Part 3Business transactions
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RBS’s claim, BJM argued that they did not owe a duty
of care to RBS as RBS could not prove that BJM had
intended that RBS should rely on the accounts to make
further loans. The Scottish Court of Session (Outer
House) held that it was not necessary to prove that
the auditor intended the financial institution to rely on the
financial statements prepared by that auditor for a duty
of care to exist. It was enough to show that the person
making the information or advice available knew that it
would be passed to a third party for a specific purpose
and was likely to be relied upon. The test is whether the
person has knowledge of user and use. The fact that
BJM had prepared the accounts for a statutory purpose
did not mean that they could not assume responsibility
for the accounts in relation to the use made of them by
RBS. BJM could have included a disclaimer in relation to
RBS but they had not done so.
Comment. As a response to the Bannermancase, the
Institute of Chartered Accountants in England and Wales
(ICAEW) has provided guidance to its members about
the purpose of audit reports and the potential liability to
third parties. The Guidance (Audit 01/03 as amended)
makes it clear that auditors assume responsibility for
their audit report to shareholders under the Companies
Act 2006 and that, in the absence of a disclaimer, courts
may take the view that the auditor has also assumed
responsibility to third parties. The ICAEW recommends
the inclusion of the following disclaimer in audit reports:
This report is made solely to the company’s members, as
a body, in accordance with [Sections 495 and 496/
Sections 495, 496 and 497*] of the Companies Act 2006.
Our audit work has been undertaken so that we might
state to the company’s members those matters we are
required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other
than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions
we have formed.
*Include reference to Section 497 if the company is
quoted.Valuers and surveyors
The scope of liability for negligent statements by valuers
and surveyors was considered in the following cases.in part on S’s failure to act on CW’s (and his solicitor’s)
advice to obtain specialist independent financial advice.
The Court of Appeal rejected the defence. This kind of
advice was within the competence of a general firm of
accountants. S was entitled to expect that CW would act
as ordinarily competent accountants would have acted,
i.e. to have advised S to structure the purchase in such
a way as to minimise tax liabilities.Sayersv Clarke-Walker (a firm)(2002)The claimant (S) alleged that the defendant firm of
accountants (CW) had acted negligently in that they did
not give him proper advice about the tax implications of
buying a substantial shareholding in a company. The trial
judge held that CW had been negligent in failing to struc-
ture the purchase in such a way that S’s liability for tax
would be minimised. The defendants based their appealYianniv Edwin Evans & Sons(1981)The claimants agreed to buy a house for £15,000 with
the aid of a £12,000 mortgage from the Halifax Building
Society. The building society instructed the defendants, a
firm of surveyors and valuers, to value the house for them.
Although the claimants had to pay for the valuation, the
contract was actually between the building society and
the valuers. The building society made it clear that it did
not accept responsibility for the valuers’ report and that
prospective purchasers were advised to have an inde-
pendent survey carried out. The defendants’ valuation
report indicated that the house was satisfactory security
for a £12,000 mortgage. After the claimants had pur-
chased the property, they discovered structural defects
which would cost £18,000 to put right. The claimants
successfully sued the defendants in negligence. Despite
the standard building society warning, only 10 –15 per
cent of purchasers have independent surveys carried out.
It was reasonable, therefore, that the defendants should
have the claimants in contemplation as persons who
were likely to rely on their valuation. The relationship
between the parties gave rise to a duty of care. Accord-
ingly, the valuers were held liable.Smithv Eric S Bushand Harrisv Wyre
Forest District Council(1989)
In a twin appeal, the House of Lords had to consider the
scope of valuers’ and surveyors’ liability for negligence
and the effectiveness of any disclaimer of liability. The facts
of the two cases were similar. The details of the Harris
case are as follows. The claimants, Mr and Mrs Harris,
were a young couple buying their first house. They applied