Professional advisors beware! A disclaimer may not be enough to protect from third party liability.

The recent case of Amathus Drinks plc and others v EAGK LLP and others (2023) demonstrates that a disclaimer of liability may not be enough to prevent professional advisors being liable to third parties who rely on their advice.

Professional advisors typically include disclaimers in their terms of business which exclude their liability to third parties. They are commonly referred to as “Bannerman” clauses.

This type of clause has been examined by the courts before, most prominently in the case of Barclays Bank plc v Grant Thornton UK LLP (2015). In that case, Barclays had lent to a borrower who became insolvent amid allegations of fraud relating to the borrower’s accounts. Barclays argued that Grant Thornton, who had audited the borrower, should have discovered the borrower’s fraud and were therefore liable for Barclays’ losses, as Barclays had relied on the audit report prepared by Grant Thornton’s in deciding whether or not to lend to the borrower. Importantly, the audit reports were prepared for the borrower and its directors, not for Barclays and Grant Thornton’s retainer contained a Bannerman clause excluding their liability to third parties. The court upheld the clause and Barclays’ claim was dismissed.

However, the recent decision in Amathus Drinks plc and others v EAGK LLP and others (2023) shows us that the presence of a disclaimer clause may not always prevent a third party from relying on a professional advisor’s advice.

The Facts

The first and second claimants (the “Buyers”) purchased Bablake Wines Limited (the “Company”) under the terms of a Share Purchase Agreement, which provided for a provisional purchase price to be adjusted and agreed after completion, based on the value of the Company’s net assets at the date of completion as reflected in the completion accounts.

Accountancy firm EAGK LLP (the “Defendant”), were instructed to carry out due diligence on behalf of the Buyer, as well as prepare the completion accounts and issue the completion certificate confirming the value of the Company’s net assets. It also prepared statutory accounts for the Company. Based on the information provided in the completion accounts and completion certificate, the final purchase price was agreed.

The Buyers later discovered an alleged accounting fraud in relation to the Company, which had led to its asset value being artificially inflated and the Buyers overpaying for the Company’s shares. The Defendant had not picked this up.

The Claim

The Buyers bought a claim against the Defendants for breach of contract and breach of their common law duty to exercise reasonable skill and care in preparing the accounts and completion certificate.

The Defendant argued that it was not liable to the Buyers has it had been engaged by the Company to produce the completion accounts and its engagement terms included a standard Bannerman clause 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.”.

The Defendant applied to strike out the claim and apply for summary judgement on the basis they had not assumed a duty of care to the Buyers.

The Decision

The court determined that the Buyers had a reasonable prospect of succeeding in their claim and the Defendant’s application to strike out the claim was rejected.

In reaching this decision, the Court placed relevance on the fact there had been direct communication between the Buyers and the Defendant and it was reasonable that the Buyer might have assumed the Defendants were working for them, resulting in the Defendants holding a duty of care to the Buyers as professional advisers.

The case will now proceed to trial and we will see whether the trail judge agrees that the Defendants assumed a duty of care towards the Buyers. However, in the meantime, this is a lesson to all professional advisors that a disclaimer of liability towards third parties may not always be effective where the advisor’s conduct towards such third parties is inconsistent with the disclaimer.

Our Commercial Team are experienced in advising on liability limitation and disclaimers, so please do not hesitate to get in touch.