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Scope of duty and 'loss of a chance' – AssetCo Plc v Grant Thornton UK LLP

22 September 2020

The scope of an auditor's duty and the 'loss of chance' principle was examined by the Court of Appeal in its August 2020 judgment in AssetCo Plc v Grant Thornton UK LLP [2020] EWCA Civ 1151.

We previously reported on the first instance decision in our February 2019 Accountants' On Point.


AssetCo was a holding company for a group of subsidiaries supplying fire and rescue support services. The former senior management team (consisting of its former CEO and CFO) behaved dishonestly in the preparation and the signing-off of the 2009 and 2010 years of account - including misstating reported profits, misappropriating monies, and concluding fraudulent related party transactions. Essentially, AssetCo was insolvent, but assets had been overstated by £120million.

The true position became known in 2011 and, as a result, a group of investors (led by North Atlantic Value LLP, 'NAV') appointed new senior managers, provided short-term financial support to AssetCo, and restructured its capital.

AssetCo brought a professional negligence claim against Grant Thornton (which had audited the 2009 and 2010 accounts) alleging that had Grant Thornton carried out their duties competently, the sequence of events which NAV took in 2011 to restructure and refinance the business would have been carried out in 2009 (referred to as the Counterfactual). AssetCo sought over £30million in damages.

Grant Thornton accepted that the former senior management of AssetCo had "duped" them into giving unqualified audit reports and, if they had applied appropriate professional scepticism, they would have uncovered AssetCo's senior management's dishonesty. However Grant Thornton argued that AssetCo's trading losses (and related heads of losses) were not within the scope of their duty. They further argued, in the alternative, that by AssetCo continuing to trade, the chain of causation had been broken.

First Instance Decision

The Commercial Court held that the trading losses of AssetCo were within the auditor's scope of duty and were caused by the dishonest trading of AssetCo and subsequent reliance on the negligent audits (save for dividends paid by AssetCo – this decision was not appealed by AssetCo).

The Commercial Court held that AssetCo's loss ought to be measured with reference to its lost opportunity to restructure and refinance its business sooner (i.e. in 2009 or 2010) rather than on the balance of probabilities.

However the Commercial Court allowed a reduction in damages (of between 25% and 35% for each head of loss) which represented AssetCo's contributory negligence (in that its senior managers were dishonest in their representations to Grant Thornton - the basis of this reduction was not appealed).

AssetCo was awarded more than £20million.

The Appellate Decision

Grant Thornton argued that the trial judge had:

  1. erred in his approach to scope of duty and causation, in particular having failed to apply what is known as the 'SAAMCO Cap' in deciding whether losses fell within Grant Thornton's scope of duty;
  2. incorrectly rounded-up the loss of chance assessment (in relation to various steps set out in the Counterfactual, which involved assessing hypothetical decisions and conduct of a number of third parties); and
  3. erred in deciding AssetCo did not have to give credit for certain "benefits".

In relation to Ground 1, the Court of Appeal stated that the SAAMCO Cap generally applies to audit negligence claims, but that it is not a rigid rule. Instead, it is "simply a tool for determining losses flowing from the negligence" and if it cannot be used, as in this particular case, it would not be used. Furthermore, a claim for £1.5million (relating to the misappropriation of AssetCo's funds by one of the senior managers for their personal benefit) fell outside the scope of Grant Thornton's duty and consequently damages were reduced accordingly.

Ground 2 of the appeal was dismissed entirely. The Court of Appeal held that the trial judge had regarded each step of the Counterfactual as an almost certainty and, as such, he was entitled to conclude that no deductions were to be applied.

Finally, in relation to Ground 3, the Court of Appeal agreed that the trial judge had erred in not allowing credit for proceeds from a placing of shares which took place in July 2009. Therefore, damages were reduced by approximately £7million.


The Court of Appeal's decision substantially confirms the approach to evaluating the scope of an auditor's duty, and that a company's trading losses resulting from fraudulent directors and subsequent reliance on a negligent audit does in principle fall within the scope of an auditor's duty of care.

Furthermore, it is clear an Appeal Court is unlikely to interfere with a trial judge's evaluation of a loss of chance unless it can be shown that the foundation on which the trial judge made the evaluation was erroneous.

Although Grant Thornton was substantially unsuccessful in its appeal, the damages ordered were reduced by almost £7million (net of contributory negligence). This reinforces the importance of analysing quantum carefully, including identifying credits that an auditor might be able to claim to reduce a claimant's damages.

Either party may yet appeal to the Supreme Court.

Authors: Jonathan Hopkins and Jonathan Hyde.

Further Reading