Evergrande Tests the Big Four Governance Model

A Hong Kong court ruling in the China Evergrande case could test the Big Four’s governance model of legally separate national firms coordinated through global networks, as reported by the Financial Times.

The case concerns PwC International, which coordinates PwC’s global network but is legally separate from the Hong Kong and mainland Chinese firms involved in Evergrande’s audits. Evergrande, once one of China’s largest property developers, defaulted in 2021 with roughly $300 billion in liabilities. Its liquidators are seeking to hold PwC International responsible for part of an $8.5 billion negligence claim, arguing that its role in setting standards, overseeing member firms, and monitoring audit quality may have created a duty of care. The court did not rule on liability, but found the claim sufficiently arguable to proceed.

The ruling could expose more detail about how the network operates in practice. The next stage may involve disclosure of internal standards, oversight procedures, and communications between PwC International and its member firms. Those materials could help determine how much influence the global body exercised over the local firms and the relevant audits.

The FT notes that similar cases involving global accounting networks have generally turned on their specific facts and local law, rather than establishing a broad rule of network-wide liability. Even so, the Evergrande case could encourage litigants elsewhere to test whether a global body’s role in standard-setting, oversight, and quality control can create legal responsibilities of its own.