Bundesgerichtshof judgment of 2 April 1998, III ZR 245/96.
This case is first published in the German Law Archive courtesy of:
|Translated German Cases and MaterialsUnder the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz|
Translated by Mr Raymond Youngs, Southampton Institute
The plaintiff is the receiver of the assets of the G AG. Its predecessor (G GmbH & Co.) acquired from H, the sole member of the S GmbH (hereafter called STN) all the shares in the business by a notarised contract dated the 12th October 1992. This was immediately after H had brought in to this company the real property company which owned the business premises and the buildings on them which were let to STN in accordance with § 20 of the Conversion Tax Act. The purchase price was 2.5 million DM, payable immediately.
The plaintiff demands from the defendant auditors compensation for incorrect information. The defendants had been commissioned by H to carry out a compulsory audit in accordance with §§ 316ff HGB. They had been occupied since July 1992 with the audit of the annual accounts of STN for the year 1991, drawn up by the accountant R. Their complaints led to the annual accounts being altered by R and showing a balance of 21,891,249.03 DM and an annual surplus of 2,666,467.37 DM higher than that in the earlier accounts.
The defendants by a letter of 8th October 1992 to STN for the attention of H (and a further Telefax letter of 9th October 1992 to the B GmbH for the attention of the accountant St who had been consulted by the G GmbH & Co) stated that the now current annual accounts would not be changed by them and could be confirmed by them.
Later irregularities in STN’s accounting came to light. H had at the end of 1991 incorrectly credited nine sums for a total of almost 25 million DM. The final annual accounts, for which the defendants issued a limited note of confirmation on the 30th March 1993 in accordance with § 322 HGB, showed a deficit of 11,049,361.15 DM instead of a surplus of 2,666,467.37 DM.
The claim was in the end for 2.5 million DM. In it the plaintiff alleged that the G GmbH & Co would not have acquired the shares in the business in the knowledge of the actual business yield in 1991 (or would only have done so at a symbolic purchase price of 1 DM). It was unsuccessful at first instance. The plaintiff lodges an appeal in law against this decision.
The appeal in law leads to a quashing of the appeal judgment and a reference of the matter back to the appeal court.
1. The appeal court, whose judgment is printed in [reference omitted], accepts that liability on the part of the defendants would come into consideration, because the subsequent insolvent has been included in the protected area of the audit contract between STN and the defendants. The appeal in law accepts this assessment as favourable to it. On the other hand, the reply to the appeal in law considers that the instructions for the compulsory audit, the communication about the status of the audit and the foreseeable outcome of it could not result in any protective effect in favour of third parties.
a) According to § 323 para 1 sentence 1 of the HGB the auditor of the accounts is under a duty to carry out a conscientious and unbiased examination and a duty of secrecy. If he breaches his duties intentionally or negligently, he is under a duty to compensate the company (and, if a connected undertaking has been harmed, this as well) for the harm arising from this (§ 323 para 1 sentence 3 of the HGB). In the academic literature, it is deduced from this that according to § 323 para 1 sentence 3 of the HGB ie for the area of the compulsory audit, where there is a violation of the duties of the auditor third parties are not entitled to any claims against him [references omitted].
Insofar as the duty to compensate for harm is extended to connected undertakings, this would rest – as a correlative – on this undertaking’s duty of presentation and provision of information to the auditor of the accounts for the group in accordance with § 320 para 2 sentence 2 of the HGB [references omitted]; the connected undertaking’s entitlement to compensation presupposes that the auditor is violating a duty incumbent on him and owed to the connected undertaking [references omitted]. An extension of the duty to compensate to further third parties for harm by way of interpretation or analogy would therefore be forbidden [references omitted].
Besides this, an extension of the liability to shareholders/members or creditors of the company would run counter to the goal of – in cases of negligent breach of duty – limiting the risk of liability of the auditor (§ 323 para 2 of the HGB). It would give rise to concern that the company would have to share its claims, which are in any case limited, with third parties [reference omitted].
b) The Senate endorses this in principle. Liability of the defendants to the purchaser, who does not belong to the group of persons mentioned in § 323 of the HGB as entitled to compensation, does not therefore come into consideration from this point of view. The breach of duty of which the defendants are accused certainly belongs technically to the area which is covered by the regime of § 323 of the HGB. It is therefore here a matter of the more extensive question of whether and under what conditions an auditor who is entrusted with a compulsory audit can also be made liable for appraisals, certificates or other statements which are connected with the object of audit, to persons who are not contractual parties to the audit contract and are also not included in the associated undertakings addressed in § 323 of the HGB.
aa) The appeal court takes into consideration (correctly here) the principles according to which protective duties can arise from a contract for the benefit of a third party, who himself has no claim to the main obligation under the contract. The case law has in particular accepted such protective effects for contracts by which the client commissions a report or an expert’s opinion from a person who has at his disposal a particular specialist knowledge recognised by the state (eg publicly appointed expert, auditor, tax adviser) in order to make use of it as against a third party [references omitted].
