Disclaimer in audit reports: Preventing claims by third parties
In Barclays Bank Plc v Grant Thornton UK LLP  EWHC 320 (Comm) the Court was asked to consider whether a disclaimer in non-statutory audit reports was sufficient to prevent a Bank bringing a claim for negligent misstatement.
The Auditors had been instructed by Von Essen Hotels Limited Group (‘VEH’) to produce two non-statutory audit reports. The reports related to the financial years of 2006 and 2007, each audit report consisted of two pages followed by the audited accounts. On the first page there was a disclaimer clause limiting liability to the company and its director; expressly stating the Auditors did not accept liability to any third parties.
On 26 April 2011 the VEH Group went into administration. The Joint Administrators discovered that the Finance Director and Financial Controller had deliberately manipulated the underlying financial records and misled the Auditors.
The Auditors had been engaged directly by the Bank on other matters for the same client. There was no direct retainer in this particular instruction.
The Auditors were sued by the Bank for negligently producing non-statutory audit reports. The Auditors applied for Summary Judgment on the basis that no reasonable cause of action had been disclosed in the Bank’s Particulars of Claim and as such there were no reasonable prospects of success.
Mr Justice Cooke granted Summary Judgment for the Auditors. The disclaimer was clearly worded and could not have been misunderstood by anyone at the Bank who had read the two page report for the years ending 2006 and 2007. Furthermore, it was reasonable in accordance with the Unfair Contracts Terms Act 1977. The Bank had not sought an engagement letter or letter assuming responsibility from the Auditors for these reports and had therefore accepted its own risk in relation to any reliance upon the audit reports.
For further details please contact Lucy Evans, Senior Solicitor on +44 (0)117 301 7864.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.