Accountants who perform due diligence work on acquisitions are almost always in the firing line if the deal does not provide the expected outcome for the purchaser, but a recent case shows the limits of their liability in such cases.
The case involved the purchase of a health and fitness business. The vendor was advised by 'Big Four' accountants Ernst & Young (EY), who prepared financial forecasts as part of the vendor's business plan.
The purchasers claimed that they had relied on EY's work and that the accountants were in possession of information which was more up to date than that used in preparing the vendor pack. Had this been disclosed, it would have led them to take a more pessimistic view of the business and to have offered less for its purchase. The information related to the actual as opposed to anticipated membership numbers of the health clubs.
The purchasers claimed against EY for the losses they alleged they had suffered. In order for their claim to succeed, not only would they have to show that EY owed them a duty of care and that the work was negligent, but also that they had relied on EYs work and suffered a loss as a result.
In court, the judge concluded that the reduction in the purchase price that would have applied even had the other points been proven would be less than 1 per cent and that this was immaterial and the price paid was a fair one. He described their case as 'opportunistic and unprincipled'.