In these proceedings, the claimant lender
(“HIT”) alleged that it had entered into a loan
agreement in reliance upon a letter written by the Defendant
accountants and that it had suffered loss as a result.
HIT entered into the loan agreement with Hatchford
Ltd, a single purpose vehicle incorporated to acquire a development
site in London. The prime mover behind Hatchford Ltd was a Mr
Schreiber. On 12th April 1989, Hatchford Ltd contracted to purchase
the site for GBP3.6 million.
HIT agreed to finance the purchase by providing a
loan facility for GBP3 million for a period of one year, with Mr
Schreiber providing a personal guarantee. It was a condition of the
advance that HIT received a satisfactory accountants’
reference for Mr Schreiber plus a net worth statement on Mr
Schreiber signed by his accountants.
The Defendants had for many years been accountants
to Mr Schreiber and auditors to various companies owned or
controlled by him or members of his family. Mr Schreiber asked the
Defendants to provide a reference for him which they duly did. HIT,
however, insisted on a net worth statement. Accordingly, Mr
Schreiber asked the Defendants to provide information concerning
his personal net worth.
Following this request, the Defendant accountants
wrote a letter to HIT dated 18th May 1989 in the following
“O Schreiber Esq
Further to our recent letter, we have been asked to
provide information concerning the personal net worth of the above
We can confirm that, according to the information
provided to us, the net asset worth of Mr Schreiber, including
properties at valuation, is in excess of GBP3.3 million.
As previously advised, Mr Schreiber has been known
to us as a client for many years”.
Thereafter, the loan facility was granted and the
purchase of the site completed.
Hatchford Ltd proved unable to repay the loan, and
in 1992 Mr Schreiber was made bankrupt. In 1994 the site was sold
for GBP1.45 million.
At first instance, the Judge held that the
Defendants owed HIT a duty of care in tort and that the letter of
18th May 1989 amounted to a statement of net worth which overstated
Mr Schreiber’s assets by GBP2.9 million. On that basis, the
Judge found in favour of HIT and awarded damages of GBP2.68
million. The Defendant accountants appealed.
The Defendant accountants owed a duty of care in
tort to HIT in relation to the letter dated 18th May 1989.
The test was whether the Defendants assumed
responsibility to HIT for the letter and that test was an objective
one. On the facts, the Defendants wrote the letter as Mr
Schreiber’s accountants and were aware that the letter would
be relied upon by HIT in advancing a loan to their client.
Accordingly, the Defendants must have known that HIT would expect
them to exercise reasonable care and skill before writing the
The Court of Appeal held, however, by a 2 to 1
majority, that the Defendant accountants were not in breach of this
duty of care.
The true construction of the letter dated 18th May
1989 was that it was not a statement of net worth. It was merely a
statement that, according to the information provided to the
Defendants, the net asset worth of Mr Schreiber, including
properties at valuation, was in excess of GBP3.3 million. The duty
owed by the Defendants to HIT was to take such care as a reasonable
accountant would take before writing such a letter. This involved
ensuring that the information provided by Mr Schreiber was
consistent with other information available to the Defendants as
his accountants and ensuring that the information was passed on
On the facts, prior to writing the letter of 18th
May 1989, Mr Schreiber came to see the Defendants with a
handwritten list of assets which was supported by a number of
documents. The Defendants considered each of the items and almost
every figure was adjusted after discussion with Mr Schreiber. The
Defendants then prepared a typewritten list of assets totalling
GBP3.36 million which was then signed by Mr Schreiber. In relation
to some of the figures, the Defendants relied upon what they were
told by Mr Schreiber, who was their client and of whom there was no
reason to be suspicious. Indeed, at that time, the property market
was booming and there was no reason to foresee that the value of Mr
Schreiber’s property assets would collapse.
The Defendants did no more than write a letter
saying that, according to the information provided to them, Mr
Schreiber’s net worth was in excess of GBP3.3 million. That
was true. There was no indication in the letter that the
information had come from any source other than Mr Schreiber, apart
from the property valuations. Nor, because of the way in which
HIT’s case had been put (ie that the letter was a statement
of net worth) was there any expert evidence before the Court to
justify a finding of negligence on a broader basis (eg that
inadequate verification had been undertaken).
Accordingly, the Defendants’ appeal was
- This case is an interesting example of the importance of
analysing the extent of a duty of care when considering the
liability of a professional to a client or third party. In the
present case, the Defendant accountants were not expressly
instructed to provide a net worth statement and the letter of 18th
May 1989 did not amount to such a statement. Peter Gibson LJ
“On any footing a net worth statement by an
accountant would involve a detailed verification process akin to an
audit such as would enable the accountants to certify or warrant
the net worth of assets less liabilities”.
- The provision of such “letters of comfort” to third
parties can pose particular problems and professionals should guard
against assuming a voluntary assumption of responsibility to
non-clients, save in circumstances where the implications have been
fully and properly considered. In this regard, the potential
liability risks are exacerbated by the commercial context and the
inherent conflict of interest.
- As this decision demonstrates, the form of words used will be
critical. Indeed, it is generally advisable to include an express
disclaimer stating that the information is for the private and
confidential use of the third party to whom it is addressed, that
it is provided only in connection with the particular transaction
in contemplation, and that the letter is based upon information
provided to the professional, the accuracy of which has not been
independently verified. Any such disclaimer will be subject to the
“reasonableness” test of the Unfair Contracts Terms Act
- In view of the successful appeal on liability, it was not
necessary for The Court of Appeal to determine a number of
interesting issues on quantum relating, in particular, to
“the foreseeable consequences of the information being
wrong”, per Lord Hoffman in South Australia Asset Management
Corporation v York Montague Limited, United Bank of Kuwait plc v
Prudential Property Services Limited and Nykredir Mortgage Bank plc
v Edward Erdman Group Limited  (IRG Bulletin No. 28).
- In the present case, the accountants submitted that the
claimant lender should not be put in the same position as if they
had not made the loan, but rather in the same position as if they
had made the loan, backed with the level of security they believed
they had. Accordingly, the accountants argued that damages should
be limited to the amount which the lender would have been unable to
recover from the guarantor, had his net assets been in excess of
GBP3.3 million (as per the accountants’ reference), less the
dividend received in the guarantor’s bankruptcy.
- As a result of the successful appeal on liability, the
practical interpretation of Lord Hoffman’s Judgment remains
open to debate, particularly in the context of professional
liability. In this respect, the important distinction between the
duty to provide information and the duty to advise what course of
action a party should take will doubtless be the subject of future
judgments as the courts seek to apply the principles laid down by
the House of Lords.
CMS Cameron McKenna acted for the accountants (HIT
Finance LTD v Cohen Arnold & Co, CA: Judgment 14th October
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