Disclaimers Of Liability By Third Parties: Not Always Conclusive
Privity of contract means only the contractual parties can take action in the event of a breach. But where a third party is allegedly to blame for a party’s losses – they could be held liable at common law. Further, the presence of a disclaimer clause may not operate to protect a third party from liability.
In a recent professional negligence claim1, the defendant accountants sought summary judgment in a case where it was claimed they had assumed responsibility at common law to the buyers of a company. The judge had to decide whether the claimants had a realistic as opposed to a fanciful prospect of the succeeding in their claim at trial.
Disclaimer
The claimants (who included the buyers) alleged that before a share and purchase agreement (SPA) was entered into, it was discovered that a fraud had been committed on the company, namely that assets in the accounts were double counted; cash receipts inflated; and false invoices created and utilised.
This alleged fraud led, it was claimed, to the buyers paying up to £480,000 more than they should have done under the SPA. A key issue was how effective disclaimers of liability by the accountants to the buyers were, in relation to their auditing and preparation of completion accounts and issuing a completion certificate.
The court noted the absence of any contractual relationship between the buyers and the accountants, with no engagement letter between the two businesses. But was there a duty of care in common law?
The judge found on the facts that the claimants had an “entirely realistic prospect” of proving the accountants had assumed responsibility towards the buyers, notwithstanding the disclaimer clause.
A weighty factor for the court was the existence of a continuing and direct commercial relationship with the buyers, but not the sellers. It suggested that the nature of the relationship could even convey a sense that the individual from the accountancy firm who had been communicating with the company saw himself as part of, or as a support to, the buyer’s professional team.
What does this mean?
While a ruling on the substantive claim is yet to come, the decision not to strike out the claim serves as a warning that the existence of express disclaimer clauses does not, in and of itself, necessarily exclude a common law duty of care.
Accountants and other professionals who undertake specific responsibilities to third parties may be treated as having assumed a duty of care (subject to the existence of an effective disclaimer). In general terms, the judge reiterated that a claimant would have to prove the accountant was:
· Aware of the nature of the transaction which the claimant had in mind
· Knew or ought to have known that their statement would be communicated to the claimant, directly or as a member of a class
· Knew or ought to have known the claimant was likely to rely on the statement in deciding whether or not to proceed with the transaction
The claimant would then have to prove reliance on the statement.
The presence of disclaimer clauses will be an important factor but a part of the bigger picture – not necessarily determinative. Specialist legal advice from commercial solicitors should always be taken.
1Amathus Drinks Plc & Ors. v EAGK LLP & Ors [2023] EWHC 2312 (Ch)
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