In the recent case of Barclays Bank Plc v Grant Thornton LLP , the court considered an application for summary judgment and strike out of a claim against auditors. The key issue related to the effectiveness of a disclaimer clause in the relevant audit reports.
Grant Thornton (GT) provided audit services to Von Essen Hotels Limited (VE). Barclays Bank alleged that GT owed it a tortious duty of care in respect of its non-statutory audit reports on VE for 2006 and 2007, as they had been issued for the purposes of providing information to banks as funders of VE, and that the reports had been negligent as they had not uncovered a fraud within VE.
The reports expressly stated that they were solely for VE’s director and “to the fullest extent permitted by law”, GT did not accept or assume responsibility to anyone other than VE and the director, for the audit work, the report or the opinion formed. This followed standard Institute of Chartered Accountants in England and Wales (ICAEW) wording for statutory audit reports (“Bannerman clauses”), with changes to reflect the fact that these were non-statutory reports.
The judge considered whether the disclaimer would prevent a duty of care from arising in common law, and whether the requirement of “reasonableness” in the Unfair Contract Terms Act 1977 (assumed to apply, for the purposes of the proceedings) was met. The following points were key to the decision:-
• The disclaimer was clear on its face and would have been read and understood by anyone who read it. The reports were only two pages long and the disclaimer was in the first two paragraphs.
• GT made it clear that it was not prepared to assume responsibility to Barclays in respect of these reports. That was not unreasonable between two “sophisticated commercial parties” (Omega Trust v Wright, Son and Pepper ). Auditors’ practice of limiting their liability was known and, in the context of statutory accounts, was the subject of a standard ICAEW clause. Barclays was also aware, from previous dealings, that GT sought to negate, or restrict, its liability for both statutory and non-statutory reports. Barclays should have anticipated such a clause.
• Points Barclays sought to rely upon to establish a duty of care could not outweigh the clear disclaimer, and absence of any letter of engagement or fee paid to GT by Barclays, which negated the existence of such a duty.
Chris Harper is a partner and head of the dispute resolution team in Exeter. He specialises in commercial litigation and is named as a leader in his field by independent guides to the legal profession Legal 500 and Chambers. To contact Chris please call 01392 210700 or email firstname.lastname@example.org.