Spalvins- Kent - Russell - Deloitte Haskins & Sells v Adelaide Steamship Co

The High Court of Australia considered an appeal concerning the liability of Deloitte Haskins & Sells (Deloitte) to the Adelaide Steamship Co Ltd (Adsteam) and its associated companies. The dispute arose from the collapse of Adsteam and its subsidiaries, with the plaintiffs alleging that Deloitte, as auditors, had failed to exercise reasonable care and skill in auditing the financial statements of Adsteam and its related entities. The plaintiffs sought to recover substantial losses allegedly caused by Deloitte's negligent auditing.

The central legal issue before the High Court was whether Deloitte owed a duty of care to Adsteam and its associated companies in the circumstances of the audit. Specifically, the court had to determine the scope of the auditors' duty of care and whether it extended to protecting the companies themselves from financial loss arising from the auditors' negligence, or if it was limited to protecting third parties who relied on the audited accounts. The court also considered the principles of causation and the extent to which any breach of duty by Deloitte could be considered the cause of the plaintiffs' losses.

The High Court, in a majority decision, held that auditors owe a duty of care to their clients, the companies whose accounts they audit. The court reasoned that the very purpose of an audit is to provide assurance to the company and its stakeholders regarding the accuracy of financial statements. Therefore, a failure to exercise reasonable care and skill in conducting the audit could foreseeably cause financial loss to the company itself. The court applied established principles of negligence, including the foreseeability of harm and the proximity of the relationship between the auditor and the client, to establish the existence of the duty of care. The court also considered the principles of causation, finding that the plaintiffs had established a causal link between Deloitte's alleged negligence and their losses.

The High Court allowed the appeal in part, finding that Deloitte did owe a duty of care to Adsteam and its associated companies. The matter was remitted to the trial court for further determination of the extent of Deloitte's liability, including issues of causation and the quantum of damages.