Accounting firm Deloitte & Touche and its partners were today found to have been negligent in connection with the work they carried out for Priceclub Operators Ltd. But the court declined to award damages.

Mr Justice Joseph Azzopardi in the First Hall of the Civil Court delivered this judgment following an action filed in 2001 by Valle Del Miele Ltd against the firm and against its partners Raphael Aloisio, Malcolm Booker, Steve Cachia, Edward Camilleri, Andrew Manduca, Paul Mercieca and Stephen Paris.

Valle Del Miele (VDM) told the court that it was owed over Lm150,200 by Priceclub supermarket in respect of merchandise which it had sold to the supermarket. The accounting firm had then been engaged to carry out an audit report for Priceclub on the basis of audited accounts which were finalised on June 30,2000.

According to VDM, the accounts and the auditors' report portrayed an optimistic picture of Priceclub's business and in no manner indicated that Price Club had financial difficulties. Therefore VDM decided to continue to supply merchandise to Price Club.

However, despite the published accounts Priceclub stopped payments to its creditors in April 2001. Its various creditors engaged their own consultants to examine the company's finances and it resulted that by the end of 2000 Price Club owed its creditors many millions of Maltese liri.

VDM claimed that this showed that the accounting firm had acted in a negligent or fraudulent manner when it prepared Priceclub's accounts because the said accounts did not reflect the actual financial position of the company. VDM further claimed that the firm and its partners were liable in damages because VDM's decision to continue to supply Priceclub had been taken on the basis of the said accounts.

On their part the firm and the partners claimed that VDM's claims against them were unfounded because they had never had a legal relationship with VDM. They also categorically denied VDM,s allegations of negligence and fraud.

Mr Justice Azzopardi said the accountants had a duty of care to their direct employers an  to any third party to whom they themselves showed the accounts or to whom they knew their employer was going to show the accounts.

John Zarb, a witness in the case, had told the court that in his opinion the manner in which Priceclub was structured placed it in a financially precarious position. The company had debts of Lm2.6 million owing to its creditors. This debt exceeded the stocks purchased by Priceclub from its suppliers by Lm1.2 million.

According to Mr Zarb, the sum of Lm1,2 million were intended to finance the company's take over, in such a manner that Priceclub's shareholders would not have to provide any initial capital. As a result, Mr Zarb concluded that the financial consequences of the company's bankruptcy were planned to be borne by its creditors.

Mr Justice Azzopardi said that it resulted that the firm and its partners had shown an element of negligence in their work. The defendants were experts in their field and should have been obvious to them that Priceclub was in financial trouble. 

In its judgment the court concluded that VDM itself had not taken necessary precautions before deciding to extend credit to Price Club, and it had therefore brought its losses upon itself. VDM had been aware that Priceclub had financial problems but had relied on the company's published accounts which did not absolutely reflect the reality of the situation. In a case such as this VDM, ought to have engaged its own accounting experts to examine Priceclub's situation and not to rely upon Priceclub's own auditors.

The court concluded by finding that the accountancy firm and its partners had acted in a negligent manner but that they had not caused VDM to suffer damages.

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