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KPMG ruling a welcome move for insurers and those facing a professional indemnity claim

The Carillion Group , the construction and facilities management services company, went into liquidation in 2018 and attempted to bring a claim for approximately £250 million against KPMG, its former auditors, who signed off their pre-collapse accounts.

Carillion sought pre-action disclosure under CPR 31.16 from KPMG in relation to certain aspects of the financial statements where it alleged KPMG’s audit work had been negligent, arguing that it needed early disclosure in order to come to a properly informed or concluded view on these issues.

KPMG resisted the requests to obtain working documents stored on their ‘eAudIT’ electronic files on the basis that they went beyond what was required by the Pre-Action Protocol for Professional Negligence and were not consistent with ordinary pre-action procedure in the Commercial Court. They argued that Carillion did not need those documents at the pre-action stage in order to plead its case and that the proposed exercise would not save costs.

Carillion’s application was dismissed with the court deciding it was not one that merited the exercise of its discretion to order pre-action disclosure, for reasons that included the view that Carillion could plead its case satisfactorily without the disclosure, the disclosure sought was excessively burdensome and Carillion’s requests were not consistent with the Protocol. The Judge considered that KPMG did not breach the letter or the spirit of the Protocol and therefore the case did not fall outside the ‘usual run’ of cases .

The case has attracted media attention and can be welcomed by professionals on the receiving end of a professional indemnity claim, as well as their insurers. The Court made it clear that pre-action disclosure will only be ordered if it is intrinsic to a party being able to satisfactorily plead their case rather than “shadow boxing” as described during the case.

The judgment reiterated that pre-action disclosures are unusual in the Commercial Court although it is expected that the COVID-19 pandemic will signal more claims against companies, D&Os and professional advisors. However, the Court has made it clear that any request must be balanced against the time and cost of complying.

W Denis Insurance Brokers has a dedicated professional indemnity team, based in London, that can offer specialist technical advice. To discuss this further with an expert at W Denis, please contact Associate Director, Daniel Moss, at daniel.moss@wdenis.co.uk or on 0113 2439812

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