Beneficiial Finance Corp & Ors v Price Waterhouse

Beneficial Finance Corporation Limited and others (the appellants) appealed to the High Court of Australia against a decision of the Full Court of the Supreme Court of South Australia. The dispute concerned the liability of the respondent, Price Waterhouse, a firm of accountants, for alleged negligence in auditing the financial statements of Beneficial Finance Corporation Limited. The appellants sought to recover damages for losses they claimed to have suffered as a result of relying on the audited financial statements.

The High Court was required to determine whether the respondent owed a duty of care to the appellants in conducting the audit, and if so, whether that duty had been breached. A central issue was whether the auditors' duty of care extended to persons who might rely on the audited accounts, even if those persons were not known to the auditors at the time of the audit. The court also considered the principles governing the recovery of economic loss in negligence.

The High Court, by majority, held that the respondent did not owe a duty of care to the appellants. Brennan CJ and Toohey J found that the auditors' duty of care was confined to the company whose accounts were being audited and its shareholders as a body, and did not extend to individual investors who might rely on the accounts. They applied the principles established in *Caparo Industries plc v Dickman* [1990] 2 AC 605, emphasizing the need for a sufficiently proximate relationship between the auditor and the third party for a duty of care to arise. Kirby J, dissenting, argued that a duty of care should be recognised in circumstances where the auditor knows or ought reasonably to know that the accounts are likely to be relied upon by a specific class of persons for a particular purpose.

The appeal was dismissed.