Accountants not in breach of duty to third party lender

United Kingdom

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 terms:

“O Schreiber Esq

Further to our recent letter, we have been asked to provide information concerning the personal net worth of the above named.

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 letter.

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 accurately.

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 allowed.


  • 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 stated:

“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 1977.

  • 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 [1996] (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 1999).

For more informaiton, please contact Peter Maguire in London at or on 0171 367 2893 or Jonathan Wright in Singapore at on 0065 534 1711.