The $173.6m (£89m) negligence claim brought by the creditors of failed UK company Stone & Rolls against accountancy firm Moore Stephens was struck out by the House of Lords yesterday (30 July).

The failure of the case – one of the largest and most high-profile claims funded by a third party in the UK – will be seen as a blow for backers IM Litigation Funding.

The decision delivered yesterday (30 July), one of the last to be made in the House of Lords before the UK's highest court is replaced by the Supreme Court, upheld a judgment from June 2008 when Lord Justice Mummery referred to the case as an "astounding claim" and it was consequently struck out by the Court of Appeal.

The $173.6m negligence claim was brought against accountancy and advisory firm Moore Stephens by creditors of failed UK company Stone & Rolls. The Law Lords found that Moore Stephens was not liable for failing to spot an extensive letter of credit fraud by Stone & Rolls and the individual who owned and controlled it, Zvonko Stojevic.

Barlow Lyde & Gilbert head of litigation Julian Randall and dispute partner Tim Strong led the team advising Moore Stephens, with Brick Court Chambers heavyweight Jonathan Sumption QC and Tom Adam QC instructed as counsel.

Stone & Rolls was advised by Norton Rose litigation partner Sam Eastwood, with Fountain Court Chambers' Michael Brindle QC and Mark Simpson QC instructed as counsel.

Randall said: "We always felt strongly that in this case the company was pursuing Moore Stephens for losses caused by its own fraudulent behaviour and that the claim should therefore fail. The ruling confirms that auditors are not simply there to pick up the creditors' losses when a company collapses."

Barlows senior partner Simon Konsta added: "This case was one of the most significant concerning auditors to come before the courts in recent years, examining the critical issue of when a company can sue its auditors for undiscovered fraud. It seems inevitable that auditors will increasingly find themselves in the firing line as companies collapse in this recession."

Barlow Lyde & Gilbert on the Legal Week Wiki