When breach gets you nowhere – Ickenham Travel Group Ltd v Tiffin Green Ltd

In a recent judgement the High Court reiterated the principle that breach of duty alone is not sufficient to succeed in a claim of professional negligence against an auditor. This highlights the importance of evidencing actual loss and a chain of causation.

Ickenham Travel Group Ltd v Tiffin Green Ltd [2024] EWHC 27 concerned the consequences of auditors (Tiffin Green) failing to discover a misstatement in the audited company's accounting systems, which had resulted in an overstatement of trade creditors of some £4.5m.

The travel agency (Ickenham) appointed Tiffin Green as its auditor in 2014 and retained them until 2018. A misstatement of £2.5m already existed at the time of Tiffin Green's appointment, and this increased to £4.5m by the time it was eventually discovered in 2019. 

Because of this, the Civil Aviation Authority required Ickenham to raise additional funds to maintain its ATOL licence, which was essential to allow it to carry on trading, and to place any new customer money in a ringfenced account. To raise these funds, Ickenham sold its business travel division, Business Travel Direct (BTD), in July 2019, to Reed & Mackay for £5m.  Ickenham alleged that this was £6m below BTD's true value.  Ickenham also claimed for £300,000 of professional fees, incurred in addressing the situation following the discovery of the issue.

It was Ickenham's case that but for Ickenham's negligence the issue would have been discovered in 2014 and steps would have been taken to address the issue then, and to prevent any further increase in the size of the misstatement. It was alleged further that, but for the negligence, there would not have been any need to sell BTD, let alone at a loss of £6m, and that the professional costs incurred could have been avoided.

At trial, the experts for both parties jointly concluded that a reasonably competent auditor would probably have identified the issue in 2014.  The case therefore turned on issues of causation and loss.  Tiffin Green's key arguments in defence of the claim included that: 

• BTD was sold for its true value, so there was no loss; and 
• even if the issue had been discovered in 2014, Ickenham would have taken the same steps it ultimately took in 2019, so there was no factual causation.

The Loss Argument

In first assessing whether Ickenham had suffered any loss, the High Court noted that the lost chance to sell BTD for its alleged real value of £11m needed to be "real and significant" as opposed to merely "speculative".

Ickenham alleged that an alternative buyer (Endless) had made an offer at £11m, which it contended was the true value of BTD. The negotiations with Endless all took place prior to the issue coming to light, however, and on the evidence this negotiation had completely fizzled out, prior to Endless becoming aware of the issues.  Similarly, there was no evidence that Reed & Mackay, which purchased the asset for £5m, altered its offer due to the issue. 

The High Court noted that the BTD was not the type of asset that can have a market value readily assigned, and that its value was whatever a buyer was realistically prepared to offer, which on the evidence was the £5m offered by Reed & Mackay.  The breach of duty had therefore not led to BTD being sold for less than its true value and had not caused any loss.

No factual causation 

Having held that the breach did not cause loss in respect of the sale of BTD, the other key question was whether the breach caused Ickenham to adopt a different course of action from that it would otherwise have pursued. Ickenham's argument was that, but for the negligence, it would not have needed to sell BTD at all and would also not have incurred significant professional fees.

Once again, however, the court concluded that the available evidence did not support this conclusion. The misstatement, at the time Tiffin Green was appointed, was already £2.5m, and the CAA would still have required Ickenham to remedy the situation by raising finance. Whilst it was suggested that, in 2014, Ickenham could have addressed the smaller deficit in other ways, the court noted that there was no compelling evidence for this and the most likely outcome would still have been a sale of BTD.

Given this, the Court held that, had the issue been immediately discovered in 2014, BTD would still have been sold. As such, the breach did not alter the chain of events and so factual causation was not established.  Similarly, the costs incurred by Ickenham in addressing the situation would always have been incurred.

Why is this relevant?

In its own closing submissions, Tiffin Green accepted that it may have done a "bad job", and its own expert accepted that its work was "seriously defective in a number of key areas". Despite this, however, as neither loss nor causation could be established on the evidence, Ickenham's claim failed. 

This case is an important reminder that to succeed in a claim for professional negligence it is not enough to show that a Defendant acted in breach of duty.  The causation and loss position requires careful analysis.  Indeed, there may well be situations in which a professional may be better off admitting breach at an early stage, and instead focussing the defence of a claim on causation and loss issues, to avoid the distraction and additional costs associated with running a weak defence on breach.  The case will also be helpful to professionals seeking to defend claims, or negotiate settlements on favourable terms, where there is a strong case for breach but where causation and loss is in issue.