The House of Lords has struck out a multi-million pound negligence claim against accounting firm Moore Stephens, in a major blow to third party litigation funding.
The claim in Moore Stephens v Stone Rolls [2009] UKHL 39, originally for £89m, was the largest to be funded by a commercial third party litigator.
Insolvent trader Stone Rolls claimed its auditors, Moore Stephens, had negligently failed to spot a credit fraud by the owner of Stone Rolls, Zvonko Stojevic, a fraudster who used the company as a vehicle for defrauding banks.
However, the law lords found Moore Stephens not liable, on the basis Stojevic’s conduct was to be treated as that of the company, and therefore the loss Stone Rolls claimed arose from its own fraudulent activities.
The House of Lords affirmed the principles that auditors’ duties are owed to the company in the interests of its shareholders and that ordinarily no duty is owed to creditors.
Julian Randall, partner at Barlow Lyde and Gilbert, who acted for Moore Stephens, says: “The ruling confirms that auditors aren’t simply there to pick up the creditors’ losses when a company collapses.”
Nick Bird, partner at Reynolds Porter Chamberlain, says: “The claim was funded by third party funders at very considerable expense and will cause concern to those in that business at a time when the future of all litigation funding is being weighed up carefully in Lord Justice Jackson’s review of civil costs. The use of the illegality defence is increasingly prominent in claims against professionals, as fraud and dishonesty continue to increase in this recession.”
