There are a number of recurring themes in claims against auditors: who auditors owe their duties to; the scope of those duties, how and when an auditor should resign and the causative effect of breaches are all key considerations and these issues were once again front and centre in the recent case of The Enterprise Wine Investment Scheme Ltd v Crowe UK LLP [2026] EWHC 692.
Ponzi Scheme
From 2012 to 2018 Crowe UK LLP (Crowe) acted as auditor of The Enterprise Wine Investment Scheme Ltd (EWIS), a corporate vehicle through which shareholders could invest in wine while obtaining Enterprise Investment Scheme tax relief.
Or at least the shareholders thought they were investing in wine until 10 January 2020 when EWIS entered a planned Members’ Voluntary Liquidation during which the liquidators discovered its bank balance was just £6.50. This was the day after EWIS’s director had signed a declaration of solvency with a statement of assets showing £4.5m cash at bank.
The liquidators brought a claim against Crowe in the name of EWIS claiming that EWIS was in fact a ‘Ponzi’ scheme and that improprieties and fraud by its directors should have been identified in any one of the seven audits undertaken by Crowe.
Crowe admitted certain breaches of duty but disputed the extent of any liability caused by those breaches.
The Causation Hurdle
As Lady Hale observed in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd : "The auditor's duty is to report on the company's accounts to those having a proprietary interest in the company or concerned with its management and control. If the company already knows the true position then the auditor's negligence does not cause the loss".
A key feature of this claim was the fact the two directors of EWIS were the ones allegedly committing the fraud. Therefore, the individuals to whom Crowe was obligated to report the results of its audit were already fully aware of the circumstances.
In order to establish causation, EWIS needed to prove that Crowe should have taken action which would have brought the true position to the attention of someone other than the directors, i.e. the shareholders, and that those shareholders would have taken steps to recover existing losses and prevent further losses.
No Duty to Report to Shareholders
EWIS attempted to introduce extensive amendments to its particulars of claim to argue that Crowe should have reported direct to the shareholders. The court refused to allow those amendments, including because that argument had no real prospect of success.
The court relied on the leading 1990 case of Caparo Industries Plc v Dickman which found that auditors of a public company did not generally owe their duties to the public at large, including the present or future shareholders of a company.
Further, while the Companies Act 2006 imposes various obligations on a resigning auditor who considers there are matters which need to be brought to the shareholders’ attention, none of those obligations involve reporting to the shareholders directly.
There were a number of other considerations which went against the imposition of a duty to report directly to shareholders: including the fact it would run counter to Crowe’s terms of engagement and data protection concerns over the shareholders’ names and addresses.
EWIS also attempted to argue that Crowe should have resigned as auditor on establishing the irregularities in the accounts and that the shareholders would have become aware of those irregularities by virtue of the statement which accompanied that resignation. However, the court found that any statement of resignation would not have contained sufficient detail of the possible improprieties to render any action from the shareholders likely.
Contributory negligence
While the auditor had breached its duties by failing to detect the directors’ fraud, it was that fraud and dishonesty which was overwhelmingly the cause of EWIS’s loss. While the claim was brought for the benefit of the shareholders, it was nevertheless the company’s claim and the failure to set up adequate corporate governance and internal controls was contributory negligence by EWIS which merited a 50% reduction in any damages.
Conclusion
Ultimately, while EWIS succeeded on some limited points, the overall recovery was modest: just over £101,000 plus interest, far below the multi-million pound sum claimed.
This case highlights the fact that auditor negligence claims often turn less on whether there was a breach of duty and more on whether that breach can be shown to have made a real difference to the loss suffered.
The best ways for companies and their shareholders to protect themselves remain through clear governance, documented escalation routes and strong internal challenge mechanisms.
Originally published 4 August 2026.
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