Professional advisers – are your disclaimers enough?
16 January 2024
A recent court decision illustrates that professional advisers, such as accountants, may not escape liability towards third parties who rely on their reports. This is despite the presence of robust disclaimers.
Types of disclaimers
Professional advisers usually include contractual disclaimers to third parties known as “Bannerman” clauses in their reports. These make clear that the adviser will not assume responsibility to anyone other than their client.
This type of clause was previously examined before the Commercial Court in Barclays Bank plc v Grant Thornton UK LLP . In that case, Barclays had lent to a borrower who became insolvent amid allegations of fraudulent manipulation of the borrower’s accounts. Barclays unsuccessfully argued this manipulation should have been uncovered by Grant Thornton who audited the borrower.
The disclaimer in that instance read as follows:
“This report is made solely to the company’s director. Our audit work has been undertaken so that we might state to the company’s director those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s director as a body, for our audit work, for this report, or for the opinion we have formed.”
The court took the view that Barclays was sophisticated enough to have understood the disclaimer and it was upheld. Barclays’ claim was therefore dismissed.
What has changed?
A recent decision suggests that the presence of such disclaimers will not necessarily prevent a claim against the party relying on the disclaimer.
In other words, professional advisers need to be aware that properly worded disclaimers may not, in themselves, be enough to shield against legal action.
In this instance, buyers of a company relied on completion and statutory accounts prepared by the defendant accountants, who also produced the completion certificate prior to sale. It later became apparent that a fraud had been committed on the company. This meant their asset values were artificially inflated and the price paid by the buyers was too high. The accountants had not uncovered this. The buyers claimed a breach of contract and/or duty to exercise reasonable care and skill in preparing the accounts and completion certificate.
The accountants had been engaged by the company (not the sellers) to produce the completion and statutory accounts. The audit reports included a standard ‘Bannerman disclaimer’, stating:
“…this report has been prepared for the sole use of the company. It must not be disclosed to third parties, quoted or referred to, without our prior written consent. No responsibility is assumed by us to any other person.”
In light of the Barclays decision above, the accountants would reasonably have assumed they assumed no liability to the buyers when the fraud was later uncovered. However, it was relevant that there had been direct communications between the accountants and buyers (to the exclusion of the company). This meant the buyers might reasonably have assumed the accountants were working with them, resulting in the accountants holding a duty of care to them as professional advisers. The court held the buyers were also less sophisticated than Barclays, in relative terms, so the prior decision could also be distinguished.
Accordingly, the court dismissed an application by the accountants to have the buyer’s claim dismissed on grounds of the disclaimer. The accountants could not necessarily rely on the disclaimer, in circumstances where they had engaged in direct communications with the buyer, such that a separate duty of care may have arisen.
Note this case will now proceed towards trial, at which further guidance may be set down should the court deal with it. The decision itself is also not directly binding, being a Master’s decision, but could be persuasive in other cases.
What can professional advisers do?
- Ensure any disclaimers you seek to rely upon, either in reports or during engagement, are carefully reviewed to ensure they remain clear and robust.
- Make clear to any third parties with whom you communicate during the course of advising that no duty of care is assumed towards them, with direct reference to the terms of your disclaimer.
- It is also good practice to ensure those engaging you are copied to all communications you have with third parties.
Birketts is available to advise further, including on the wording and operation of any disclaimers upon which you intend to rely.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2024.