Effectiveness of auditors’ disclaimers against third parties - Bannerman to the rescue


Auditors in many jurisdictions will welcome the recent decision in Barclays Bank PLC v Grant Thornton UK LLP, in which the English Commercial Court held that a disclaimer of liability in non-statutory auditor reports (the commonly described Bannerman clause) was reasonable and enforceable1.

Under section 415 of the Companies Ordinance (Cap. 622) in Hong Kong, a company cannot exempt an auditor for liability for statutory audit services in relation to the company. The position is  the same in the UK under the Companies Act 1985. However, in both jurisdictions, auditors are permitted to limit their liability for non-statutory audit services by way of  a Bannerman clause, subject to the usual restrictions on reasonableness.

This appears to be the first time that this type of clause has been tested in the English courts. The decision should be of considerable persuasive force and interest in Hong Kong, where (as far as we are aware) the issue has  not been tested; this probably reflects the fact that a Bannerman clause is industry standard and its effectiveness is understood.


Grant Thornton carried out non-statutory audits for the Von Essen Hotels Group (VEH) in 2006 and 2007, which reports VEH provided to Barclays in support of an ongoing £250 million loan facility. VEH later became insolvent and unable to repay the loan. Barclays consequently issued civil proceedings against Grant Thornton, alleging that Grant Thornton was negligent in its  failure to discover and report fraudulent overstatements in VEH’s accounts and that  the bank suffered loss as a result of reliance on the reports.

Grant Thornton’s auditor reports contained a Bannerman clause: a commonly used disclaimer stating that the reports were produced for VEH’s director only and that

Grant Thornton did not accept liability to third parties for their reliance on the information contained within them. The disclaimer’s description derives from the case of Royal Bank of Scotland Plc v Bannerman Johnstone Maclay (a firm) & Others, in which auditors were found liable to a bank in negligence, in circumstances where they knew that the bank would be relying on the accounts they had prepared2.

Barclays submitted that Grant Thornton owed it a duty of care in as much as the reports were provided for the purpose of providing information to Barclays, which duty was stated to have been breached when Grant Thornton failed to uncover the alleged fraud. Barclays also argued that the terms of the disclaimer were unreasonable and, therefore, inapplicable.

Grant Thornton disputed the allegations and applied for summary judgment (in effect, to knock out the proceedings) on the basis that the disclaimer meant that Barclays’ claim had no realistic prospect of success3.


The English Commercial Court found in favour of Grant Thornton. It was held that the claim had no realistic prospect of success “in the face of the disclaimer” and there was no good reason why the action should proceed to trial. Upon reviewing the clause, the court found that the disclaimer satisfied the test of reasonableness; its terms were clear and “could not have been misunderstood”.

In coming to this decision, the court noted that Grant Thornton was dealing with sophisticated bankers and business people, who can be reasonably expected to read documents before them and be familiar with industry standard notices of disclaimer in audit reports. The disclaimer appeared in the initial paragraphs of a two page audit report and so it was difficult to see what more Grant Thornton could have done to bring it to Barclays’ attention.

The court also placed significance on the fact that Barclays did not engage or pay Grant Thornton for the two non-statutory reports; in a sense, Barclays was trying to get a free ride4. Although it was open to Barclays to protect its own interests and engage Grant Thornton directly (which it had done on other occasions involving VEH matters), it chose not to do so.


This was not a case of a corporation burying a fine print boilerplate clause in a large document to exclude liability to an unsophisticated individual customer. It involved a disclaimer in which Grant Thornton made it clear that it was not prepared to assume responsibility to Barclays in connection with its audit reports. This is common practice in the industry, both in Hong Kong and England & Wales. To the extent that Barclays failed to read the document properly or to take any steps to protect itself, it arguably only had itself to blame. After all, banks use their own standard disclaimers.

This case goes to the value of a well-drafted disclaimer, especially for professionals whose work product stands to end up in the hands of a third party. It also helps demonstrate the rather fact sensitive nature of these types of disputes. While there may be scope for small companies or consumers to contend unreasonableness, there seems to be little or no room for sophisticated third parties (such as banks) to do so.

Both Antony and Carmel are dual-qualified in Hong Kong and England & Wales and have considerable experience between them in representing professional persons including accountants.