When things go wrong, don't sue us
Moves over the vexed question of liability are pleasing accountants
Wednesday 13 September 1995
After a lengthy campaign spearheaded by the institute and the leading firms, the Government has agreed to look into the vexed issue of joint and several liability. This is a long-established common-law principle that makes defendants in a civil action liable to pay all the damages, regardless of the degree of fault. It has caused particular grief to auditors because they have been widely sued over the spate of corporate collapses since the late Eighties. But it applies equally to other professionals, such as architects, surveyors and solicitors, which have begun to complain about it as they too have started to become the subject of actions.
Not that reform is necessarily within sight. The newly appointed corporate affairs minister, Phillip Oppenheim, has asked the Law Commission to carry out a feasibility study - in other words, a report about a report. But Bruce Picking, technical director at the institute, says his organisation is "encouraged by what may be a change of attitude".
This move - if such it is - has in all likelihood been influenced by developments abroad. Every slightest move away from the principle of joint and several liability in jurisdictions as varied as the United States, Australia and New Zealand has been trumpeted by the accountancy profession as vindication of its case.
At the same time, the rising tide of professional litigation in other fields has helped to dispel the notion that this is purely an accountant's beef. Recent research has found widespread support for reform in the construction industry, while lawyers have started to talk about the issue as if it was a new threat.
All of this has led some within the accountancy profession to suggest that swifter progress in winning over public opinion might have been made had all the professions banded together to press for a change in the law. That would have smacked less of special pleading on behalf of auditors, they say.
However, Graham Ward, the Price Waterhouse partner who is chairman of the institute's steering group on the issue, rejects the idea. "It would have been a pretty lengthy process to consult all the professions," he said, adding that the accountants went alone because they felt the problem was more urgent for them than for others.
As it is, progress in other parts of the world has meant that - while the UK accountancy profession was in the lead when it first broached the issue a few years back - it is now having to catch up, Mr Ward maintains.
The Law Commission team led by Professor Andrew Burrows is expected to report by the end of the year. Meanwhile, Mr Ward and colleagues from the institute and big firms have a meeting scheduled with Mr Oppenheim for November. At this they will be pressing the case for amendment of s310 of the Companies Act - which bars auditors from following other professionals in agreeing, with clients, limits on their liability - as well as renewing their support for the DTi's initial tentative move.
It might be that ministers are feeling under pressure to deal with an issue that many in the accountancy profession had given up hope of seeing come under early consideration. Not only is there the question of Britain being at a disadvantage compared with competitors, but the profession is also claiming the support of the Labour Party. It has apparently even been suggested within the party that the current practice of the joint and several liability principle threatens the civil rights of partners.
Understandably perhaps, Mr Ward, who was on holiday when the decision to set up the Law Commission study emerged - pronounces himself more encouraged now than he was when he left the office for his break. But he is careful to point out that there is still a long way to go. Using the analogy of a road trip from London to Edinburgh, he says: "We've only got about as far as the first service station on the M1."
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