)