Wine Enterprise Investment Scheme v Crowe UK: auditor negligence, causation and the limits of shareholder recovery

The High Court has handed down a significant professional negligence judgement in The Wine Enterprise Investment Scheme Limited (In Liquidation) v Crowe UK LLP [2026] EWHC 692 (Ch), examining the causation difficulties that arise when fraudulent directors are the only persons capable of receiving an auditor's report.

TWEISL raised approximately £4.24 million from investors between 2012 and 2016, marketing itself as an Enterprise Investment Scheme fund investing in fine wine. Its two directors, AdC and RB, operated the company as what the court characterised as a Ponzi scheme. Cash allegedly held on deposit with a Bermudan entity called Lilliput Holdings Limited — which turned out to have no bank account — was entirely fictitious. Crowe UK LLP audited the company across seven financial years, signing unqualified opinions throughout.

Richard Spearman KC, sitting as a Deputy Judge of the Chancery Division, found Crowe in breach of duty across all audit years. Crowe had itself conceded significant failures, including that it had never obtained sufficient audit evidence as to the existence or recoverability of the Lilliput balance, and that it failed to identify Lilliput as a related party until 2016 despite it having been referenced in a draft information memorandum provided to Crowe in 2011.

Causation: the central difficulty

The judgement's most instructive passages concern causation. Because both directors were architects of the fraud, reporting concerns to them would have been futile. The company therefore argued that a competent auditor would have resigned and communicated directly with shareholders — either by letter or through the statutory machinery under ss.518–522 of the Companies Act 2006.

The court firmly rejected this. There is no established duty in English law for an auditor to report directly to individual members, and neither Sasea Finance Ltd v KPMG [2000] BCC 989 nor the ISA guidance created one. The court noted that Sasea proceeded on an agreed assumption about the auditor's duty rather than deciding the point, and that the foreign authorities — Pacific Acceptance Corporation and Dairy Containers v Auditor-General — arose under different statutory regimes where accounts were laid before general meetings.

A late application to re-amend the Particulars of Claim to plead such a duty was refused, both on limitation grounds and because the proposed amendments introduced new essential factual elements, were inadequately pleaded, and lacked real prospects of success.

The court further held that even had a resignation statement been issued, the Proceeds of Crime Act 2002 would have severely constrained its contents: once a Suspicious Activity Report was filed, any statement detailing suspicions of fraud would risk the tipping-off offence under s.342 POCA. In practice, the statement would have said little more than that the company was "not handling its affairs appropriately."

Quantification and contributory fault

The court concentrated on the Y/E December 2016 audit, where wine stock worth approximately £4.375 million was at its peak. Applying a loss of a chance analysis, the court assessed only a 10% probability that shareholders would have taken effective protective action following notice that an unqualified audit report had not been filed — rising to 30% on the more generous assumption that shareholders had received chapter and verse of Crowe's concerns. Even then, the court held that the directors could have disposed of substantial stock before any protection took effect, leaving a recoverable figure of approximately £2.85 million of wine.

On contributory fault, a 50% reduction was applied following Barings PLC v Coopers & Lybrand and Singularis Holdings v Daiwa Capital Markets. The directors' pervasive fraud was attributed to the company, and the court declined to treat the claim's economic benefit to innocent shareholders as a basis for disapplying that attribution.

After deductions for selling costs (agreed at 2.5%), payments received during the MVL, and the 50% contributory fault reduction, the net award was approximately £101,965, with interest at 3% above Bank of England base rate from 1 December 2019.

The judgement provides the most detailed English analysis to date of an auditor's reporting obligations when management is entirely implicated in fraud. It confirms that the ss.518–522 CA 2006 framework — operating through the company and the registrar rather than directly to members — represents the ceiling of an auditor's statutory communication duties, and that no parallel common law duty to write directly to shareholders has yet been established.

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