A professional who owes a duty of care under Hedley Byrne v Heller will often try to limit exposure by inserting a disclaimer into an engagement letter or a report. Whether that disclaimer bites is not a matter of drafting alone. The Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015 (CRA) between them decide which disclaimers survive, and the courts have been active in policing the line.
A disclaimer of liability for negligent misstatement is a contract term, or a notice if given to a third party outside contract. Either way it is subject to a statutory reasonableness or fairness test.
Section 2(1) of UCTA voids any term purporting to exclude liability for death or personal injury caused by negligence. Section 2(2) permits exclusion of liability for other loss caused by negligence only in so far as the term or notice satisfies the requirement of reasonableness. UCTA governs business-to-business dealings and non-contractual notices given to third parties in a business context. The reasonableness test looks at the position of the parties at the time the term was agreed, including bargaining power, availability of insurance, whether the customer had a real choice, and whether the term was specifically brought to attention.
The Consumer Rights Act 2015 replaced the earlier consumer regime. Part 2 applies a fairness test to consumer terms and notices. A term is unfair if, contrary to good faith, it causes a significant imbalance in the parties' rights to the detriment of the consumer. A term excluding liability for services performed without reasonable care and skill sits on the CRA's grey list and will rarely stand.
Courts have upheld disclaimers where the surrounding facts show a genuine allocation of risk between commercial parties of comparable sophistication. Relevant features include:
In First National Commercial Bank v Loxleys [1996] EWCA Civ 1383 the Court of Appeal held that a solicitor's disclaimer directed at a commercial lender was arguably reasonable and refused to strike it out at the interlocutory stage, precisely because the bank was a sophisticated commercial party well able to protect itself.
The seminal authority is Smith v Eric S Bush [1990] 1 AC 831. A surveyor engaged by a mortgage lender sought to disclaim liability to the residential purchaser who saw the valuation. The House of Lords held the disclaimer unreasonable under UCTA. The purchaser was a consumer of modest means buying a modest home, with no realistic opportunity to commission her own survey; the surveyor knew she would rely, and the disclaimer offered nothing in return. In Scullion v Bank of Scotland [2011] EWCA Civ 693 the Court of Appeal held that the Smith v Bush reasoning did not extend to a buy-to-let investor, who was a commercial purchaser expected to take his own advice.
A management consultancy is engaged by a mid-sized manufacturer to write a strategic review. The engagement letter states: "This report is prepared for the addressee and the consultancy accepts no liability to any third party who may see it." The manufacturer shares the report with a bank to support a lending application. The bank lends against the projections, the projections prove negligent, and the loan sours.
Under UCTA the question is whether the disclaimer is reasonable. Relevant factors include whether the consultancy knew the report would be shown to a specific identified lender (a Smith v Bush-style factor pointing against the disclaimer), whether the lender was itself a sophisticated commercial actor able to commission its own review (a Loxleys-style factor pointing towards the disclaimer), whether the disclaimer was specifically drawn to the lender's attention, and whether the client had any real ability to negotiate the term. Where the consultancy knew the lender by name and the lender had no opportunity to bargain, the disclaimer often fails on Smith v Bush grounds.
A disclaimer buried in the boilerplate of a standard engagement letter, applied uniformly to every client and never specifically discussed, will struggle under both UCTA and the CRA. A disclaimer that is negotiated, priced in, and clearly communicated to any identified third-party recipient stands a much better chance. See also assumption of responsibility - a well-drafted disclaimer can defeat the assumption itself before the statutory test is reached.
The commercial reality is that primary reliance for negligent-misstatement exposure is on professional indemnity cover, not paperwork. Practitioners in the professions Apex serves - see the management consultants PI guide, the accountants PI guide, and the surveyors PI guide - should treat disclaimers as one line of defence among several rather than a substitute for adequate cover.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.