Audit reports: disclaiming responsibility to third parties

Barclays Bank Plc v Grant Thornton LLP [2015] EWHC 320 (Comm)

The Facts

The High Court has struck out a claim against auditors on the basis of a valid third party disclaimer.

Grant Thornton (GT) provided the audit reports for Von Essen Hotels Limited (VE). Barclays Bank (BB) claimed that GT had been negligent in failing to reveal a fraud when producing VE’s 2006 and 2007 audited accounts. The bank asserted that GT had owed them a duty of care in respect of these accounts, as they had been produced specifically for the purposes of providing information to banks.

The reports explicitly stated that they were solely for VE’s directors, using wording recognised by the Institute of Chartered Accountants in England and Wales (ICAEW) for statutory disclaimers in audit reports (“Bannerman Clauses”).

The Decision

The judge ruled that the disclaimer was valid and clear, and was not unreasonable under the requirements in the Unfair Contract Terms Act (UCTA) 1977. Any duty of care that may have been present could not outweigh the obvious disclaimer. On the basis that GT and BB were two sophisticated parties, BB could not rely on this tortious duty in the absence of a letter of engagement or fee paid to GT.

This is the first authority relating to a Bannerman Clause in audit work negating a duty to third parties.