On 12 February 2015, Cooke J. awarded summary judgment to Grant Thornton (GT) in respect of claims by Barclays that in two non-statutory audit reports GT had failed to uncover frauds by officers of the Von Essen Hotels Group (VEH). Each report contained Bannerman type disclaimers stating that GT did not accept/assume responsibility to anyone other than VEH/its Director. VEH provided the GT reports to Barclays in support of the bank continuing to provide a £250million loan facility.
Following VEH’s insolvency, Barclays claimed that its borrower’s financial position was negligently overstated by GT in the audit reports such that the bank should recover from GT a loan repayment shortfall of some £45million. The bank pleaded that the disclaimers were unreasonable contrary to UCTA 1977 and thus ineffective. GT applied for summary judgment on this issue.
Applying the three-stage test from Caparo, Cooke J. held that it was reasonable for GT to rely on the disclaimers that negated any duty GT might be said to have owed to Barclays. The Court took into account that (i) sophisticated commercial parties were involved; (ii) no engagement existed between Barclays and GT (yet Barclays had engaged GT directly on other VEH matters where liability caps and limits on use of GT’s work products had been agreed); (iii) it is now a well-known commercial practice for auditors to include such disclaimers in reports of which Barclays was aware; (iv) the disclaimers were in clear terms which anyone at Barclays would have understood; and (v) Barclays could be taken to have read them (even though the bank maintained otherwise).
Cooke J. considered that absent any disclaimer it was clearly arguable that a duty of care between GT and Barclays could exist. Disclaimers therefore continue to be invaluable, if not essential, for professionals to include in work products that may end up in the hands of third parties. The Courts will probably continue to examine the fact-sensitive circumstances in which disclaimers are made in order to determine whether they are effective, so professionals should still be careful not to do anything inconsistent with their terms. Thought might also be given as to whether some of the wording relevant to audit reports from the specimen hold harmless and release letters appended to ICAEW Technical Release 04/03 (Access to Working Papers by Investigating Accountants) can be incorporated into disclaimers, for example if clients and/or third parties will not agree to hold harmless or release terms (which do not appear from the judgment to have been features of this case).
In the meantime, and in the event that an appeal is pursued, it will be interesting to see whether the Court of Appeal agrees with this summary judgment decision.