Esanda Finance Corp Ltd v Peat Marwick Hungerfords

Esanda Finance Corporation Ltd (Esanda) brought proceedings against Peat Marwick Hungerfords (PMH), a firm of accountants, in the Supreme Court of Western Australia. Esanda alleged that PMH owed it a duty of care in relation to the preparation of financial statements for a company called Excel Finance Ltd (Excel). Esanda claimed it suffered loss as a result of relying on these financial statements when it provided finance to Excel. The case ultimately proceeded to the High Court of Australia.

The central legal issue before the High Court was whether PMH owed a duty of care to Esanda, a third party who was not a client of PMH, in the preparation of financial statements for Excel. Specifically, the court had to consider the circumstances under which a professional advisor, such as an accountant, could be held liable in negligence to a third party who relies on the advice or information provided by the advisor. This involved an examination of the principles governing the tort of negligence, particularly in the context of professional liability and the requirement for a sufficiently proximate relationship between the advisor and the third party.

The High Court, in a joint judgment, held that PMH did not owe a duty of care to Esanda. The court affirmed that for a duty of care to arise in favour of a third party in such circumstances, it must be reasonably foreseeable that the third party would rely on the professional's advice, and that such reliance would be reasonable. Crucially, the court emphasised that the professional must have undertaken to perform a task or given advice for the assumption of responsibility to the third party. In this case, the preparation of the financial statements by PMH was for the benefit of Excel, its client, and there was no evidence that PMH had assumed responsibility to Esanda or that it was reasonably foreseeable that Esanda would rely on the statements in the manner it did. The court distinguished this situation from cases where a professional provides advice directly to a third party or where the professional knows that their advice will be communicated to and relied upon by a specific third party for a particular purpose.

The High Court allowed the appeal by PMH and ordered that the proceedings in the Supreme Court of Western Australia be dismissed.