This case is a reminder that even where there is a clear breach of duty – in this case a failure by auditors to spot a significant hole in the accounts over a number of years – you must be able to prove all the other constituent elements of a claim in negligence in order to obtain any financial compensation for that breach. Here, despite the Defendants’ own expert accepting that the work done for the Claimant was “seriously defective”, the claim failed when the Claimant was unable to prove any loss suffered and/or that the Defendants’ breach had caused any loss.
The Claimant, Ickenham Travel Group Ltd (“ITG”), is a travel company. Tiffin Green Ltd (“TG”) was the Claimant’s auditor from 2014 to 2017. In 2019 a significant understatement in ITG’s accounts, of £4.5m, was identified. The understatement had existed throughout TG’s retainer and had been least £2.5m in September 2014 when TG was first appointed as auditor.
As a result of the understatement, ITG needed to raise significant cash to continue trading and sold one of its divisions, Business Travel Direct (“BTD”) to do so. ITG’s case was that TG’s failings causes it to suffer a loss because BTD was sold at an undervalue due to the speed and circumstances in which it needed to raise funds, and further argued that if the irregularities had been discovered earlier it might not have needed to sell BTD at all. The Claimant also claimed professional fees incurred dealing with the irregularities in its accounts, which it said that it would not otherwise have incurred.
The Court found that even though there was breach of duty by TG in failing to identify the understatement during the course of its retainer, ITG had not proved that the breach had caused it any loss. BTG had been up for sale for over a year before the financial irregularities were discovered, and there was no evidence that BTG would have achieved a higher sale price had it been sold earlier or in other circumstances. Nor was there evidence that the sale price was impacted by the existence of the irregularities.
Furthermore, in relation to the professional fees, the Court found that ITG had not shown that they were caused by TG’s breach of duty in 2014 or thereafter. The understatement, which existed prior to TG’s appointment in 2014, was the root cause of the professional fees incurred by ITG, and ITG could not point to any action or omission by TG which might have impacted the level of those fees. Consequently, TG succeeded in defending all of the claim.
This is an important reminder that even where there is a clear breach of duty, unless both factual causation and loss can also be proved, a claim will not succeed. Claimants may feel they have been wronged when they have been let down by very poor service, but in law, consideration must always be given to the evidence that is or may be available to prove causation and the financial loss claimed.
Claimants may feel they have been wronged when they have been let down by very poor service, but in law, consideration must always be given to the evidence that is or may be available to prove causation and the financial loss claimed.