RBS vs. Bannerman Case: Analyzing the Financial Aspects, Module X

This case study analyzes the RBS vs. Bannerman case, focusing on the financial aspects, particularly the duty of care owed by Bannerman Johnstone Maclay (BJM) to the Royal Bank of Scotland (RBS). The RBS, as a lender, relied on audited accounts provided by APC Limited, audited by BJM. The accounts contained inaccuracies leading to financial losses for RBS. The court considered whether BJM owed a duty of care to RBS, despite the absence of direct contact. The ruling emphasized the importance of a disclaimer by BJM, which was absent. The court ultimately held BJM liable for the losses, underscoring the significance of accurate financial reporting and the responsibilities of auditors to third parties who rely on their work for lending decisions. This analysis explores the implications of this case for financial institutions, auditors, and the broader financial landscape.

Running head: BANNERMAN VS RBS CASE SUMMARY
BANNERMAN VS RBS CASE SUMMARY
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1BANNERMAN VS RBS CASE SUMMARY
BANNERMAN VS RBS CASE SUMMARY
The Royal Bank of Scotland (RBS) was the principal lender of the APC Limited,
whose auditors were Bannerman Johnstone Maclay (BJM). The RBS also had an equity
interest in the APC. The RBS’s facility letters had a requirement, which was that APC
had to provide its audited statements to RBS within six months before the end of its
financial year. The APC limited passed the copies of its audited accounts to the RBS for
assisting the RBS in taking decisions regarding lending.
The RBS relied on those audited accounts, which were provided by the APC.
The audited accounts contained certain material inaccuracies due to which the RBS
suffered great losses, which led the RBS to sue BJM.
The BJM, against this acquisition, applied to strike out the claim, based on the
ground that BJM did not owe any duty of care to RBS.
It was held by the court that the facts raised by RBS were sufficient for the
formation of a duty of care. More importantly, it was further held that although no direct
contact was there between RBS and BJM, BJM could have provided a disclaimer,
regarding their liability to the RBS, when they had learnt that RBS would be seeing the
audited accounts or will be relying on such accounts for the purpose of assisting itself
regarding its lending decisions.
The court, on this ground and based on this fact, held that the disclaimer was an
important factor in supporting the finding of a duty of care in this case. According to
these established facts, the court held that BJM did not provide any disclaimer, which
was sufficient enough to form a duty of care and therefore, held that BJM shall be liable
for the losses suffered by the RBS due to such inaccurate audited accounts.

2BANNERMAN VS RBS CASE SUMMARY