Wednesday February 15, 2023
The principal obligation of a professional is to provide services to a client with reasonable care and skill. Such a term is implied by statute in the contract of the retainer / terms of engagement and usually also in tort. A professional is rarely taken to have warranted to the client that any particular outcome will be achieved.
The scope of a professional’s duty of care is determined by a combination of the terms and purpose of the retainer, the client’s instructions and sometimes the relevant professional regulatory and legal context. The performance of the duty of care is usually judged by reference to ‘the standard of the ordinary skilled man exercising and professing to have that special skill’. In some cases the court may depart from that standard if it imposes unacceptable risk or is illogical.
Increasingly, the issue of liability may be determined by reference to the quality of advice given by the professional. In some cases, the courts have adopted increasingly nuanced and complex tests for assessing whether the client was properly informed of material risks. An alternative avenue of case law allows the professional to be found liable despite being correct if the court considers that the professional should have warned the client that others could take a different view.
Let’s also not forget the professional’s own regulatory body; codes of conduct may be asserted as the required level of good practice or even give rise to an actionable duty. Many regulatory schemes also set out and mandate a framework for client redress and compensation that exists alongside the court jurisdiction. These tend to adopt lower criteria for proof and are usually cost-free to the client. They tend to be used for single low(er)-value claims, but the regulator may also have powers to require the professional to carry out a past business review to identify all clients who have suffered harm and provide redress to them. This may greatly increase the professional’s liability exposure.
In addition to failing to discharge the duty of care, a professional may also be found liable on other grounds (e.g., breach of warranty of authority, breach of trust when safeguarding client funds, breach of fiduciary obligations of loyalty and of acting in good faith in the best interests of the client). These routes to liability may involve the court in adopting different approaches to causation and quantifying loss.
The limitation period most commonly engaged in professional negligence disputes is the six-year period for causes of action in contract and tort.
This arises under Sections 2 and 5 of the Limitation Act 1980. The six-year period starts on the date that the cause of action accrues. In contract, it is usually fairly straightforward to establish the date of the cause of action; it will be when the defendant’s breach of contract occurs irrespective of when damage is sustained. In tort, the cause of action accrues upon the claimant sustaining actionable damage. This is often later than the date on which the breach of duty occurs.
There are several possible extensions and alternatives to the six-year limitation period. Sometimes a claimant will not appreciate that it has suffered damage until after the expiry of the six-year period. Under Section 14A of the Limitation Act 1980, a claimant may bring a claim within three years of the date on which it first acquires the requisite knowledge for bringing the claim. There is a significant body of case law governing how this works and there is a 15-year longstop provision.
The six-year period may be extended by agreement either at the outset of the professional’s engagement (for example, if the engagement is made by deed) or during the course of any subsequent dispute. If the case is based on the fraud of the defendant or where a material fact has been deliberately concealed, the limitation period will not begin to run until the claimant has or could reasonably have discovered the fraud or concealment (Section 32 of the Limitation Act 1980). The limitation period for claims based in equity is subject to more complex provisions.
Dispute and resolution
Claims against professionals are generally brought in the Business and Property courts of the Chancery Division of the County Court and the High Court. Claims against engineers, architects, surveyors and accountants can be commenced in the Technology and Construction Court where the amount in dispute is over £250,000. The Technology and Construction Court can also deal with claims against solicitors that involve technical matters such as planning, property and construction.
Prior to commencing proceedings, parties are expected to have adhered to a pre-action protocol. There is a Pre-Action Protocol for Professional Negligence Claims and a separate Pre-Action Protocol for Construction and Engineering Disputes for claims against engineers, architects and quantity surveyors. The Protocols provide a framework for parties to resolve disputes without involving the court. The court may impose costs sanctions on parties who fail to comply with the Protocols.
Throughout proceedings, the courts encourage parties to engage in alternative dispute resolution (ADR). This may take the form of direct negotiations and/or mediation. There is a potential cost risk being imposed by the court against a party or parties if they unreasonably refuse to engage in ADR, even if that party eventually succeeds at trial.
Other forms of ADR include arbitration, adjudication and expert determination. These may be a quicker and cheaper means of dispute resolution than litigation.
Remedies and loss
The aim of compensatory damages for professional negligence is to award ‘the sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong’.
This test requires identification of the nature of the advice that ought to have been provided and, thereafter, the claimant will have to prove on a balance of probabilities that they would have followed such advice so as to achieve some better outcome.
The court may award damages for loss of the chance of achieving that outcome. Some cases have awarded claimants sums in respect of a lost chances significantly smaller than 25 per cent of those sought. Defences to professional negligence claims commonly focus on this kind of causation and loss arguments.
Courts do not compensate for loss arising from risks that it was not a part of the professional’s duty to protect against. A client will usually be taken to have accepted the risks of a transaction in respect of which they have not sought advice. This principle may require the court to make fine distinctions between the nature of advice and information provided by the professional, although courts have recently shifted towards examining the ‘purpose’ of the advice. This principle tends to eclipse other avenues for limiting damages.
Compensation for professional liability may be assessed on different bases.
Finally, contractual provisions detailing limitation and exclusion of liability are often used in retainers as a means of reducing liability to the professional; but they do not feature prominently in reported cases. There are moist likely a couple of reasons for this: the first is that such provisions are subject to statutory control and, therefore, may not always be effective; the second is that the professional’s regulatory arrangements often prohibit or limit their use.