Man Nutzfahrzeuge AG & Anor v Freightliner Ltd & Anor

In economic-loss claims arising from inaccurate information, a special duty of care depends on an objectively inferred assumption of responsibility for the information’s use by the claimant for a particular purpose. Foreseeability that audited accounts will be relied on in a transaction is insufficient. The scope of the duty is defined by the kind of damage to be avoided. An auditor’s liability for inaccurate accounts normally concerns loss attributable to that inaccuracy; it does not extend to a seller’s vicarious liability for a dishonest employee’s extra-contractual representations unless responsibility for that use was assumed. A contribution claim also fails where the alleged contributor owed no duty in respect of the same damage.

MN acquired ERF from Western Star. Ernst & Young (UK) had audited ERF’s accounts, which were falsified by an ERF employee. The trial judge held Freightliner, as successor to Western Star, liable to MN in deceit, but dismissed Freightliner’s Part 20 claims against Ernst & Young.

The appeal concerned whether the auditors owed Western Star or MN a special audit duty covering liability arising from dishonest representations made during the sale negotiations, and whether Freightliner could obtain a contribution under the Civil Liability (Contribution) Act 1978. The trial judgment was reported at [2005] EWHC 2347 (Comm).

Chadwick LJ gave the judgment of the court, with Dyson and Thomas LJJ agreeing. The appeal concerning Freightliner’s Part 20 claims was dismissed. The appeal concerning the main proceedings had been compromised.

1. The parties accepted that the existence of any special audit duty was to be assessed by the assumption-of-responsibility approach. The inquiry is objective. It asks what responsibility can reasonably be inferred from the auditor’s conduct against the background of all the circumstances, including whether the auditor assumed responsibility to the particular claimant for the use of the information for the particular purpose in question. Mere foreseeability that accounts may be relied on is insufficient.
2. The scope of a duty must be determined by the kind of damage against which the defendant undertook to protect the claimant. In negligent provision of inaccurate information, liability ordinarily extends to loss attributable to the inaccuracy. It does not ordinarily extend to loss caused by a separate fraud for which the claimant is vicariously liable. The court relied on the guidance in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] AC 181, Caparo Industries Plc v Dickman [1990] 2 AC 605, and Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] UKHL 10, reported as South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191.
3. The relevant loss was Freightliner’s liability to MN for deceit caused by Mr Ellis’s dishonest statements, rather than loss caused by the inaccuracy of the accounts themselves. There was no sufficient factual basis for concluding that the auditors should have foreseen extra-contractual representations by Mr Ellis on behalf of Western Star. Even if such use had been foreseeable, the auditors had not objectively assumed responsibility for it. The court accepted that a special duty might have covered contractual representations and warranties, including fraudulent warranties under article 12.3(5) of the share purchase agreement, but that was not the loss claimed.
4. Freightliner also could not establish a parallel special duty to MN. The absence of such a duty defeated the contribution claim under section 1 of the Civil Liability (Contribution) Act 1978, which required liability for the same damage.

1. Court of Appeal (Civil Division): dismissed Freightliner’s appeal against the judgment for the Part 20 defendants. The appeal concerning the main proceedings had been compromised.
2. High Court of Justice, Queen’s Bench Division, Commercial Court: Lord Justice Moore-Bick gave judgment for MN against Freightliner, with damages to be assessed, and judgment for the Part 20 defendants against Freightliner: [2005] EWHC 2347 (Comm).