Liability of the Statutory Auditor: Which Court Has Jurisdiction?

Imagine: you own a building in Ouistreham, leased to a transport company. One day, the judicial liquidator of that company informs you that the statutory auditor did not report blatant irregularities, and the company has filed for bankruptcy, leaving you with unpaid rent. You want to bring legal action against the statutory auditor. But before which court should you bring your case? That of the statutory auditor's registered office in Paris, or that of the company's registered office in Caen? The question is not trivial: it determines the cost and duration of your proceedings.

The Court of Cassation, in a judgment of 10 February 2021 (No. 18-26.704), provided a clear answer: the court of the audited company's registered office has jurisdiction. This decision, rendered in respect of a Lyon-based company, has national scope and concerns all property professionals, landlord-owners and tenants. It clarifies that the place of the damage suffered by the audited company – and therefore by its creditors – is its registered office. In other words, if you are in Mondeville, you will not have to travel to the other end of France to sue the statutory auditor.

But what exactly does this change for you, as an owner or tenant? In this article, I decipher this decision and explain how to protect yourself, with concrete examples from my practice in the Caen jurisdiction. I am Maître Cécile Zakine, a lawyer specialising in property and land law, and I regularly handle disputes involving statutory auditors. Here is what you need to know.

The facts: a story that happens every day

The case began in Lyon, but could have taken place in Caen. The company Visas 4 commissariat, whose registered office was in Lyon, had been appointed as statutory auditor of another company, Oxxa (a fictitious name for the example). The employee in charge of the assignment, Mr. X, was professionally domiciled in Lyon as well. However, over several financial years, Oxxa had set up increasingly elaborate schemes to conceal accounting fraud. The statutory auditor, although aware of these irregularities, did not report them to the Public Prosecutor, as required by law, nor did it initiate the early warning procedure with the President of the Commercial Court.

Result: Oxxa continued to operate, deceiving its creditors, until it was placed into judicial liquidation. The judicial liquidator, responsible for recovering debts, then sued Visas 4 commissariat and its employee for breach of their legal obligations. He sought compensation for the damage suffered by Oxxa and, indirectly, by its creditors – including landlord-owners like you.

But a preliminary question arose: which court has territorial jurisdiction? The statutory auditor and its employee argued that the dispute should be brought before the court of their professional domicile, i.e., Lyon. The liquidator, on the other hand, argued that the competent court was that of the audited company's registered office, Oxxa, also located in Lyon – which, in our example, would be Caen. The Lyon Court of Appeal ruled in favour of the liquidator, and the Court of Cassation confirmed. The statutory auditor's appeal was dismissed.

The reasoning of the court — dissected

To understand this decision, we must go back to the rules of territorial jurisdiction in civil liability matters. In principle, Article 42 of the Code of Civil Procedure provides that the competent court is that of the place where the defendant resides. But there is an important exception: in tort matters, the claimant may also bring the case before the court of the place where the harmful act occurred or where the damage was suffered (Article 46 of the same Code).

Here, the statutory auditor's breach – the failure to report criminal acts – occurred at its professional domicile (Lyon). But the damage was suffered by the audited company, Oxxa, at its registered office (also Lyon, but the reasoning would be identical if the registered office were in Mondeville). The Court of Cassation therefore clarifies that the place of the damage suffered is the registered office of the audited company, because it is there that the company suffered the aggravation of its financial difficulties and, ultimately, the liquidation.

In short, if you are a landlord-owner in Ouistreham of premises leased to a company whose registered office is in Mondeville, and that company's statutory auditor is based in Paris, you can sue that statutory auditor before the Caen Judicial Court (the company's registered office). The Court of Cassation here confirms a logical solution, which avoids victims having to incur additional travel costs. Note, however, that this decision specifically concerns the liability action brought by the judicial liquidator, but it also applies to creditors who join the action. What few people know is that this rule also applies to breaches relating to failure to report to the Public Prosecutor's Office or to the early warning procedure.

undefined, I have encountered cases where landlord-owners hesitated to take action for fear of having to travel far. This decision gives them a powerful lever: they now know that the court in their region has jurisdiction as long as the registered office of the debtor company is located there.

