Legal Business Blogs

The importance of a ‘disclaimer’: High Court finds in favour of Grant Thornton in Barclays negligence dispute

The High Court has this morning (18 February) found in favour of Grant Thornton in relation to its high profile auditors’ negligence dispute brought against it by Barclays Bank.

Heard on the 12 February, Brick Court Chambers’ duo Simon Salzedo QC and Oliver Jones appeared for Grant Thornton, and were instructed by Taylor Wessing, while 4 New Square pair David Halpern QC and Benjamin Wood acted for Barclays and were instructed by Addleshaw Goddard.

The dispute arose after Barclays relied on two non-statutory audits carried out by Grant Thornton for the Von Essen Hotels Group (VEH) in 2006 and 2007 in continuing to fund VEH under a £250m loan facility. The bank alleged Grant Thornton had been negligent in producing the reports because it failed to uncover fraudulent overstatements of VEH’s financial position by two of its employees, and, subsequently, causing Barclays financial loss when VEH became insolvent and couldn’t repay the loan.

Constituting the first case in which the lawfulness of a Bannerman clause in an auditors’ report had been considered, each of the reports produced by Grant Thornton included a disclaimer which stated they were made solely to VEH’s director and that the accounting giant did not accept responsibility to anyone other than VEH and its director for its audit work.

Barclays argued that this disclaimer was ‘unreasonable’ and therefore inapplicable – for which Grant Thornton sought summary judgment on that point and won.

Justice Cooke held the disclaimer was ‘clear on its face’, ‘could not have been misunderstood’ and ‘would have been read and understood by anyone at Barclays who had read the two page reports’.

‘Grant Thornton made it clear that it was not prepared to assume responsibility to Barclays in respect of these reports. There was nothing unreasonable in that stance, as between two sophisticated commercial parties, where the approach of auditors limiting their responsibilities is well known… Barclays should have anticipated the existence of such a clause and, in my view, must have expected some such clause to be present.’

The judge concluded that Grant Thornton is entitled to summary judgment on the basis that Barclays ‘have no realistic prospect of success in the action in the face of the disclaimer’ and there is ‘no good reason’ why the action should go to trial.

A Barclays spokesperson said: ‘We are disappointed in the Court’s decision relating to our claim against Grant Thornton LLP, the former auditors of Von Essen Hotels Ltd. We will however continue to pursue all avenues available to the bank to recover sums lost in connection with the loan facilities granted to Von Essen.’

Addleshaw Goddard is also currently advising Barclays in a dispute to recoup money loaned to partners of collapsed US firm Dewey & LeBoeuf, an instruction the firm picked up following the hire of partner Richard Clayton from TLT.