Jarvis said this week that it may take its case against its former accountant, PricewaterhouseCoopers, to the Court of Appeal. The statement follows a judgment in the High Court ordering it to pay its former auditor’s legal costs in full.
Passing judgment last Thursday, Mr Justice Lightman was critical of Jarvis’ handling of the case, which arose after it tried to prevent publication of PwC’s letters explaining the reasons for its sudden resignation in March of this year.
In his judgment, Mr Justice Lightman said that, from the date of PwC’s appointment as auditor in 1996, it had differences with Jarvis over the contractor’s “aggressive approach to the recognition of income and profits on long-term contracts”. He said the differences became acute when PwC came to audit the March 1999 year-end accounts.
“Jarvis wished to include claims totalling £15.2m, which PwC could not satisfy themselves were sufficiently certain of recovery … without actual payment or acknowledgement by Railtrack that the sum was due.
“Ultimately, when PwC threatened to qualify their audit report unless Jarvis excluded £12m, Jarvis reluctantly agreed … PwC were plainly correct in the line they took, for, when Jarvis finally settled accounts with Railtrack, Jarvis had to write off this £12m and a further £6.8m beside,” said Lightman.
PwC billed for £1.15m in fees, having originally quoted £698 000. The two companies reached a compromise but PwC resigned after disputes over the fee to be paid for the 2000 audit.
In his costs judgment for the case – which Jarvis dropped at the eleventh hour – the judge highlighted a number of “disturbing facts” that he said “raised questions … whether Jarvis was maintaining proceedings in good faith or to achieve collateral advantage” (a question the judge did not feel it necessary to rule on).
He said that the “commencement of the proceedings had secured for Jarvis … the advantage of a three-month delay in dissemination of the Statement [PwC’s letters], a period used to enable its new auditors to prepare accounts and Jarvis to prepare a circular to shareholders concerning the resignation of PwC which might counter the perceived adverse impact of the Statement.”
The judge also said Jarvis had “continued the proceedings until (for all practical purposes) they reached the doors of the court and then gave no explanation for the decision to discontinue.” He also said that Jarvis had “plainly had it in mind to stop the action well before the 3 July” – the day it did so.
Mr Justice Lightman is understood to have refused Jarvis’ lawyers leave to appeal. A company spokesperson said it was now considering seeking permission to appeal from the Court of Appeal as it disagreed with “elements” of the judgment, however he declined to identify which these were.
“The company is extremely disappointed that simply obtaining better value for money from its audit fees should have led to such a result,” said the spokesperson.