As the purpose of the report is to induce trust in and possess evidential value for the third party, a conflict of the interests of the client and the third party is not an obstacle to the latter’s incorporation into the protective area of the contract [reference omitted].
There are no difficulties about also applying these principles in cases in which an auditor of accounts is entrusted with the compulsory audit of a company provided that it appears sufficiently clear to him that on this audit a particular work product is wanted from him which is to be used as against a third party who trusts in his expert knowledge. If § 323 para 1 sentence 3 of the HGB (only) regulates a statutory liability to the company and the associated undertaking, this does not mean that contractual liability of the auditor to third parties according to the principles developed by the case law on the third party liability of experts would thereby be excluded from the outset.
Such exclusion of the possibility of creating conditions of liability (which are justified by the interests involved and take account of the principle of private autonomy) cannot be inferred from this provision in this sort of generality. A third party liability which is essentially based on the fact that it is for the contracting parties to determine against whom a duty of protection is to be established [reference omitted] is not affected by the area of direct application of § 323 para 1 of the HGB. It also does not signify, as Ebke/Scheel [reference omitted] think, a disregard of a basic decision of the legislator in favour of a limited liability of auditors expressed in this provision. This provision, according to paragraph 4 of which the duty to compensate may neither be excluded nor limited, does not pursue such an extensive purpose.
bb) Nor does § 323 of the HGB create a material exclusionary effect against liability of the auditor in the run up to the issue of the certificate. The provision does not for instance connect the liability to the issue of the certificate as such; it presupposes instead a fault-based breach of duty in the carrying out of the audit in accordance with paragraph 1 sentences 1 and 2. Whether – in the relationship of the auditor to the company – mistakes in the context of the notification of a certificate are included as well, can be left undecided. There is in any case no ground for leaving the trust (which is worthy of protection) of a third party, who has been included within the protected area of the audit contract, that such a publication is correct simply without any sanction in liability law.
cc) Certainly, the legislative intention which is expressed in § 323 of the HGB to limit appropriately the risk of the auditor’s liability needs to be considered within the framework of the auditor’s contractual liability to third parties. Incorporating an unknown number of creditors, members or acquirers of shares within the protective area of the audit task would militate against this. It cannot be assumed as a rule that the auditor will be ready to take on such an extensive risk of liability.
It is different however if the parties to the contract on the commissioning of the work (or possibly even at a later point in time) proceed on the agreed basis that audit is to be carried out in the interest of a certain third party as well and the outcome is to assist this third party as the basis for a decision. In any case, in such cases the undertaking of the task includes a conclusive declaration of the auditor that he intends to carry out the audit conscientiously and without bias in the interest of the third party as well. There is no ground in a case of this kind for denying to a third party claims against an auditor who breaches his duty in the audit [references omitted].
c) The appeal court infers from the way the letter of the 9th October 1992 was addressed that it was recognisably intended for the use of a third party; it also considers that the defendants could have reckoned on their information being of importance for decisions by recipients with a business background. These findings are accepted by the appeal in law as favourable to it. They are unsuccessfully disputed by the reply to the appeal in law which claims on the contrary that the defendants did not have to reckon with a third party basing a purchase decision on a communication regarding the expected outcome of an audit, because in the legal world if need be an intermediate status report could be a basis for a decision of that kind.
The significance to be attributed to the letter of the 9th October 1992 is a question of interpretation which the judge of fact has to undertake, taking into consideration all the decisive circumstances, which can include the discussions preceding the letter. The appeal court will in the further proceedings have an opportunity to look at the objection raised by the reply to the appeal in law insofar as the letter of the 9th October 1992 contains no certificate corresponding to § 322 of the HGB and therefore also cannot form a basis for trust which is worthy of protection.
d) The defendants also have an opportunity in the further proceedings to give a more precise basis to their objections, raised in the appeal in law, to the assumption by the appeal court that they had breached their audit duties and given an incorrect confirmation just because they had failed to obtain confirmation of the balances.
