The importance of disclaimers in accountants' terms and conditions (commonly referred to as "Bannerman" clauses) to avoid a duty of care to third parties is a topic that features regularly in our articles. We have previously reported on the decision of Barclays Bank Plc v Grant Thornton [here]. In that case, Barclays suffered loss when its borrower entered administration and argued that Grant Thornton was liable, because Barclays had (allegedly) relied on non-statutory audit reports prepared by them which did not uncover a fraud. However, the Court dismissed the bank's claim on the basis the disclaimer in Grant Thornton's retainer effectively excluded liability to third parties and accordingly there was no reasonable cause of action.
The recent Amathus Drinks decision illustrates the potential limitations of Bannerman clauses and that there may be certain circumstances in which a professional adviser will owe a duty of care notwithstanding the inclusion of an express disclaimer clause in its retainer.
The Claimants (the Buyers) purchased Bablake Wines Limited (the Company) under the terms of a Share Purchase Agreement which provided for the purchase price to be adjusted after completion based upon completion accounts.
The Defendant firm of accountants were engaged by the Sellers to prepare the completion accounts as well as the statutory accounts for the Company. Under the completion accounts a small refund was due to the Buyers, which the sellers paid.
The Buyers subsequently alleged fraudulent conduct on the part of the Company, including the logging of false invoices, double counting of assets in the accounts and inflated cash receipts. The Buyers said they had overpaid for the Company by circa £400,000.
The Buyers brought a breach of contract and negligence claim against the accountants asserting that the accountants had been negligent in failing to detect the alleged fraud when preparing the Company's statutory accounts and the completion accounts. They argued the accountants owed them a duty of care because they knew that the statutory accounts would feed into the completion accounts and that the Buyers would be relying on them in the acquisition.
The accountants applied to strike out the claim and, in the alternative, applied for summary judgment on the basis that they had not assumed a duty of care to the Buyers. They relied on Barclays and the Bannerman clause in their retainer, which said: "To the fullest extent permitted by law, we will not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for the audit report or the opinions we form".
On the facts, the Court held that the Buyers' claim had a realistic prospect of success and allowed the claim to proceed to trial.
In reaching this conclusion, the Court distinguished the claim from Barclays on the facts. Master Brightwell noted that in this case, there were continuing communications between the parties after the audit engagement commenced and there was direct correspondence between the accountants and the Buyers' solicitor regarding the completion accounts. The accountants had also specifically agreed to carry out the completion accounts valuation. The Master thought that there was a "continuing and direct commercial relationship" of a kind that was not present in Barclays.
The existence of the Bannerman Clause did not provide the accountants with the ability to strike out this claim at an early stage because of the specific facts and their conduct, in particular the engagement by the accountants with the Buyers in relation to their work on the completion accounts.
We will need to wait and see (if the claim proceeds to trial) whether the trial judge also concludes that the accountants assumed a duty of care to the Buyers. In the meantime, although the Bannerman clause in the accountants engagement terms clearly defined the scope of their engagement, stating who they were (and were not) assuming responsibility towards, the legal effect of the clause was undermined by the conduct of the accountants when engaging with the buyer. Professional advisers must be aware that if their conduct is not consistent with disclaimers of liability to third parties in their engagement terms, a court may ultimately find that they have assumed responsibility to the third party.