Sally is the audit partner of Accountants4U and regularly advises on takeovers.

She was
asked to speak at a board
meeting of GWZ Ltd which was planning a takeover of THT Ltd (a client of Sally's) as the
latest audit report showed
very good profits. During the meeting she said that she absolutely stood by the results of
THT Ltd which she had
signed off.
The takeover went ahead, but soon after GWZ Ltd found that THT Ltd was in fact close to
insolvency rather than
being profitable. It is now looking to sue Accountants4U for negligence.
Advise Sally as to whether or not her firm would be liable for a claim of negligence brought
by GWZ Ltd.
(10 marks)

Accountants4U.
Liability
Accountants4U would be liable to GWZ Ltd for negligence if GWZ Ltd can prove:
Accountants4U owed them a duty of care
It breached that duty of care
As a natural consequence of the breach they suffered damage
Duty of care
In the case of Caparo Industries plc v Dickman (1990) it was decided that auditors owe a
duty of care to the
shareholders of a company in respect of their audit work. This duty does not extend to the
world at large or to
shareholders increasing their stakes in the company.
This means that GWZ Ltd is not owed any duty in respect of its reliance on the accounts for
making its investment
decision. However, the company could argue that a 'special relationship' had been
established. Firstly, since
Accountants4U provided information in the knowledge that GWZ was contemplating an
investment and secondly,
that GWZ would rely on the information provided by the senior partner when deciding
whether or not to proceed.
Similar facts occurred in ADT Ltd v BDO Binder Hamlyn (1995). In this case, similar
comments were made by an
audit partner in respect of a proposed takeover. The court decided that the auditors
assumed responsibility for the
comments made and held that a duty was owed.
It is therefore likely that GWZ Ltd is owed a duty of care by Accountants4U.
Breach of duty
Where auditors provide information that is to be used in important business transactions, a
higher standard of care
is required, Morgan Crucible Co plc v Hill Samuel Bank Ltd and others (1990). On the facts of
the case it is likely
that Accountants4U will be found to have breached this duty as they did not carry out any
extra work to support the
advice given by Sally.
Causality
It is clear that the negligent advice caused the loss to GWZ Ltd had they been advised that
the figures were

inaccurate then it is unlikely that the takeover would have gone ahead.
Defences
Volenti non fit injuria does not apply in this case and the actions of GWZ Ltd seem
reasonable in the circumstances.
Therefore Accountants4U would not have a defence to a claim against them.
Conclusion
On the facts of the case and that of ADT Ltd v BDO Binder Hamlyn, it is likely that GWZ Ltd
could recover damagesfrom Accountants4U for the loss they suffered.

Amjad Ltd had used the services of Lahore Transport Ltd for a number of years. On this
occasion, the managing director ofAmjad Ltd telephoned the offices of Lahore Transport Ltd
and arranged for the Lahore Transportation of some expensive machineryto a customer.
Lahore Transport Ltd confirmed the order by sending a notice to this effect. Unfortunately,
due to drivererror, the vehicle carrying Amjad Ltd's equipment crashed and the equipment
was badly damaged. Lahore Transport Ltdhas advised Amjad Ltd that it intends to rely on the
following clause:
'Lahore Transport Ltd will not accept any liability for loss or damage caused to customers'
property during Lahore Transportation,no matter how the loss or damage was caused.
Customers are advised to take out their own insurance.'
Lahore Transport Ltd has pointed out that the clause appears in a notice prominently
displayed outside the entrance to the company's offices, and is reproduced on the back of all
invoices, receipts and confirmation of order notices issued by the company.

Answer
Incorporation of exclusion clauses
There are three ways in which exclusion clauses can be incorporated into contracts: by
signature, by notice
and by a course of dealing.
Signature
The terms may be incorporated into the contract by the signature of the other party on a
document bearing
the terms. The signatory is taken to know of the terms, even if they could not read them
(L'Estrange v
Graucob).
Notice
With regard to incorporation by notice, it must be shown that the person seeking to rely on
the exclusion
clause has taken reasonable steps to bring the existence of the clause to the attention of the
other party at
the time the contract was made. Only in limited circumstances will the courts allow the
incorporation of a
term after the contract has been made. Therefore a sign on a hotel room wall was not
incorporated into the
contract between hotel and client since it was not seen until after the contract was made
(Olley v
Marlborough Court).
Nature of the liability
The court will have regard to the nature of the liability which is being excluded when

deciding whether a
clause has been effectively incorporated. If the terms are particularly unusual or wide, a
more prominent
notice may be necessary (Thornton v Shoe Lane Parking Ltd where a notice excluding
liability for injury in an
automatic car park was not sufficiently displayed or referred to at the time the contract was
made).
Course of dealing
Where the parties deal frequently in transactions of a similar nature and on the same terms,
the courts are
ready to hold that the exclusion clause has been incorporated into the latest agreement by
virtue of its being
present in the previous dealings, even if the claimant had never read it. The position is not
as straightforward
where the previous dealings have not been on a consistent basis (eg Hollier v Rambler
Motors which
concerned a consumer contract).
Amjad Ltd
In the case of Amjad and Lahore Transport, the court will consider each of these tests. There
is no evidence that
Lahore Transport's exclusion clause has been incorporated by signature. With regard to
incorporation by notice, it
seems that visitors to Lahore Transport's premises will be made aware of the clause by
virtue of the 'notice
prominently displayed'. However as the order was placed by telephone, it is unlikely that
Lahore Transport can use
this in its defence. Equally, the notice provided with the confirmation of order is provided too
late to be
incorporated into the contract, as the contract has already been concluded by this stage.
Following Olley v
Marlborough Court, this precludes incorporation of the clause by notice to the other party.
The court will also consider the fact that there have been previous dealings between the
parties and will
need to determine whether unspecified dealings over 'a number of years' are enough to
constitute a regular
and consistent course of dealing. In Hollier v Rambler Motors a course of dealing which
amounted to 3 or 4
transactions over 5 years was held not to be sufficient. On the facts given it is not possible
to conclude on
this point.
(b) Statute
Statute law imposes some very important restrictions on the use of exclusion clauses. The
Unfair Contract
Terms Act 1977, which applies to clauses covering business liability, divides these clauses
into two types;
those which are void and those which are valid only as far as they are reasonable.
(c) Conclusion
There has been a breach of contract by Lahore Transport Ltd, involving failure to exercise its
implied duty of
reasonable skill and care in supplying a service under the Supply of Goods and Services Act
1982. An
exclusion for loss due to negligence in other circumstances, in a business contract such as

this one, will be

valid only insofar as it is reasonable (s 2 of the 1977 Act)
Scenario
Aslam was a truck driver employed by Lahore Waste Management Company to port the
wastages collected to the dumping site away from Lahore city every morning. However
company outlined a proper code of conduct for driving such trucks to ensure public safety.
One morning while carrying wastages to dumping site, Aslam drove truck so negligently and
rashly that truck struck a person jogging on track alongside the road. Lahore waste
management company is sued for vicarious liability