• Voidness of provisions protecting auditors from liability

    • 493. Voidness of provisions protecting auditors from liability

      (1) This section applies to any provision—
      (a) for exempting an auditor of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company occurring in the course of the audit of accounts, or
      (b) by which a company directly or indirectly provides an indemnity (to any extent) for an auditor of the company, or of an associated company, against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is auditor occurring in the course of the audit of accounts.
      (2) Any such provision is void, except as permitted by—
      (a) section 494 (indemnity for costs of successfully defending proceedings), or
      (b) sections 495 to 497 (liability limitation agreements).
      (3) This section applies to any provision, whether contained in a company's articles or in any contract with the company or otherwise.
      (4) For the purposes of this section companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate.

    • 494. Indemnity for costs of successfully defending proceedings

      Section 493 (general voidness of provisions protecting auditors from liability) does not prevent a company from indemnifying an auditor against any liability incurred by him in defending proceedings (whether civil or criminal) in which judgment is given in his favour or he is acquitted.

    • 495. Liability limitation agreements

      (1) A "liability limitation agreement" is an agreement that purports to limit the amount of a liability owed to a company by its auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of accounts, of which the auditor may be guilty in relation to the company.
      (2) Section 493 (general voidness of provisions protecting auditors from liability) does not affect the validity of a liability limitation agreement that—
      (a) complies with section 496 (terms of liability limitation agreement) and of any rules made by the Board under that section, and
      (b) is authorised by the members of the company (see section 497 (authorisation of agreement by members of the company)).
      (3) Such an agreement is effective to the extent provided by section 498 (effect of liability limitation agreement).

    • 496. Terms of liability limitation agreement

      (1) A liability limitation agreement—
      (a) must not apply in respect of acts or omissions occurring in the course of the audit of accounts for more than one financial year, and
      (b) must specify the financial year in relation to which it applies.
      (2) The Board may make rules—
      (a) requiring liability limitation agreements to contain specified provisions or provisions of a specified description, and
      (b) prohibiting liability limitation agreements from containing specified provisions or provisions of a specified description.
      "Specified" here means specified in the rules.
      (3) Without prejudice to the generality of the power conferred by subsection (2), that power may be exercised with a view to preventing adverse effects on competition.
      (4) Subject to the preceding provisions of this section, it is immaterial how a liability limitation agreement is framed.

      In particular, the limit on the amount of the auditor's liability need not be a sum of money, or a formula, specified in the agreement.

    • 497. Authorisation of agreement by members of the company

      (1) A liability limitation agreement is authorised by the members of the company if it has been authorised under this section and that authorisation has not been withdrawn.
      (2) A liability limitation agreement between a private company and its auditor may be authorised—
      (a) by the company passing a resolution, before it enters into the agreement, waiving the need for approval,
      (b) by the company passing a resolution, before it enters into the agreement, approving the agreement's principal terms, or
      (c) by the company passing a resolution, after it enters into the agreement, approving the agreement.
      (3) A liability limitation agreement between a public company and its auditor may be authorised—
      (a) by the company passing a resolution in general meeting, before it enters into the agreement, approving the agreement's principal terms, or
      (b) by the company passing a resolution in general meeting, after it enters into the agreement, approving the agreement.
      (4) The "principal terms" of an agreement are terms specifying, or relevant to the determination of—
      (a) the kind (or kinds) of acts or omissions covered,
      (b) the financial year to which the agreement relates, or
      (c) the limit to which the auditor's liability is subject.
      (5) Authorisation under this section may be withdrawn by the company passing an ordinary resolution to that effect—
      (a) at any time before the company enters into the agreement, or
      (b) if the company has already entered into the agreement, before the beginning of the financial year to which the agreement relates.
      Subsection (5)(b) has effect notwithstanding anything in the agreement.

    • 498. Effect of liability limitation agreement

      (1) A liability limitation agreement is not effective to limit the auditor's liability to less than such amount as is fair and reasonable in all the circumstances of the case having regard (in particular) to—
      (a) the auditor's responsibilities under this Part,
      (b) the nature and purpose of the auditor's contractual obligations to the company, and
      (c) the professional standards expected of him.
      (2) A liability limitation agreement that purports to limit the auditor's liability to less than the amount mentioned in subsection (1) shall have effect as if it limited his liability to that amount.
      (3) In determining what is fair and reasonable in all the circumstances of the case no account is to be taken of—
      (a) matters arising after the loss or damage in question has been incurred, or
      (b) matters (whenever arising) affecting the possibility of recovering compensation from other persons liable in respect of the same loss or damage.

    • 499. Disclosure of agreement by company

      (1) A company which has entered into a liability limitation agreement must make such disclosure in connection with the agreement as may be required under rules made by the Board.
      (2) The rules may provide, in particular, that any disclosure required by the rules shall be made—
      (a) in a note to the company's annual accounts (in the case of its individual accounts) or in such manner as is specified in the rules (in the case of group accounts), or
      (b) in the directors' report.