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Jemma Brimblecombe looks at the decision matrix clients must consider if they are minded to bring a professional negligence claim. Sometimes, of course, it is a new adviser who spots past errors and needs to guide a client on the path to take.
We all make mistakes but in the world of professional advice certain mistakes can be more serious, expensive or consequential than others. They can mean a client has a bigger tax bill than anticipated, a company was undervalued for sale, or fraud was not detected when arguably it should have been.
the merits of bringing a claim
In these and other situations, a claim may arise in relation to negligent advice (or a lack of advice) provided by the client’s accountant, finance professional or solicitor. In order to determine the merits of bringing such a claim there is a negligence framework to consider. The various elements of this are as follows:
Duty of Care: As a starting point, to bring a claim it must be proved that the client was owed a duty of care by the professional involved. The duty is usually evidenced by the written retainer/engagement letter between the professional and client but in the absence of a written retainer it may be implied by the parties’ conduct.
Breach of Duty: Once a duty of care is established, it must then be shown that the professional breached their duty of care, by demonstrating that the services provided fell below the standards of a reasonably competent professional specialising in their area of expertise. Sometimes this requires expert evidence, for example if a valuer has allegedly misstated the value of a property, then a valuation expert would be required to assist with this. At other times, the alleged negligence may be more obvious. For example, an accountant asked by their client to review errors made by the previous accountant, would more than likely have a good sense of whether the original service fell below the standards of a reasonable professional.
Causation: Once a breach of duty has been established, it is necessary to prove that the loss suffered was caused by the negligent act or advice. This is commonly referred to as “causation”.
The relevant test is whether “but for” the professional’s negligence, the loss would still have occurred. A claim will not succeed if the client would have acted in exactly the same way had the professional not been negligent. For example, if a client purchased a house but subsequently discovered there was a defect with the property (which the solicitors should have picked up on) but there is evidence to suggest this was the client’s dream home and they were always going to buy it then they will struggle to pursue a negligence claim.
Loss: If causation is established, there can then be consideration of entitlement to damages. Damages are generally assessed from the date of the breach. The usual principle is that the claimant is put back in the position they would have been in had the professional not been negligent. The loss must have been caused as a direct result of the negligence and it must have been reasonably foreseeable.
It may be obvious that a loss has been suffered, but in other cases it may be more complicated, and could for example involve valuing a loss of opportunity (i.e. had the client not received bad financial advice they would have invested money elsewhere) or a loss of chance.
Practical tips
With the above general negligence framework in mind, there are various other steps a client should take and questions that should be asked if there is concern that an advisor has been negligent. These also apply if a new adviser to a client identifies a problem with previous advice when reviewing the files/instructions.
- Relevant documentation relating to the instruction should be collated. Key documents may include engagement letters or any letters confirming the nature of the instruction and the advice/services the professional agreed to provide, any documents in which the client provided instructions and any letters or emails of advice during the course of a matter (including any attendance notes of conversations).
- It is important to check the relevant time period. If the potential negligence was more than six years ago, a claim may be out of time. However, the time limit can be extended where the negligence has only become apparent at a later stage. For example, where HMRC issues a fine or penalty many years after the original advice, it is arguable that the relevant limitation period is three years from the date of knowledge of the facts, which might give rise to a claim. There is a long stop date of fifteen years within which claims must be brought.
- Consider also whether the client has mitigated their loss. Could they easily take steps to do so (or prevent their losses from increasing e.g by selling said property)? If so, then they should act on this because if a claimant has failed to mitigate loss it may be difficult to recover damages for losses which could have been avoided by taking reasonable steps.
- Is contributory negligence a factor? If the client contributed to the losses suffered, then the losses being claimed for may be reduced having regard to the claimant’s share of the responsibility. For example, if a tax adviser is accused of negligence but the client failed to inform them of key information this would give rise to a defence of contributory negligence.
- Finally, a detailed schedule of loss is helpful for the client to pull together based on as much information as possible. As noted above this is not always straightforward but it is useful at the outset of every claim for a solicitor to have a general idea of what a claim is considered to be worth. This also feeds into proportionality and commerciality and whether it is worth the time and investment in pursuing the claim.
Conclusion
Of course, not all mistakes are capable of amounting to professional negligence. And not all mistakes will make financial sense to litigate. However, creative fee options can sometimes make a difference in whether clients decide to proceed. New advisors to a client should be alive to the possibilities as well as the pitfalls of professional negligence claims. It will often fall to them to take a view on the standard of a reasonably competent professional to gauge whether potential negligence has arisen. If, for example, the opinion is such that no competent accountant, lawyer or wealth manager would have advised in the manner seen on a file then very likely there are good grounds for asserting negligence.
This article was first published in Business & Accountancy Daily on 30th September 2024.
Further information
If you have any questions or concerns about the topics raised in this blog, please contact Jemma Brimblecombe.
About the author
Jemma is widely recognised for her skills and experience in commercial litigation. She acts for both claimants and defendants in a wide range of sectors, including financial services, legal services, accountancy, and construction.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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