Chelsea Bank provided overdraft facilities to Liverpool Ltd and Manchester & Co. were Liverpool’s auditors. The relevant overdraft facility letters between Chelsea Bank and Liverpool Ltd contained a clause requiring Manchester & Co. to send Chelsea Bank, each year, a copy of the annual audited financial statements. In 2018 Liverpool Ltd was put into receivership with approximately $23.5M owing to Chelsea Bank. Chelsea Bank claimed that, due to massive fraud, Liverpool’s financial statements for the previous years had misstated the financial position of Liverpool and Manchester & Co. had been negligent in not detecting the fraud. Chelsea Bank contended that it had continued to provide the overdraft facilities in reliance on Manchester’s unqualified opinions. Manchester & Co. applied to the court for an order striking out the claim on the grounds that, even if all the facts alleged by Chelsea Bank were true, the claim could not succeed in law because Manchester & Co. owed no duty of care to Chelsea Bank. Required: Comment on the likelihood that Chelsea Bank may succeed in their action. Document all assumptions made and justify your answer
Chelsea Bank provided overdraft facilities to Liverpool Ltd and Manchester & Co. were Liverpool’s auditors. The relevant overdraft facility letters between Chelsea Bank and Liverpool Ltd contained a clause requiring Manchester & Co. to send Chelsea Bank, each year, a copy of the annual audited financial statements.
In 2018 Liverpool Ltd was put into receivership with approximately $23.5M owing to Chelsea Bank. Chelsea Bank claimed that, due to massive fraud, Liverpool’s financial statements for the previous years had misstated the financial position of Liverpool and Manchester & Co. had been negligent in not detecting the fraud. Chelsea Bank contended that it had continued to provide the overdraft facilities in reliance on Manchester’s unqualified opinions.
Manchester & Co. applied to the court for an order striking out the claim on the grounds that, even if all the facts alleged by Chelsea Bank were true, the claim could not succeed in law because Manchester & Co. owed no duty of care to Chelsea Bank.
Required:
Comment on the likelihood that Chelsea Bank may succeed in their action. Document all assumptions made and justify your answer.
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