Nu-Wave Expansion Ltd is a Melbourne-based company contemplating the acquisition of all the shares in Kute Technics Pty Ltd, a small proprietary company registered in Perth, having learned of the availability of the company in 20X1 from a firm of accountants that audits both companies, Dell Dingle & Pritchard. Before deciding to sign the purchase contract, Nu-Wave requests and receives audited financial statements for Kute Technics for 20X2 from Dell Dingle & Pritchard. The purchase contract contains the clause:

The purchaser shall have the right to rescind the purchase of the shares if the audited financial statements for Kute Technics Pty Ltd for the financial year ended 30 June 20X2 show a material adverse change in the financial condition of the company.

The audited statements provided to Nu-Wave don't show any such material adverse change. Following the takeover by Nu-Wave, it is discovered that the audited statements are incorrect, and the financial condition of Kute Technics is considerably less attractive than previously believed. Nu-Wave stands to lose its entire investment in Kute Technics as a result of this error, and so plans to take action against Dell Dingle & Pritchard.

REQUIRED

a. Discuss the different bases for legal action that might be available to Nu-Wave.

b. How might the auditors defend any of the possible actions you have identified in (a) above?

c. What Corporations Act provisions, if any, would be applicable to the circumstances of this case?

d. What other statutory provisions may apply in this case?

e. What is the role of privity of contract in this case?

f. Assuming that the auditors are proven to have been negligent, will the injured party be able to recover damages? Explain.