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Docs before claim? That’s generally not playing the game

In Assetco Plc v Grant Thornton UK LLP we look at how the court approached an application for pre-action disclosure of an accountant’s documents during the pre-action protocol stage of an audit negligence claim.

Introduction

As encouraged by the Civil Procedure Rules, professional negligence claims against accountants (and against other professionals) are at first usually pursued under the Professional Negligence Pre-Action Protocol. During this process, claimants occasionally apply to the court for an order for pre-action disclosure of an accountant’s documents.

The decision of Mr Justice Blair in Assetco Plc v Grant Thornton UK LLP (25 January 2013) demonstrates the court’s approach to such an application during the pre-action protocol stage of an audit negligence claim.

Background facts

Assetco contemplated a claim against its former auditors, Grant Thornton, in circumstances where Grant Thornton had provided unqualified audit reports for two accounting years but new auditors subsequently substantially restated those accounts, referring to errors in the accounts.

Assetco sent a Preliminary Notice under the Protocol, identifying the differences between the original and restated accounts, adding that there were serious reservations as to whether reasonable skill and care had been performed in the audits. After Grant Thornton’s acknowledgement, the next step was for Assetco to provide a detailed Protocol Letter of Claim. No such letter was provided. Instead Assetco applied to the court for pre-action disclosure, seeking ‘all documents’ in various categories which were held by Grant Thornton. During subsequent correspondence, Assetco said that it would provide draft Particulars of Claim. However later Assetco said that it was unable to fully plead particulars of negligence without the pre-action disclosure.

Decision

In subsequently dismissing Assetco’s application for pre-action disclosure, the Judge focussed on the requirements for pre-action disclosure under the Civil Procedure Rules (rule 31.9; which we do not set out here). In doing so he concluded that:

  • whilst there was no need to plead particulars fully at this stage, the issues arising in a professional negligence claim needed to be properly identified;
  • Assetco had its own documents in relation to the audits and should have been able to ascertain why the new auditors restated the accounts and why on the material available Grant Thornton acted allegedly negligently in respect of the figures in the accounts. Until that was done it could not be said (as required by rule 31.9) that the documents sought fell within the scope of standard disclosure;
  • the Protocol provides that: there can be a Preliminary Notice; the defendant need only acknowledge that notice; the claimant must then write a detailed Letter of Claim; the defendant has three months from acknowledgement to investigate; and the parties should supply promptly at that stage and throughout whatever relevant information or documentation is reasonably requested. Further whilst it is intended to encourage early exchange of relevant information, the Protocol should not be used as a “fishing exhibition”. The Judge commented that the case had gone straight from a Preliminary Notice to a full application for pre-action disclosure and that was not desirable (which is another requirement under rule 31.9);
  • if disclosure were to be ordered based on the issues as they appeared in correspondence, the disclosure process would have to be gone through again if proceedings followed. That would not save costs (another requirement under rule 31.9) and in this regard it was not an answer for Assetco to say that the cost of pre-action disclosure would be met by them (as is usual if pre-action disclosure is ordered);

it was also relevant that the requests for pre-action disclosure were wide, in that they sought “all documents” in various categories which included any electronic and/or hardcopy documents, drafts, emails, manuscript notes, spreadsheets and memoranda in Grant Thornton’s control, wherever they might be located. The Judge considered that that was disproportionate at the pre-action stage.

Comment

As the Judge recognised from previous authority, certainly in the commercial context (which will include claims against accountants) a pre-action disclosure order, even if not exceptional, is unusual. A claimant will often have to show it has followed the Protocol and recognise that the requirements of rule 31.9 are looked at strictly by the Court. 

For further information please contact Simon Mason, Partner on +44 (0)117 301 7392 or email simon.mason@dwffishburns.co.uk

Professional Negligence Pre-Action Protocol

By Simon Mason

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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