Contract law training: Preparing for "worst-case scenario"

Rigorous contract law training would equip directors and project managers with the knowledge to deal with limited liability agreements, it has been suggested.

KPMG issued its comments with reference to the European commission's June recommendation to limit liability in audit firms' agreements with their clients.

As the situation stands, auditors in most countries face unlimited liability, meaning they can be sued for the whole cost of a client's collapse regardless of the scale of the role they played.

"The thing about liability is that it would have to be accepted by the shareholders of the company," remarked KPMG's Mark Hamilton.

He added that the guiding principle for any new agreement should be "what happens in the worse-case scenario".

"It should provide a fairer framework and shouldn't necessarily change anything else. It's simply a case of if there's a collapse and how the liability is apportioned," said Mr Hamilton.

KPMG, one of the 'big four' auditors which also include Ernst and Young, PricewaterhouseCoopers and Deloitte, is in favour of a system of proportional liability, which it claims would ward off another collapse comparable to that of Texas-based Enron.