There are certain ingredients to any successful claim against a professional. This note sets them out in broad terms and should allow you to make a basic assessment of what to do next if you think your professional adviser has let you down.
The essentials are:
- That the professional owed a duty of care. This might arise because there is a contract, or because there was a particular relationship that gave rise to the need for that professional to be careful in their work.
- That duty must have been breached by poor advice or work. Did the professional do a poor job by comparison with what a reasonably competent professional in their position should have done?
- Breach must have caused loss, whether by physical damage or financial loss.
Duty of care – existence and scope
Looking at each in turn, a duty of care is relatively easy to show where a contract exists or where there are standard professional/client relations and payment for work. It is not always that clear though.
One of the tests for whether a duty exists is the Caparo v Dickman three stage test. That means that damage must have been a reasonably foreseeable result of poor work, there must have been proximity of parties, and it must be ‘fair, just and reasonable’ to impose liability. That case decided that a company’s auditors did not owe a duty of care to shareholders/investors who purchased shares based on allegedly negligent audited public accounts.
Another famous test is that of Hedley Byrne v Heller which imposes a duty to take care in making statements where there has been a voluntary assumption of responsibility and a special relationship exists.
A more unusual example is where a friend and garden designer owed a duty. She had been doing extensive garden design work, managing a six figure budget, and had thereby assumed a duty of care which was being relied on by her neighbours (Burgess v Lejonvarn). This was even though she was not being paid for her work.
If a duty exists it is also important to be able to show what the scope of that duty was. What did the professional undertake to do? Only if the loss is within the scope of the professional’s duty can damages flow.
How did the professional fall below the relevant standard in that profession? In all cases except solicitor and barrister negligence this will be tested by an expert witness. Their role is to explain what the prevailing standard of care is in any given industry and explain what should have been done in relation to each allegation of negligence. The Court will need to be persuaded by that expert that the professional fell below the applicable standard of work.
This is often where claims fail. You need to show that, but for the negligence, the loss would not have occurred. The defendant must have relied on the negligent advice.
Claimants’ factual evidence on these issues can often be difficult with hindsight. What would they have done differently if the advice or work had not been negligent?
For example, in a claim for negligent legal advice on a lease: if the advice had been better, would the claimants have entered into the lease? If they would have gone ahead whatever the advice then the negligence did not cause loss.
Or failure by an insurance broker to obtain cover; properly advised on the availability would the insured have taken out the cover – not if the premium was too expensive.
The aim is to put the Claimant in the position they would have been in had the professional negligence not occurred.
This can be a complex area of the law and is very fact sensitive. A distinction is made between (i) a professional providing advice on a course of action and (ii) a professional is providing information and the client is making their own decision on what to do. Damages are awarded differently for the consequences of acting on advice and for the consequences of information being wrong. If an adviser is advising on whether to enter into a transaction, then they are more likely to be expected to consider all consequences of the transaction and therefore liable for the full consequences of entering into that transaction if it goes wrong.
In other situations the consideration is whether the type of loss was reasonably foreseeable. If the loss is too remote from the negligent act the court will not award damages. For example, a property is purchased but no building regulations approval exists for an extension, which the conveyancing solicitor failed to tell their client. The solicitor is liable for the loss in value due to no building regulations approval on that part of the house, but not for the other losses due to other defects discovered after the purchase.
Contributory negligence can be an issue. If the professional believes the loss was also caused by, or added to, by the Claimant they can claim ‘contributory negligence’. That can result in the amount of compensation being reduced to reflect the relative blame of each party. Contributory negligence can be up to 100%, effectively meaning the claim fails even where the professional was negligent.
If you lost the opportunity to do something how do the Courts assess those damages? (For example a lost opportunity to negotiate a better deal, or to claim damages in court before limitation accrued.) The lost chance must be real rather than ‘fanciful’ and the court will assess in % terms how much damages to award. It is, for example, unusual to recover more than 70% of what you would have claimed in Court had the claim not become time barred, because the court will assume that the claim was vulnerable to being lost in any number of ways even if it had gone ahead.
Process – Court – Financial Ombudsman
There is a Pre-action Protocol for Professional Negligence (or for architects/quantity surveyors/project managers etc, the Pre-Action Protocol for Construction and Engineering Disputes).
These must be followed so you will need to write a Letter of Claim and wait up to three months for a reasoned reply. The parties are then expected to consider whether the claim can be resolved out of court.
The Financial Ombudsman Service awards up to £350k for regulated professionals such as financial advisers and insurance brokers for negligence occurring after 1 April 2019 (£160,000 for referrals relating to negligence prior to that date.)
You must claim within 6 years of the ‘accrual of the cause of action’, which means the date that damage occurred. In many cases this is when the negligence occurred even if the financial loss has not become clear or quantifiable until much later.
Due to the Limitation Act 1980, section S14A, you can also claim within 3 years from first knowledge of a claim. But great caution is needed here, because it is not when the claimant actually realised their investment was worth half what it should be, but from when they should have suspected a problem.
There is also a 15 year long stop (unless fraud is in issue and then time only starts to run when ‘deliberate concealment’ is discovered).
Professional Indemnity Insurance
The professional should have insurance for their breaches of duty. This is vital, since a claim should only be taken forward if the defendant has the ability to pay any damages awarded.
Key issues can be (i) late notification by the insured, (ii) exclusions for certain types of claim and (iii) there is very unlikely to be any insurance cover for fraudulent acts. Claims for breach of fiduciary duty might be covered though and that is an important, often subtle, distinction.