What this changes for you — concretely

For a landlord-owner, the implications are immediate. Imagine you rent a warehouse in Mondeville to a logistics company. This company is placed into judicial liquidation, and you discover that the statutory auditor did not alert the court to known financial difficulties. You suffer damage: unpaid rent for several months. Thanks to this judgment, you can sue the statutory auditor before the Caen Judicial Court, rather than in Paris or Lyon. Concretely, this reduces your legal costs (fewer travel expenses) and the duration of the proceedings.

For a tenant, the situation is different but equally useful. If you are a tenant of a building and your landlord is a company that went bankrupt due to fraud not reported by the statutory auditor, you could be compensated through the liquidator. The liquidator can then bring an action before the court of the landlord company's registered office, facilitating the coordination of actions.

For a purchaser, for example of a business in Ouistreham, if you discover after the sale that the accounts of the selling company were manipulated and the statutory auditor said nothing, you can also seek recourse against him. The competent court will be that of the selling company's registered office. If that registered office is in Caen, you benefit from proximity.

If you are in this situation, you must act quickly. The limitation period for the liability action against the statutory auditor is five years from the discovery of the facts (Article 2224 of the Civil Code). But note: if the company is in liquidation, the liquidator may have already initiated the action, and you can join it. The amounts at stake can be significant: in the event of a proven breach, the statutory auditor may be ordered to pay damages equivalent to the loss suffered, sometimes several tens of thousands of euros.

Four tips to avoid this type of dispute

• Check the annual accounts of your tenant or business partner. Before signing a commercial lease or contract, require the accounts certified by a statutory auditor. If they are missing or show anomalies, this may be a warning sign. A diligent statutory auditor should have reported them.
• Include an information clause in your leases. In your rental contract, provide that the lessee must communicate any report from the statutory auditor indicating difficulties. This allows you to be informed in advance of a possible bankruptcy.
• Keep all evidence of unpaid rent. If you need to bring a liability action against the statutory auditor, you must prove your loss. Keep receipts, formal notices, and court decisions relating to the liquidation.
• Consult a lawyer at the first signs of difficulty. If your tenant is late in paying or if you learn that its statutory auditor is being challenged, do not wait. A quick consultation can allow you to make the right decisions, such as joining the liquidator's action.
• Find out about the registered office of your counterparty. Before any action, check where the company's registered office is located. That is where you will need to act. If the registered office is in Mondeville, you will have jurisdiction in Caen. If the registered office is abroad, the rules are different.

Further information: related case law and developments

This judgment is part of a line of decisions favourable to victims of breaches by statutory auditors. Previously, the Court of Cassation had already ruled (Civ. 1st, 13 January 2021, No. 19-18.234) that the statutory auditor is liable to third parties for failure to report, even in the absence of a contractual relationship. This new decision merely clarifies territorial jurisdiction, but it has considerable practical impact.

Moreover, earlier case law was more unclear. Some Courts of Appeal considered that the place of damage was that of the statutory auditor's registered office, because that is where the fault was committed. The Court of Cassation thus unifies the rule: the place of damage is that of the audited company. This simplifies recourse for liquidators and creditors.

In the future, this rule may be extended to other accounting professionals (e.g., chartered accountants). Courts tend to favour the place of actual damage rather than the place of the fault. For owners and tenants, this is good news: justice comes closer to them.

Key points to remember

FAQ:

1. Before which court should I sue a statutory auditor who failed to report fraud? Before the Judicial Court of the audited company's registered office, not that of the statutory auditor.
2. Can I act as a landlord-owner if my tenant went bankrupt due to a breach by the statutory auditor? Yes, you can join the liquidator's action or act alone, provided you prove your direct damage.
3. What are the time limits for acting? The liability action is subject to a five-year limitation period from the discovery of the facts. In the event of liquidation, the liquidator has a specific, often shorter, period.
4. What is the difference between an action against the statutory auditor and an action against the chartered accountant? The obligations are different: the statutory auditor has a duty to report and to warn, while the chartered accountant has a duty to advise. The rules of jurisdiction may vary.
5. What if the company's registered office is abroad? In that case, international jurisdiction rules apply. Consult a specialised lawyer to determine the competent court.

In summary, this decision of the Court of Cassation offers you additional legal certainty: you now know that your local court has jurisdiction for disputes relating to the statutory auditor of your counterparty. Do not hesitate to assert this right.

Are you in a similar situation? An initial 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →