Chapter 3: Auditor's Legal Liability
(Professional Update prepared by Philomena Leung)

Recently the High Court of Australia ruled that, while the Western Australia-based accounting firm Nelson Wheeler acted ‘incompetently’ in the Duke Group Ltd case, it did not owe a fiduciary duty to Duke Group, which is in liquidation. The High Court also slashed a lower court’s damages award of $117 million against Nelson Wheeler to $32 million.

The case involved Nelson Wheeler, who provided Duke with an independent expert’s report on the value of shares in Western United, in connection with Duke’s proposed acquisition of the company. The report was prepared just before the October 1987 crash, but the offer for Western was made after the crash. Duke subsequently discovered the value of the Western’s shares was sharply lower ($112 million v. $5million). Duke later became insolvent and the company’s liquidator sued Nelson Wheeler in 1993 for negligence and breach of fiduciary duty. The liquidator was awarded damages that were set at $94 million, which was upheld and increased to $117 million by the Supreme Court of South Australia.

Following the ruling by the High Court, Nelson Wheeler will recover 50% of the damages they owed to the Duke liquidators from the directors of Duke.