Auditors Third Party Liability Essay

On 1979 the court established the principle of third party liability as foreseen’ in Federal Supreme Court (sixth civil senate) 1 regarding the case of a German branch of a bank provided wrong information to its potential investors and because of that one of the potential investors suffered a big loss and later sued the bank. But in November 1983 in Federal Supreme Court (fourth civil senate)2, death negligence in reporting in a case where buyer of a properly sued the valuer because of the wrong valuation. Court stated that if third party is under protected effect then there are some general principles on professional third-party liability for negligent misstatements under contract towards third parties. In the first case (1979) The Federal Supreme Court stated that the bank knew that the information which was provided would have been showed to potential investors In the case court maintained that the person, to whom the bank provided the relevant information could be identified and are part of a calculable group. And in the second case (1983) court says, there is no need for the professional to know either who the third parties are. The professional’s negligent performance must have determined the plaintiff’s decision which eventually led him to suffer a loss. Court found out that because of the lack of knowledge both buyer and dealer needed the expert opinion of the valuer was needed. Court widened the scope of the liability and liability of auditor to third party moved from Foreseen to reasonable foreseeability. After that case Federal Court continued this broader scope of liability in both cases in Federal Supreme Court (third civil senate) 10 November 19943 & Federal Supreme Court (third civil senate) 2 April 19984 On 2001 in its most recent case, the Federal Court of Justice handed down a new decision regarding the liability of experts towards third parties (Reg. No. X ZR 231/99). The Court rejected the plaintiff’s claims, holding that the contract concluded between the commissioning banking authority and the expert did not extend to the plaintiff. So, the plaintiff was not, covered by the contract drawn up between the commissioning authority and the auditor. The court reject the information contract between the expert and the third party a stated that without a direct contract no liability is considered to have arisen. The court then changed the scope of liability form reasonably foreseeable to Privity or Near Privity in between.