Esanda Finance Corporation Ltd v Peat Marwick Hungerfords

Esanda Finance Corporation Ltd (Esanda) appealed to the High Court of Australia against a decision concerning alleged negligence by the auditors, Peat Marwick Hungerfords. The dispute centred on whether the auditors owed a duty of care to a financier who relied on audited accounts when making lending decisions.

The High Court was required to determine whether auditors owe a duty of care to third parties, such as financiers, who rely on audited financial statements. Specifically, the court considered whether the auditors' intention to induce reliance, or an assumption of responsibility by the auditors towards the third party, was a necessary prerequisite for establishing such a duty. The court also examined whether the particular purpose of the contractual relationship between the audited company and the auditor could affect the existence of a duty owed to third parties.

The High Court held that for a duty of care to be established in favour of a third party who relies on information provided by a defendant, there must be a sufficient degree of proximity between the parties. This proximity arises where the defendant knows, or ought reasonably to know, that the plaintiff will rely on the information provided, and that the plaintiff is likely to suffer loss if the information is inaccurate. The court rejected the notion that an intention to induce reliance was always necessary, but emphasised that the circumstances must demonstrate that the defendant assumed responsibility to the plaintiff for the accuracy of the information. The appeal was dismissed with costs.