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Disclaimer precludes third-party reliance on auditor reports

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20 April 2015

A standard disclaimer included in non-statutory audit reports was effective and prevented a tortious duty of care arising in common law to a third party that had relied on them. The judgment in Barclays Bank PLC v Grant Thornton UK LLP [2015] EWHC 320 (Comm), 18 February 2015 emphasised that it would not be fair, just or reasonable to impose a duty on the auditors in these circumstances. The disclaimer satisfied the requirements of the Unfair Contract Terms Act 1977.

The Unfair Contract Terms Act 1977

Under s2 of the Unfair Contract Terms Act 1977 (UCTA), liability cannot be excluded or restricted in relation to negligence, except where a notice is produced and it satisfies the requirement for reasonableness. A notice is deemed to be reasonable for the purposes of UCTA where it is fair and reasonable in all the circumstances for the party to rely on it. Schedule 2 of UCTA provides guidelines for determining whether a disclaimer in a contract is reasonable. The onus is on the party claiming that the notice is reasonable to illustrate it meets the requirement for reasonableness.


Grant Thornton UK LLP (the defendant) provided auditor services to the Von Essen Hotels Limited Group (VEH) in connection with a refinancing of an existing facility with two banks. The defendant was appointed to provide a limited scope review of VEH’s financial condition and produce audit reports in respect of its financial statements (the Audit Reports). The Audit Reports expressly stated that they had been prepared solely for VEH’s director and that ‘to the fullest extent permitted by law’ the defendant did not accept or assume responsibility to anyone other than VEH and its director, for the audit work, the Audit Reports or the opinions given (the Disclaimer). This wording followed standard Institute of Chartered Accountants in England and Wales wording for use in statutory audit reports. The Audit Reports each consisted of two pages followed by the audited accounts. The Disclaimer was presented on the first page of each report and appeared directly under the heading. It was followed by a further paragraph on the second page of the report under a similar capitalised heading to the first page. The second disclaimer stated that the opinion provided by Grant Thornton in relation to the Audit Reports gives a true and fair view of the state of the group’s affairs.

A subsequent investigation in 2011 found that two VEH employees had fraudulently manipulated the figures provided to the defendant when they were preparing the Audit Reports. One of the banks (the Bank) subsequently filed a claim against the defendant, claiming that the defendant owed it a tortious duty of care in relation to the Audit Reports and that the defendant’s failure to uncover the dishonesty of the VEH employees was negligent.

The defendant applied to the court for summary judgment and an order that the claim be struck out.

Disclaimer precludes duty of care

The Commercial Court considered whether the Disclaimer prevented a common law tortious duty of care from arising, as well as whether it met the ‘reasonableness’ requirement in UCTA. The Commercial Court held:

(i)     The Disclaimer was clear and had been brought to the Bank’s attention. As a result, it met the ‘reasonableness’ requirement in the UCTA.

(ii)   The defendant had made it clear that it was not prepared to assume responsibility to any third parties, including the Bank, in relation to the Audit Reports. Cooke J commented that this was not unusual between two ‘sophisticated commercial parties’ such as the defendant and the Bank (per Omega Trust v Wright, Son and Pepper [1997] PNLR 424) and the inclusion of such wording in audit reports was standard.

(iii) Points that the Bank sought to advance in order to establish that the defendant owed it a tortious duty of care in common law in relation to the Audit Reports could not be outweighed by the fact that the Disclaimer was clear and the Bank had no letter of engagement with, and had paid no fees to, the defendant in connection with the Audit Reports. Following McCullagh v Lane Fox & Partners Ltd [1996] PNLR 205, the Commercial Court held that a person cannot be taken to have assumed responsibility for something when they have expressly limited it.

As a result, the Commercial Court allowed the application for summary judgment and ordered that the Bank’s claim be struck out pursuant to CPR 3.4(2)(a).


The ruling emphasises the need for auditors and other professionals to include clear and carefully drafted disclaimers in their reports and engagement letters. In addition, any such disclaimers must comply with the ‘reasonableness’ requirements of the UCTA or otherwise risk being found to be void. Attention must also be paid to the placement of such disclaimers. For example, it may be preferable for auditors and other professionals to include disclaimers in a prominent position in documents so as to avoid arguments that they were not presented clearly. Using standard disclaimers that are commonly used in a particular industry or recognised by an industry body may help professionals to argue that their disclaimers are reasonable given the weight that the Commercial Court placed in this case on the defendant’s use of a standard form of disclaimer used in the Audit Reports.

In addition, this case highlights the cautious approach that third parties should take to placing reliance on work produced by a professional firm for another client, especially where (like in this case) that work includes a disclaimer restricting third parties from relying on it.


Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey, or tel +44 20 3088 3710.