Law Society v KPMG Peat Marwick and Others
| Jurisdiction | England & Wales |
| Judgment Date | 28 October 1999 |
| Date | 28 October 1999 |
| Court | Chancery Division |
Chancery Division
Before Sir Richard Scott, Vice-Chancellor
Negligence - accountants' negligent reporting on solicitors' accounts - liable for loss to Law Society compensation fund
It was fair, just and reasonable that if a reporting accountant negligently prepared a report intended to assist the Law Society in deciding whether and when to exercise its powers of intervention in order, among other things, to protect the compensation fund, the reporting accountant should be held responsible for loss to the fund caused by that negligence.
Sir Richard Scott, Vice Chancellor, so held in a reserved judgment in the Chancery Division hearing a preliminary issue as to whether KPMG Peat Marwick, the defendants, in preparing reports required to be submitted by solicitors to the Law Society, the claimant, in order to assist in supervising compliance by the solicitor with the Law Society's accounts rules, owed to the Law Society a duty of care.
Lord Goldsmith, QC and Mr Matthew Collings for the Law Society; Mr Gordon Pollock, QC and Mr Rhodri Davies, QC, for KPMG.
THE VICE -CHANCELLOR said that the Law Society, under statutory provisions contained in the Solicitors Act 1974, was the regulator of the solicitors' profession. The statutory scheme included provisions requiring the Law Society to maintain and administer the compensation fund.
That fund was held by the Law Society as trustee and was applied for the purposes of compensating defrauded clients and was funded by practising solicitors.
There was no doubt that the Law Society relied on accountants' annual reports as providing some assurance that solicitors' accounts were being conducted with propriety in accordance with the accounts rules.
Three criteria had to be met to establish liability. There must be reasonable foreseeability of damage, a relationship of sufficient proximity between the party owing the duty and the party to whom it was owed, and the imposition of the duty of care should be just and reasonable in all the circumstances: see Caparo plc v DickmanELR ((1990) 2 AC 605, 617-619.)
Loss to the compensation fund was reasonably foreseeable as a consequence of the want of due care in preparing an accountant's annual report.
As to proximity, there was, in his Lordship's judgment, a relationship between the Law Society and the reporting accountant sufficient to justify the imposition of a tortious duty of...
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