KPMG Successfully Defends £1.2 billion Professional Negligence Claim: Key Legal Takeaways

On 14 January 2025, the High Court struck out a claim for professional negligence and misconduct brought by a property developer against KPMG LLP and one of its partners on the grounds of abuse of process and lack of merit. The claim, valued at over £1.2 billion, was dismissed in its entirety, with the court concluding that it was an attempt to relitigate previously decided issues showing the court’s reluctance to entertain abusive litigation. In this article, we explore this decision, and set out the requirements of a professional negligence claim and how accountancy firms can successfully defend these claims.

Background

Mr Bashar Bin Mahmood, a property developer based in Manchester, was a director, shareholder, and guarantor of various insolvent companies for which KPMG was appointed as administrators. In 2023, Mr Mahmood brought a claim in the Central London County Court against KPMG and partner Mr Costley-Wood, alleging KPMG’s professional negligence and misconduct in the administration of several of the insolvent companies between 2008 and 2010 (the “First Claim”).

Mr Mahmood argued that KPMG had improperly sold development properties at an undervalue, including a half built apartment building called ‘Issa Quay’ in Manchester, which were owned by the insolvent companies Mr Mahmood was involved with, thereby causing substantial financial loss. The first claim was struck out in July 2023, with the Central London County Court finding it to be without merit. Despite this, Mahmood initiated fresh proceedings in the High Court in January 2024, prompting KPMG’s application for a strike out and summary judgment of the claim.

The Legal Test for Professional Negligence        

To succeed in a professional negligence claim, a claimant must establish the following elements:

1. Duty of Care – The defendant must have owed a duty of care to the claimant.

For accountancy firms, a duty of care may be owed to a client to whom professional services are being provided. e.g. financial advice, tax planning and audits. Whilst professionals usually do not owe duties to third parties, where a client is in administration or insolvent, a duty of care can be owed to the creditors or trustees in bankruptcy. The retainer/engagement letter is key to understanding the scope of this duty and to what extent a duty of care exists.  For example, if there is no direct contractual relationship then one possible defence is that no such duty of care exists. In circumstances where an administrator, liquidator or insolvency practitioner is appointed the duty of care is owed to the company and creditors but can also extend to other parties depending on the relationship and assumption of special responsibility (as was considered in this case and addressed below).

2. Breach of Duty – The defendant must have breached that duty through negligent conduct.

To establish breach, a claimant must show that the professional firm’s actions fell below the standard expected of a reasonable competent professional. To do so, a court would consider industry standards (often by way of expert evidence) and professional guidelines where the firm / individual is regulated (e.g. ICAEW, ACCA). When defending a claim, a firm could for example argue that they exercised reasonable professional judgment, by reference to industry standards and professional guidelines and could even query the accuracy of the instructions provided by the professional client.

3. Causation – The claimant must prove that the breach caused the alleged loss. The test is whether the loss would not have occurred but for the alleged negligence.

A firm could argue that the claimant’s loss resulted from external factors such as market downturns or poor business decisions on the claimant’s part. Where there are various factors contributing to the claimant’s loss, a defendant firm could seek to argue that its role in the loss was minimal.

4. Loss – The loss suffered must be legally recoverable.

A defendant firm could argue that the loss was too remote to be recoverable, or challenge the quantification of loss by the claimant, and explore whether the claimant took sufficient steps to mitigate against any losses.

5. Limitation – A claim must generally be brought within 6 years from the date the negligence occurred (this is known as the primary limitation period). If the claimant is unaware of the negligence at the time it occurred, they must bring a claim from 3 years of the date they first became aware (or reasonably should have been aware) of the negligence to bring a claim (secondary limitation). 

Why the claim against KPMG failed

KPMG’s defence demonstrated that none of these elements were met in Mahmood’s case, leading the court to conclude that the claim had no real prospect of success. Each element is explored in turn below:

1. No Duty of Care: The court found no evidence that KPMG had assumed any special responsibility towards Mr Mahmood sufficient to establish a duty of care. As administrators, KPMG owed duties primarily to the creditors of the insolvent companies, not to Mr Mahmood personally. The court referred to a Court of Appeal decision against PWC in explaining that there “must be an assumption of responsibility such as to create a special relationship between in this case the claimant and the defendants.” Here, there was no evidence from Mr Mahmood of any such special relationships, or any agreements reached which would create some special relationship – so the claimant fell at the first hurdle and failed to establish duty of care.

2. No breach: Mr Mahmood failed to set out what breach of duty was involved. 

3. Lack of Causation: Mr Mahmood failed to demonstrate how KPMG’s alleged breaches of duty resulted in any loss to him.

4. Loss: No independent or corroborative valuation evidence was provided to substantiate the alleged £1.4 billion loss.

5. Time-barred claim: A serious obstacle for Mahmood was limitation. In the First Claim, the judge held that the claim was time barred as the causes of action arose at the latest in May 2011, therefore any claim would have needed to have been brought by May 2017. Mr Mahmood’s claim was issued in December 2022 - making it time-barred.

6. No Standing to Sue: Mr Mahmood had been declared bankrupt in 2009, when the causes of actions arose (as set out above). So, even if there were any causes of action which could be pursued, these would have vested in his trustee in bankruptcy. Mr Mahmood therefore lacked legal standing to bring the claim in his own name.

7. Abuse of Process and a Claim 'Totally Without Merit’: The court concluded that the claim was an abuse of process, as it sought to relitigate issues already decided in the First Claim, which had been struck out after substantive consideration for the above reasons. The judgment also noted that any claims arising from the administration period belonged to the Official Receiver rather than to Mahmood, reinforcing his lack of standing. The judge ultimately ruled that the claim was “totally without merit,” paving the way for potential civil restraint orders against Mahmood to prevent further vexatious litigation

Key Takeaways from the Judgment

The court’s ruling in Bin Mahmood v KPMG LLP provides important lessons in professional negligence cases:

1. Re-litigation Will Not Be Tolerated – Courts are unwilling to allow claimants multiple attempts to pursue the same claim, particularly where previous judgments have already addressed the issues at hand. Where a claimant files vexatious litigation, the defendant can file an application for abuse of process.
2. Establishing Professional Negligence Requires a Clear Legal and Factual Basis – The case reaffirms that claimants must present concrete evidence of duty, breach, causation, and loss to proceed with a claim. 
3. Limitation Periods Are Strictly Enforced – Even if a claimant believes they have a case, they must act within the legal time limits to avoid being statute-barred.
4. Standing to Sue Is Fundamental – Claims cannot be pursued by individuals who lack the legal right to bring them, as seen in cases involving bankruptcy trustees.

Conclusion

Whilst the claimant was initially able to use his second claim to gain some traction in the headlines ultimately the legal outcome helped to redress the reputation balance for the defendant.  KPMG’s successful strike-out of this case highlights the courts' robust approach to unmeritorious claims and reinforces key principles of professional negligence claims. The ruling will not only help to protect other professional firms from baseless claims but also serves as a reminder that judicial resources will only be allocated to cases with genuine legal merit.

This blog was first published in Accountancy Daily on 10 March 2025.

Further information

If you have any questions regarding this blog, please contact Jemma Brimblecombe or Lavanya Loganathan in our Dispute Resolution team.

About the authors

Jemma is widely recognised for her skills and experience in commercial litigation. She acts for both claimants and defendants in a wide range of sectors, including financial services, legal services, accountancy, and construction. She is listed in Legal 500 where she is described as “a tough, forensic litigator with a no-nonsense approach to her cases”.