Hong Kong Court Rejects PwC International Bid to Exit Evergrande Audit Negligence Claim

A Hong Kong court dismissed on Wednesday an application by PwC International to exclude the firm from a multibillion-dollar claim filed by the liquidators of China Evergrande Group, the embattled property developer that collapsed under US$300 billion in liabilities. The ruling paves the way for the liquidators to pursue their case against the global accounting network over alleged negligence in auditing the company's financial statements.

The liquidators are seeking 57 billion yuan (RM57.5 billion) in damages from PwC International, PwC Hong Kong, and PwC's China arm, accusing them of failing to properly audit Evergrande's accounts and detect irregularities that ultimately contributed to the company's downfall. Under the claim, the maximum amount that PwC International alone could be liable for is 38 billion yuan (RM38.3 billion), according to court documents.

PwC International had argued during a hearing in May that it should not be named as a party to the case, contending that the Hong Kong and China entities were not its subsidiaries and that it had no direct communication or relationship with Evergrande. The firm maintained that it had never provided any professional services to the developer and therefore bore no responsibility for the audits conducted by its network members.

However, Deputy High Court Judge Patrick Fung rejected that argument in his written judgment. "I take the view that not all the facts are known and, hence, it is crucial that there should be discovery of documents and interrogatories administered, which I believe will throw more light on the case," he wrote. The judge ruled that PwC International did owe "a duty of care" to Evergrande, and that the plaintiff should not be driven from the judgement seat without a full trial. His decision effectively clears the path for the liquidators to proceed with their claim against all named defendants, with the discovery process expected to reveal further details about the extent of PwC International's involvement or oversight.

The liquidators, Edward Middleton and Tiffany Wong of Alvarez & Marsal, who were appointed by the Hong Kong High Court when it ordered Evergrande's liquidation in 2024, welcomed the court's decision. In a statement, they said that while the ruling does not determine the ultimate merits of the claims, it allows them to continue their investigation into Evergrande's affairs and pursue recoveries for the benefit of creditors. The liquidators have been working to unwind the developer's complex web of assets and liabilities, seeking to maximise returns for the thousands of creditors left holding significant exposure to the group's collapse.

A PwC International spokesperson expressed disappointment with the ruling while stating the firm respects the court's decision. "PwCIL is the coordinating entity within the PwC network and has never provided any services to Evergrande or had any relationship with the company. PwCIL is confident that the claims against it have no merit," the spokesperson said. "We are reviewing the Court's decision and evaluating our legal options." The statement suggests that PwC International may appeal the ruling or seek other avenues to challenge its inclusion in the proceedings.

The case adds another layer of legal scrutiny to the fallout from Evergrande's collapse, which sent shockwaves through global financial markets and exposed vulnerabilities in China's heavily indebted property sector. The developer's founder, Hui Ka Yan, once Asia's richest man, was sentenced to life in prison by a Chinese court last week, which also ordered the confiscation of all his personal property. The sentence marked a dramatic fall from grace for the property tycoon, whose company had been a symbol of China's real estate boom before its debt crisis erupted in 2021.

The outcome of the audit negligence claim could have significant implications for the accounting profession, particularly for global network firms operating across jurisdictions. The ruling establishes that a coordinating entity within a professional services network may be held liable for the actions of its member firms, even without direct client engagement. For PwC International, the decision represents a setback in its efforts to limit exposure to a case that could result in substantial financial penalties and reputational damage.

As the legal proceedings move toward a full trial, the discovery phase is expected to shed light on the internal communications and decision-making processes within PwC's network structure, potentially revealing how audit work was supervised and whether any red flags were raised but ignored. For Evergrande's creditors, the pursuit of PwC International offers a potential avenue for recovering some of the losses incurred from the developer's historic default. The case continues to be closely watched by legal and financial professionals across the region.