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Clause & Effect

A recent court ruling relating to Bannerman clarification language is good news for auditors. Jane Howard explains.

Many auditors will welcome the recent ruling of the English Commercial Court in Barclays Bank plc v Grant Thornton UK LLP, which confirmed the efficiency of a 'Bannerman disclaimer' intended to preclude liability to third parties for the content of an audit report (see here).


The claim arose after Grant Thornton (GT) was engaged to perform non-statutory audits of the Von Essen Hotels Limited Group (VEH) and certified that the resulting reports for 2006 and 2007 gave a true and fair view of the group’s financial affairs. However, GT was provided with false information about the performance of VEH by two of its key employees.

Barclays said the effect of this was to make it appear that VEH was able to meet covenants in a loan facility being provided by Barclays, when it could not. Barclays said it relied upon the erroneous audit reports in advancing loans to VEH and, as a result, sustained losses of some £45m when VEH went into administration in April 2011.

The claim

Barclays contended in its ‘Particulars of Claim' that GT owed it a duty of care in respect of the content of the audit reports on the basis that the auditor knew the bank would place reliance upon them, and that GT’s duty of care was breached by its failure to uncover the alleged fraud of the two employees.

This is an extract from an article in the September 2015 edition of Audit &Beyond, the magazine of the Audit and Assurance Faculty.

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