2 a) The appeal court denies that the defendants are liable even though it bases its decision on a breach of duty. This was because the plaintiff has not proved that the insolvent would not have acquired the shares in the business of STN if the deficit for the year 1991 had been known to it. The appeal in law objects (correctly here) that its case was to the effect that the shares in the business would not have been acquired on the conditions of the contract of the 12th October 1992 if the deficit for the year 1991 had been known.
Besides this the appeal court considers the statements of the witnesses called by the defendants, in particular in relation to the calculation of the purchase price in the purchase contract, to be contrary to logic and experience and does not consider the plaintiff’s argument on this issue. The circumstance that no special point of reference was established for the value of STN in the calculation of the purchase price and the piece of land included was the decisive valuation factor for the calculation of the purchase price does not justify the conclusion expressed by the appeal court that it was a matter of indifference to the purchaser whether STN had a value at all.
Even if the managing director of the subsequent insolvent should have declared in the purchase contract negotiations that the firm was no longer worth anything anyway and he did not want to pay anything for it, it does not follow from this that the purchaser would have been prepared to put its money into an undertaking which was heavily in debt by more than 10 million DM a good nine months previously. In this connection it may remain open in proceedings in the appeal in law exactly how the purchase price clause in § 4b of the purchase contract is to be understood. The decisive factor is that the annual account for the year 1991 addressed by the defendants in the letter of the 9th October 1992 revealed an annual surplus of about 2.6 million DM whilst the annual account which was later provided with a note of confirmation by the defendants documented a deficit of more than 11 million DM. It cannot be inferred from the statements of the witnesses who have been examined that such a difference did not influence the calculation of the purchase price.
In § 10 of the purchase contract the seller warrants that the principles of proper accounting had been observed and to his knowledge no liabilities of the business existed which were not evident from the accounts. The appeal in law correctly points out that this provision argues against the appeal court’s assumption that the operative value of STN was without any significance for the purchase price. In the face of this provision and the fact that STN’s inadequate financial cover existing at the end of 1991 could only be balanced by the bringing in of the business premises, it cannot be denied that the breach of duty by the defendants (which was accepted by the appeal court) caused the purchase decision on the basis which it gave. In fact, there is a prima facie case in favour of it.
b) Also, if the appeal court had doubts about whether the breach of duty caused the purchase decision, it should not have disregarded the evidence of the witness Dr. B. who was called on this issue. Even if the negotiations about the purchase of the shares in the business were concluded on the 8th October 1992, the parties to the purchase contract were only finally bound by the documentation of the 12th October 1992. Therefore events between these two points in time could still be of importance. This applies for instance to the bringing in of the real property company by the seller on the day of the documentation of the purchase contract. Further, the appeal court itself – in spite of the conclusion of the negotiations on the 8th October 1992 – proceeds decisively on the basis that the defendants’ letter of the 9th October 1992 was a ground of liability.
But then prima facie evidence which refers to the causality of this letter is also important. The prima facie evidence ought not to be left out of consideration, as the reply to the appeal in law thinks it should be, just because the plaintiff has not explained why the witness should have had such an insight into the events relating to the decision. This is because there was a letter of the 7th October 1992 written by this witness, who represented the purchaser, which the appeal court mentioned in its version of the facts of the case and from which important circumstances for the calculation of the purchase price arise.
3. The appeal in law also correctly objects to the fact that the appeal court has denied damage. The deliberations of the appeal court are based in this respect on the legally incorrect idea that the shares in the business of STN were, insofar as they concerned the operative value of the company, without significance for the calculation of the purchase price, and it was only a matter of the value of the business premises which had been included. Whether damage has resulted to the purchaser, which has asserted that if it had been correctly informed about the circumstances of STN at the end of 1991 it would not have acquired the shares in the business or would only have acquired them for a symbolic purchase price of 1 DM, can only be established by inclusion of the value of the undertaking as a whole. It cannot be ascertained solely by the purchase price which has been paid – as the claim of the plaintiff seems to suggest – nor solely by the value of the business premises which has been brought in.
The Senate cannot make a decision in the case itself, because further findings by the judge of fact are necessary on the questions addressed under I. The appeal court will also have to investigate the argument of the defendants that the purchaser had been informed about the business circumstances of STN and it was in any case attributable to it as contributory fault that it had had no intermediate status report prepared. It will further have the opportunity within the framework of its new assessment to go into the question again of whether a claim by the plaintiff can be based on an information contract or on tort. Where liability which is merely based on the protective effect of the audit contract is being considered, the limitation of liability in § 323 para 2 of the HGB is to be taken into account. This is because the provisions of § 323 of the HGB – in this respect also – take precedence as a special regime over the contract law provisions of civil law [references omitted].