Effect of auditor’s letter:
Baker Hughes (Trinidad)
Ltd –v- Trincan Oil Ltd
The
Trinidad Guardian
Port
Spain
Petroleumworld.com
09 17 06
Law
Report
Mark
James Morgan
HCA
No 1345 of 2005
Baker
Hughes (Trinidad) Ltd –v- Trincan Oil Ltd
Before:
Mr Justice C Pemberton.
As
part of its business, Baker Hughes’ predecessor
provided seismic services for Trincan and invoiced
Trincan for the services. Between September 1998
and December 2001, Trincan made payments for the
services but then stopped on the ground that Baker
Hughes was in breach of contract as a result of
which Trincan was entitled to discontinue the payments.
In
March 2002, while the parties were still disputing
the claim, Trincan’s auditors wrote to Baker
Hughes seeking verification that Trincan owed Baker
Hughes the sum of US$2,704,299.17 in respect of
the services. Baker Hughes countersigned the letter.
Mediation
between the parties having failed, in June 2005
Baker Hughes brought an action against Trincan in
which they claimed that the letter from Trincan’s
auditors amounted to an admission of the debt of
US$2,704,299.17 by them as the auditors were acting
as Trincan’s agent and on their authority.
Her
Ladyship disagreed, holding that none of the auditors’
duties as spelt out in the Companies Act supported
or inferred an agency relationship between the auditors
and their client so as to invest the auditors with
authority on behalf of the client.
In
the circumstances, she held that Trincan’s
auditors’ letter by itself could not have
amounted to an admission by Trincan which would
have allowed Baker Hughes to obtain a judgment on
admission.
Comment:
The
start of the auditors’ verification process
is the entry of the debt in the company’s
books.
Even
though in this case the auditor’s letter by
itself was insufficient to give rise to an agency
relationship, her Ladyship left open the possibility
that there could be circumstances where the relationship
goes over and above the auditor/client relationship
giving inference to a power by the auditors to acknowledge
debts on behalf of the company.
Since
those circumstances may be many and varied companies
should make certain that in the case of disputed
debts, any verification letters sent out by their
auditors, make it clear that the debt is disputed,
that the letter is sent for verification purposes
only and is not to be interpreted as an admission
of liability on behalf of the company.
The
Trinidad Guardian
Thursday 14th September 2006
Copyright
©2006 The Trinidad Guardian. All Rights Reserved.
