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Home / News and Insights / Blogs / Employment Law / 245: New duty of care for a failure to conduct audit ethically

In Rihan v Ernst and Young Global Ltd, the High Court has found in favour of a new duty of care in relation to a failure to conduct an audit ethically and professionally, on unusual facts.

Mr Rihan was a partner and auditor based in accountancy firm Ernst and Young’s Dubai office. During an audit of a Dubai-based precious metals dealer, he found serious irregularities which suggested that it might be involved in money laundering. Mr Rihan resisted pressure by the local regulator to cover this up and escalated his concerns about intimidation to higher management within Ernst and Young, requesting that the audit irregularities be reported in full. Fearing for his safety, he eventually returned to the UK. Meanwhile, Ernst and Young issued a misleading final audit report which watered down Mr Rihan’s findings.

Mr Rihan eventually resigned, disclosed his findings to the media, and brought various claims against Ernst and Young, including an allegation that the firm had breached a duty to conduct the audit in an ethical and professional manner, irrespective of the objections of the client and the local regulator in Dubai. He could not bring a statutory whistleblowing claim because he did not ordinarily work in Great Britain.

The High Court ruled that Ernst and Young had deliberately misreported the nature of its client’s business. It was foreseeable that, if Mr Rihan’s full findings on the irregularities were not reported, he would publicise his findings as a whistleblower and would suffer economic loss in the form of the loss of his career within Ernst and Young and damage to his reputation. The High Court concluded that in the unusual circumstances of this case, Mr Rihan’s moral and professional integrity should be protected by a duty to conduct the audit in an ethical and professional manner. This duty also extended to protection from having his career ruined by becoming tainted with unemployability. Mr Rihan was awarded nearly $10.8 million in damages for past and future loss of earnings.

There is no general duty on an employer to protect employees from purely economic loss except in certain limited circumstances, such as when providing a reference. This case is important because the duty owed by Ernst and Young to conduct the audit in an ethical and professional manner is a new duty. The High Court also emphasised that this was a very rare case with unusual facts, although it does provide whistleblowers who work abroad with an alternative basis for a claim. Ernst and Young has already indicated that it will appeal the decision. Mr Rihan’s case also illustrates that becoming a whistleblower often carries major financial risks due to the likelihood of unemployability, particularly for highly-paid professional employees.

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