Geraint Jones QC and Marc Glover's High Court victory paves the way for claims against accountancy firms

07/05/2010

In Goldberg & Oths v Foster Squires (a Firm) [2010] EWHC 450 (QB), LTL 19/3/2010, Tugendhat J found that two accountants (M & B) in a partnership with a third accountant (X) were liable in negligence for losses suffered as the result of negligent investment advice provided by the third partner, which was to further a multi-million pound fraud committed by that partner against third parties including clients of the firm. 

The issue was whether M and B were liable in law for the acts of X.  The Defendants (represented by Justin Fenwick QC) argued that the partnership was not liable for the wrongful acts of X, which fell outside the scope of his authority and the ordinary business of an accountant.  Further, the Claimants could not have reasonably believed that X was acting on behalf of the Firm or giving any advice as an accountant given the nature of the investments proposed to them. 

Held: There was nothing in a 2001 partnership agreement that amounted to any limitation upon any partner in the firm, and in particular X, to the effect that he was not authorised to carry on any part of the firm's business, including investment and financial advice. There was also nothing to suggest to any member of the public, or any client, that the authority of any partner was limited in that way. For the period to which that agreement related, X was authorised to give investment advice in the course of the firm's business. For the period covered by a subsequent 2005 partnership agreement, there was no written agreement that X's responsibilities should include the carrying out of investment business work. For that period, X was therefore not authorised to give investment advice. B did not know that X was giving financial advice. M did know in general terms that X was giving advice with a view to the recipients of that advice investing in the businesses in which M and X were involved, as well as those in which M was not involved, but M chose to turn a blind eye. Neither M nor B said or did anything to impose any limitation upon X's authority, other than in the terms of the 2005 agreement. No limitation upon the extent of X's authority was ever drawn to the attention of any actual or potential client. It was in the ordinary course of the business of an accountant to express a view as to the risks associated with an investment. X's advice to third parties was investment advice and X did not believe that the investments had the benefits described or were good for the third parties. The advice and misrepresentations were given in the ordinary course of the firm's business and the firm and M had held out X as having the authority to give some of the advice that he did. In any event, the advice and misrepresentations given to G were so closely connected with acts that X was authorised to do, that his acts might fairly properly be regarded as done by him while acting in the ordinary course of the firm's business. The claims in deceit and negligence therefore succeeded, but were limited against M and B to such liabilities arising in the periods during which they were X's partners.

Link to judgment here