SNS Research Brief 17. Auditors’ responsibility for damages in the future

DUE TO the sentence of the Court of Appeal in the Prosolvia case in August 2013, the largest damages so far were adjudged by a Swedish court. The parties did then settle the case outside the court and the sentence did thus not gain legal force. However, it might still affect future cases on damages to auditors as well as members of boards of directors, managing directors and other employees and contractors. Against this background, this publication describes the basic legal rules for responsibility and indemnity liability for auditors and other officials in listed companies. The sentence is then described and finally, there is a discussion about possible future consequences of the sentence. Due to the central position that listed companies hold within industrial law and the important position of the auditors, these questions are of general interest.

RISK FOR LOWER REQUIREMENTS FOR EVIDENCE. Even if the sentence does not serve to create a precedent, and it did not even gain legal force, it might come to affect cases of responsibility against auditors and other people. It should be considered as being very favourable to injured parties. Thus, it can be assumed that it will be brought forward in support of lower requirements for evidence, in particular when the question of responsibility concerns careless neglect.

INCREASED AUDITING COSTS. This does both concern increased insurance costs for auditors and the fact that the increased risk for responsibility does lead to even higher demands for care and documentation in an audit. The costs will most likely be transferred to the audited customers.

UNLIKELY THAT THE RESPONSIBILITY FOR DAMAGES IS LIMITED. The proposed legislation in order to limit the auditors’ responsibility is most likely not possible in practice or politically and will thus not be implemented. A possible alternative is to more generally limit the right for others than the listed company (including a bankruptcy trustee) to institute an action against the auditors. Such a limitation does also exist in other countries.

AUTHOR Carl Svernlöv, Doctor of Law, Affiliated Professor in Right of Association, Uppsala University, Lawyer at Baker & McKenzie Advokatbyrå KB. Phone: +46-708-676707 E-mail: carl.svernlov@bakermckenzie.com.