BTI 2014 LLC v PricewaterhouseCoopers LLP

The claimant (BTI) sued PwC in negligence for negligently auditing AWA’s 2007 and 2008 accounts, alleging that a non-negligent audit would have led the directors to make different provision or disclosure and so prevented two large dividends being paid to Sequana. PwC applied to strike out the claim and alternatively for summary judgment on four principal grounds: abuse of process (a collateral attack on Rose J’s earlier judgment), absence of any realistic further evidence, the scope of PwC’s duty of care (invoking SAAMCO-type reasoning), and lack of loss because of Sequana’s subsequent insolvency.

The court held that the claim was not an abuse of process: although there was substantial overlap with issues decided by Rose J, this claim raises different counterfactual questions (what the directors would have done if PwC had audited non-negligently in October 2008 and May 2009) and may involve fresh evidence (notably about the 2007 accounts, OU1, going concern and an alleged modelling error). The judge applied a close merits-based analysis of the abuse point and distinguished Laing v Taylor Walton and Arts & Antiques. He also rejected summary disposal on causation, scope of duty and loss: the SAAMCO line of authority required careful factual analysis and it was inappropriate to determine novel scope issues or to hold as a matter of law that no loss was suffered at this stage. PwC’s strike out and summary judgment applications were dismissed.

Background and parties. BTI (a BAT subsidiary) was assignee of claims arising from two large dividends paid by AWA to its parent Sequana in December 2008 (€443m) and May 2009 (€135m). BTI alleged PwC negligently audited AWA’s 2007 and 2008 accounts, causing AWA to understate liabilities (notably in respect of the Lower Fox River and certain future sites such as the Kalamazoo River) and so to pay the dividends. PwC applied to strike out and for summary judgment. The claim was stayed pending related proceedings in which Rose J (and on appeal) decided many issues about the propriety of the accounts and the directors’ decisions.

Procedural posture. The PwC application (issued 26 March 2019) sought dismissal as abusive, alternatively summary judgment. The earlier related litigation (BAT/BTI v Sequana and directors) resulted in a full trial before Rose J, who held that the December interim accounts and the 2008 accounts as relied on complied with the statutory tests in the Companies Act 2006 (notably sections 836, 837 and 838) and gave a true and fair view in the respects she decided. That earlier judgment involved extensive expert accountancy and CERCLA evidence. The PwC claim had been the subject of previous case management negotiations and an agreed stay.

Nature of the application. PwC sought strike out/summary judgment on four principal grounds: (i) abuse of process because the claim was a collateral attack on Rose J’s findings, (ii) no realistic prospect of different evidence being available to change those findings, (iii) the loss claimed was outside the scope of PwC’s duty to AWA (invoking SAAMCO and subsequent authority), and (iv) in any event no loss had been suffered because Sequana’s insolvency rendered the debt valueless.

Issues framed by the court.

• Whether the claim was an abusive collateral attack on Rose J’s judgment or constituted relitigation of the same issues.
• Whether there was a realistic prospect of new or materially different evidence (including evidence about the 2007 accounts and new issues such as OU1, going concern and a modelling error) that could change the outcome.
• Whether, as a matter of law at summary stage, the claimed losses fell outside PwC’s scope of duty under the SAAMCO approach.
• Whether AWA suffered recoverable loss given Sequana’s later insolvency and the correct date and approach for valuing any loss.

Court’s reasoning and subsidiary findings.

• Abuse of process: the judge conducted a close merits-based analysis, applying the principles in Michael Wilson & Partners v Sinclair and distinguishing Laing v Taylor Walton and Arts & Antiques on the ground that this claim requires a different counterfactual inquiry (what the directors would have done if PwC had acted non-negligently) and may call material evidence not before Rose J (notably regarding the 2007 audit and other issues). The existence of the prior stay and the fact the PwC claim had been issued and reasonably sought to be tried with the Sequana proceedings weighed against characterising the claim as abusive.
• Real prospect of new evidence: the judge rejected PwC’s submission that no materially different evidence could be adduced. He accepted that BTI had contractual rights to further AWA documents and could seek PwC disclosure; he found it was not for BTI to prove the evidence now on a strike out application and PwC had not shown that there could be no new material evidence relevant to causation.
• Causation and reliance: it was not appropriate to decide on summary judgment that the directors would have acted irrespective of any different audit opinion. The timing and the directors’ need for a clear audit certificate supported an arguable case that they relied on PwC’s reports.
• Scope of duty (SAAMCO/related authority): the court held that the legal question about the scope of PwC’s responsibility (whether the loss claimed is the kind of loss to be attributed to negligent audit information) was sufficiently fact-sensitive and novel that it should not be decided summarily. The judge declined PwC’s invitation to determine the SAAMCO-type filter on strike out/summary judgment grounds.
• Loss and valuation: the court rejected the submission that AWA suffered no loss as a matter of law because Sequana later became insolvent. The judge held valuation requires assessment at the date(s) of breach, taking into account the prospects of repayment before insolvency, and that it was not possible to conclude on strike out that the loss would be nil.

Conclusion. PwC’s applications to strike out and for summary judgment were dismissed and the claim remains to be tried on the merits.

The application by PwC to strike out the claim and alternatively for summary judgment is dismissed. The court held that the claim was not an abuse of process: although there was substantial overlap with issues decided by Rose J, this action raises different counterfactual questions (what the directors would have done if PwC had audited non-negligently) and may involve new material evidence. On causation, scope of duty (SAAMCO line) and loss (including valuation in light of Sequana’s insolvency), the matters were fact-sensitive or novel and unsuitable for summary disposal. Accordingly the strike out/summary judgment application failed and the claim proceeds to trial on its merits.