Business Law & Compliance

A guide to professional negligence claims

8 min read

13 August 2014

Although problems are relatively rare, smaller businesses are just as likely to suffer from an accountant or solicitor’s negligence as plcs. Nor are their directors immune from poor financial advice or even surveyor/valuer advice.

The impact can be disproportionately severe on smaller companies yet resources may be limited in obtaining redress. Yet a lack of in-house legal team or cash or time need not prevent swift progress to putting things right.

Typical claims might be:

  • Badly drafted contracts, or leases, preventing termination when required (or allowing a third party to do the same when you don’t want them to!);
  • Company structure and tax advice that leaves an excessive bill or, worse, an accountant who misappropriates company money;
  • Development property purchases where, for example, essential rights of way are not obtained or covenants apply that were not mentioned to you when you bought the site;
  • A survey report that fails to identify serious defects on an investment property;
  • Investments, possibly pensions or unregulated collective investment schemes, that perform badly because they were higher risk than intended; and
  • An insurance policy that did not cover what was requested

All of these potentially allow a claim against the relevant professional.

Loss

First of all you need to calculate your loss. However bad the advice, if it did not result in a loss then no claim can be made. Loss might be the difference in value between the (defective) site purchased and the price paid; but it can also include the cost of putting it right, wasted management time and the lost opportunity of investing the company’s monies in more profitable projects. Interest can also be claimed.

Broadly, losses of less than £10,000 are not worth the costs invested into a legal claim and can be sought in the small claims court at little cost and risk. Anything above that could be worth pursuing.

Bad work

The other essentials that you need to show are:

  1. The professional owed you a duty of care, either because there is a contract between you and them, or because there was a particular relationship that gave rise to the need for that professional to be careful in their work. Usually if the business has retained a professional there will be a contract setting out what they agreed to do but, if not, a claim is still likely under general law; and
  2. The professional must have done a poor job by comparing what a reasonably competent professional in their position would have done. This is assessed by using an independent expert to review the work, although in many cases it is obvious.

Process

If you have identified loss and bad work then these are the usual steps towards redress.

1. Gather all relevant documents

The contract, documents relating to the work carried out and loss. All other e-mails/letters between you and the professional are likely to be relevant and need to be collected and kept safe. Also keep a note of the management cost of dealing with the issue.

2. Make a complaint

Professionals tend to have internal complaints procedures. These can be used to deal with really obvious problems, or lower value issues, but if you do not receive satisfactory replies (quickly), or if the offer of compensation undervalues the damage then legal advice should be taken.

3. The professional should by now have notified their insurers of the potential claim

This is vital so that any damages are paid by those insurers and you do not need to worry about the professional’s ability to pay. Check that the insurers are on notice.

4. For claims worth up to £150,000 against financial advisers or insurance brokers…

There’s a possibility that the Financial Ombudsman Service can be used to provide an independent assessment of the claim and award compensation instead of making a claim at court.

5. If the above has failed then a letter of claim from a solicitor will be needed

The professional has three months in which to provide a reasoned reply. The parties are then expected to consider whether the claim can be resolved out of court. Often this pre-action work deals with the issue.

6. If that is not possible then, and only when all of the above have failed, legal proceedings can be started

Once the parties have set out their cases in writing, the court will set up a timetable to resolve the dispute, dealing with a full exchange of relevant documents, an exchange of written recollections of the witnesses and opinions of experts and then a date for trial. Typically the whole process from Letter of Claim to a trial can take up to two years but earlier settlement is very common indeed.

At any stage mediation can be considered to settle the matter without further legal costs being incurred.

Costs

Usually the losing defendant pays a high proportion of the claimant’s legal costs to make the claim. Bear in mind that if you lose you may become liable to pay the other side’s costs, but this risk can be insured in advance.

To fund the costs of bringing the claim solicitors can use ‘no-win, no-fee’ arrangements although a success fee will then become due. This can be paid out of the damages recovered.

Be careful about time limits

Professional negligence court claims need to be issued within 6 years of the date that loss was caused. Sometimes a claim can be made later if the loss was not known about: in that situation a claim can be made within 3 years of knowledge of the loss. These rules on time limits can be very difficult to apply in practice though so if you are concerned that you may have a professional negligence claim then it is best to seek legal advice sooner rather than later. You may need to ‘fast track’ the steps set out above.

When you make a professional negligence claim you need an expert who really understands what you want to achieve and is committed to making the process as swift and effective as possible. We have a wealth of experience in doing just that and can offer flexible funding arrangements too.

Susan Hopcraft is a solicitor at Wright Hassall who has extensive experience of professional negligence work and advises on all aspects of dispute resolution.