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JMP entered into negotiations with MK Paper for an agreed
takeover of MK. The chairman of MK asked its accountants, HA, to
prepare draft accounts as quickly as possible for use in the
negotiations. The accounts when prepared were shown by MK to
JMP. After the takeover was completed, JMP discovered certain
discrepancies in the accounts. JMP brought an action against MK’s
accountants in the tort of negligence.
Held: No duty of care was owed because of lack of proximity between JMP
and HA. The prime reasons for lack of proximity included:
• the accounts were produced for MK’s use in negotiations not for
JMP’s use
• draft accounts are not intended to be relied on as if they were
final accounts.Sir here if you see that duty of care did not arise and 2 reasons were given for it, but didn’t Mk’s accountant know that JMP would rely on the accounts for the takeover?
What’s the matter with the reasons given?
“• the accounts were produced for MK’s use in negotiations not for
JMP’s use
• draft accounts are not intended to be relied on as if they were
final accounts.”Point 1) tells you in words of one syllable (almost) that the draft accounts were produced NOT for the purposes of James Naughton Paper Group but were produced for the purposes of assisting MK in its negotiations
The accountants May have assumed that possibly the draft financial statements could possibly be shown (without their permission?) to a third party but, unless they had been specifically told, the judge has assumed that the accountants didn’t know and didn’t guess that they would be shown
In answer specifically to your question “but didn’t Mk’s accountant know that JMP would rely on the accounts for the takeover?” … apparently not
OK?
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