The liquidator of former construction giant Carillion, which spectacularly collapsed in 2018, has failed to persuade the court to order KPMG to disclose its audit working papers.
After Carillion went into liquidation with reported debts of £1.5 trillion, questions were asked why the auditor KPMG had failed to spot such a huge black hole in the company’s accounts.
The liquidator quickly indicated that they intend to pursue KPMG for damages – alleging professional negligence by the auditor. As part of their pre-action preparations, the liquidator asked the Commercial Court to order KPMG to release audit working papers held on its “eAudIT” electronic audit files.
KPMG refused to hand over the papers leaving the court to decide whether to order their release. The judge ruled that KPMG did not need to disclose its audit working papers on a number of grounds, including:
- Disclosure was not necessary for the liquidator to plead their initial claim as they already had Carillion’s own documents in relation to the audits
- The number of documents requested exceeded 8,500 in number and the amount of work required to produce them was not justified pre-action
- Pre-action disclosure is not normal in the Commercial Court and KPMG had met its obligations under the Pre-Action Protocol for Professional Negligence
James Burgoyne, Director – Claims & Technical, Brunel Professions explains that pre-action disclosure of documents in the Commercial Court is relatively rare. “The early stages of claims often see some manoeuvring around disclosure of information. The Pre-Action Protocol for Professional Negligence does permit a claimant to ask specific questions and identify information which they require to consider their claim further – which is very different to situations where the claimant provides no explanation of their claim, and makes overly general demands for information. These are very often referred to as “fishing expeditions” where the claimant is making a speculative attempt to identify something on which they can later build a claim. In fact, the protocol explicitly states at section 10.2 that it must not be used to justify fishing expeditions. The present ruling will therefore be welcomed by professional indemnity insurers as it reinforces existing practice and that there is no requirement for professional firms accused of negligence to hand over inappropriate amounts of documentation before a court case starts.”
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