Grant Thornton granted summary judgment on auditors’ negligence claim

18/02/15

Cooke J has given summary judgment in favour of Grant Thornton in relation to an auditors’ negligence claim brought against it by Barclays Bank.

Barclays claimed against Grant Thornton in relation to two non-statutory audits carried out by Grant Thornton for the Von Essen Hotels Group (“VEH”) in 2006 and 2007. Barclays alleged that it relied on the reports produced by Grant Thornton in continuing to fund VEH under a £250 million loan facility, that Grant Thornton had been negligent in producing the reports because it had failed to uncover fraudulent overstatements of VEH’s financial position by two of its employees, and that this had caused Barclays loss when VEH became insolvent and could not repay the loan.

Each of the reports contained a disclaimer which stated, in essence, that the reports were made solely to VEH’s director and that Grant Thornton did not accept or assume a responsibility to anyone other than VEH and its director for its audit work (the “Disclaimer”). This is commonly known as a “Bannerman clause” and is recommended by the Institute of Chartered Accountants in England and Wales as a means of disclaiming liability to third parties for audit work.

Barclays contended that the Disclaimer was “unreasonable”, contrary to the Unfair Contract Terms Act 1977 and therefore inapplicable. Grant Thornton sought summary judgment on that point.

This was the first case in which the lawfulness of a Bannerman clause in an auditors’ report had been considered. Cooke J gave summary judgment in favour of Grant Thornton. He held that the Disclaimer was clear on its face and could not have been misunderstood. There was nothing unreasonable in Grant Thornton’s stance, as between two sophisticated commercial parties, where the approach of auditors in limiting their responsibilities in the absence of a direct engagement was and is well known. The claim therefore had no real prospect of success, and there was no other compelling reason why it should go to trial.

The judgment is here.