Man Nutzfahrzeuge Aktiengesellschaft & Ors v Freightliner Ltd & Ors

Applications to strike out, obtain summary judgment, or set aside service out of the jurisdiction should not determine fact-sensitive claims involving developing areas of law unless the claim has no real or reasonable prospect of success. Disputed facts must generally be assumed in the claimant’s favour, and a mini-trial is inappropriate.

An auditor’s ordinary statutory duty does not usually extend to investment decisions by shareholders. However, a duty concerning a specific sale may arise where the auditor arguably assumed responsibility for the use of audited accounts in that transaction. Causation and recoverability of losses arising from undiscovered fraud and continued trading ordinarily require investigation of the facts.

Freightliner, as successor to Western Star, brought Part 20 claims against Ernst & Young Canada and Ernst & Young UK concerning losses claimed by the Man parties after the purchase of ERF.

The claims alleged negligent auditing, negligent advice and provision of information in connection with the proposed sale, failures to investigate or report fraud-related tip-offs, and contribution under the Civil Liability (Contribution) Act 1978. The defendants applied to strike out, obtain summary judgment, or set aside service out of the jurisdiction.

The central questions were whether the pleaded duties, breaches, causation issues and alleged losses gave rise to a real prospect of success and serious issues to be tried.

1. Applications dismissed. The claim against EYUK was neither struck out nor suitable for summary judgment under CPR Parts 3.4(2) and 24.2. Service on EYC was not set aside. Permission was given to amend the Part 20 claim, subject to Freightliner paying the costs of and occasioned by the amendments.
2. Under CPR Part 24.2, the question is whether the claimant has a real, rather than fanciful, prospect of success. The same general approach applies to the serious-issue requirement for service out of the jurisdiction. Disputed facts should not be resolved on such applications unless the answer is clear. A mini-trial is inappropriate, particularly before disclosure and cross-examination.
3. Strike-out or summary determination is especially unsuitable for complicated or novel issues, including developing questions concerning auditors’ duties. The pleaded case and available evidence raised realistic factual issues about the auditors’ engagements, the scope of their responsibilities, the tip-offs, and the steps taken in response.
4. Caparo Industries Plc v Dickman established the ordinary limits of an auditor’s statutory duty. It did not preclude a duty in a specific sale transaction where the auditor arguably assumed responsibility for the use of audited accounts by the vendor. Whether responsibility had been assumed was fact-sensitive. A further arguable basis existed in the statutory purpose of reporting to shareholders collectively, including enabling them to exercise control over management.
5. The allegations concerning EYC’s group audit and its review of EYUK’s work also raised triable issues. The pleaded case that EYC failed to investigate, monitor or obtain adequate assurance concerning the tip-offs could not be rejected summarily.
6. The causation and loss arguments, including reliance on Galoo v Bright Grahame Murray, could not be resolved on the pleadings. The alleged discovery of fraud might have prevented further concealment, altered management decisions, stopped continued trading losses, or affected the value of ERF. Whether those matters caused recoverable loss required a full factual investigation and comparison with the principles in Sasea v KMPG.
7. The Hold Harmless letter did not provide a straightforward answer to the possible liability of EYUK to Man. Its construction depended on its wording, surrounding correspondence and factual context. The contribution claims therefore also raised issues unsuitable for summary determination.

First-instance decision. The judgment does not state any prior appellate decision in this litigation.