AssetCo Plc v Grant Thornton UK LLP – a masterclass judgment in the scope of duty of auditors

Bryan J’s recent decision is a must read authority dealing with several headlines in relation to causation and loss which will be of interest to auditors and claims practitioners alike. We comment briefly upon the headlines.


GT was engaged to audit AssetCo’s financial statements for the financial years ending 31 March 2009 and 31 March 2010. It was common ground that during this period the senior management team behaved in a way that was fundamentally dishonest and GT accepted that it was negligent in failing to detect these matters and in proceeding to give AssetCo a clean bill of health.

The overall result of GT’s negligence was that the assets were overstated by £120 million and crucially AssetCo was said to be able to continue as a going concern, when in fact it was insolvent. AssetCo claimed damages of over £30 million. The trial concerned matters of causation and loss only. AssetCo’s primary case was that as a result of GT’s breach of contract and negligence, AssetCo were entitled to recover damages having proved their case on the balance of probabilities. In the alternative, AssetCo claimed for the loss of a chance to restructure and refinance its business in 2009/ 2010 and avoid the loss it alleged it has suffered.


The Court found that AssetCo had to establish their losses on the basis of a loss of opportunity, rather than on the balance of probabilities. AssetCo were able to establish that they had lost the opportunity to avoid the expenditure it had incurred as a result of GT’s negligence and the Court agreed with AssetCo’s pleaded counterfactuals, subject to some discount for contributory negligence. AssetCo were awarded over £20 million in damages, reflecting the wasted expenditure incurred by AssetCo as a result of their continuing to trade.

Application of loss of chance principles

AssetCo argued a very detailed counterfactual (of what would have happened but for the negligence) which was largely based upon what did happen in 2011 once the true state of the company’s finances emerged. Bryan J provided clarity as follows:

  • Loss of chance principles allow Claimants to recover losses which reflect a % chance of success rather than turning on what would have happened on the balance of probabilities;
  • Where contingencies are independent, it is appropriate to multiply those % chances together. However where contingencies overlap, or are affected by the same considerations a mathematical approach is not appropriate.
  • Where a third party gives evidence to assist the Court in assessing a chance of that third party doing an act, a finding that the witness would have carried out the act is no more than a finding on the balance of probabilities, it is not an assessment that the act would have occurred for loss of chance purposes.

Successful mitigation

GT argued that AssetCo had successfully mitigated all its loss by entering into a Scheme of Arrangement in 2011 which factually resulted in it being in the same position, it would have been but for the negligence.  

Finding: -  Defendants may only claim credit for steps taken to mitigate loss resulting from the breach of duty. GT were unable to prove that their negligence was the immediate cause of the 2011 Scheme of Arrangement.  AssetCo were able to prove on the counterfactuals that the Scheme would have been entered into in any event.  

Legal causation

Bryan J considered in detail what losses were recoverable as a result of the admitted breach of duty. GT claimed that the losses suffered by AssetCo were as a result of trading losses and were caused by AssetCo continuing to trade. GT argued that these losses did not fall within the scope of their duty as auditor, or that by continuing to trade, there was an intervening act which broke the chain of causation. GT alleged that losses claimed by AssetCo in respect of trading losses, a fraudulent payment made to a third party, breach of a contract and the payment of dividends were legally caused by the continuation of the existence of the company and so did not fall within the scope of GT’s duty, or there was some intervening act which broke the chain of causation.

Finding: Bryan J considered that (with the exception of dividends) all trading losses, a fraudulent payment to a third party and a breach of a contract all fell within GT’s scope of duty on the basis that they were sustained through the continual trading in a fundamentally dishonest manner, in reliance on the negligent audit. This is a significant decision which has bucked the trend of recent cases which have narrowed the scope of duty of professionals.

Bryan J took the opportunity to provide some specific guidance on the scope of auditor’s duties in respect of the process of authorising payment of dividends, commenting that he did, “not consider that the authorities establish that there is a discrete duty on auditors to obtain sufficient evidence to review any dividend proposed by management and ensure this was properly authorised, approved and lawful.”.  The decision to declare dividends was an act of the directors/ Board of AssetCo and in any event constituted an intervening act.

Contributory negligence – the ‘very thing’ principle

GT argued for a very high level of contributory fault. The Court considered the ‘very thing’ principle: the acts which it was the duty of the negligent defendant to have guarded against which has the consequence that the defendant cannot argue that there has been a break in the chain of causation by that act taking place.

Bryan J commented upon the case of Barings No.7 in which Evans-Lombe J accepted a submission that:

“…it is upon such directors and officers that the primary duty to protect the company from loss occasioned by fraud rests…The authorities establish that the auditor’s duty is to report to the shareholders…but the shareholders cannot escape responsibility for the conduct of those directors and officers whom they have been instrumental in appointing…”

The Court recognised that the negligence in this case was of the highest order which resulted in an agreed regulatory fine of £3,500,000 for GT and £200,000 for the audit engagement partner (as well as a 3 year strike off from ICAEW (all figures before settlement discount).

Bryan J considered that the director’s dishonesty, the lack of management control and the false representations made to GT throughout the course of the audit should be reflected in a reduction of between 25 and 35% in respect of each head of loss.


We have seen several high level decisions recently reporting on the scope of duty, mitigation and causation generally. This judgment is an incredibly helpful reiteration of the trite law in respect of these quickly developing areas.

However, this decision runs slightly against the grain of recent decisions on the scope of duty of professionals and this is plainly not the last word given GT’s intention to appeal.  

If you have any questions or need advice, you can contact David Gooding or any of our lawyers in our insurance team.

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