“You’ve been negligent”

In a increasingly litigious world, these are words to chill the blood of many professionals. The press coverage of claims against multi-national accountancy firms for very large awards has heightened awareness of such liability.

What are the real characteristics of a professional negligence claim?

Try these :

• Firstly, unlike many claims arising from a commercial relationship, the professional is likely to feel that his expertise and reputation are being challenged . Perhaps irrationally but consistent with human nature, the professional may therefore respond at least initially as though he has been personally insulted. It is less common for this “personal” element to show itself in other commercial disputes.
• Secondly most professionals carry professional indemnity (“p.i.”) insurance. This means that a valid claim will almost certainly be paid out, there being the insurance policy to fall back on. On the other hand, the known availability of insurance makes professionals fair game for less scrupulous claimants, especially as most p.i. insurance is written with a substantial excess which may well be lost to the professional in terms of his insurers’ legal fees , win or lose. Also claims whether or not paid out by p.i. insurers may adversely affect the professional’s renewal premium. There is therefore pressure on the professional to settle, at least within the excess.

Usually about services

By the nature of what a professional does, the complaint will be about services provided, not goods delivered. It is generally easier to establish whether goods are faulty than whether a service has been satisfactorily provided. Sometimes the negligence is there for all to see – examples are the solicitor who misses a deadline, the doctor who operates on the wrong patient, the surveyor who values the wrong building. There is even a legal doctrine specific to negligence,“res ipsa loquitur”, i.e. “it speaks for itself”. However in many cases the the negligence is not that clearcut.

Probability plays a role

It is a fundamental of English law that a claimant – in professional negligence cases the professional’s client – must prove his case on “a balance of probabilities”, i.e. more than 50% probable. To do so in a case which is not clearcut, the client will require expert evidence from an appropriately qualified third party . There is a catch here. The client will need that evidence before issuing to ensure that he has at least an arguable case. The professional or his insurers will probably obtain their own expert evidence. If matters rested there, the two experts would battle it out in Court if they could not agree – all well and good. However the Court Rules and the Judges prefer that there be a single joint expert – who obviously will not be one of the parties’ experts – and this introduces the twin evils firstly of uncertainty of outcome and secondly of further expense, at a stage when costs may well already be considerable. On the other hand, the findings of a single joint expert are very likely to resolve the dispute at least as far as the issues on which the expert is appointed are concerned.

Patience is essential

Most professional negligence claims proceed through the Courts, rather than by arbitration (which tends to apply mainly to the construction industry). The Court Rules impose on the parties a “protocol” for professional negligence claims which provides for a very extended timetable before issue of proceedings and which can be exploited by those representing professionals to cause many months of delay. Patience is required!

Insurers as a rule are not in business to pay out claims; the more claims they can head off the more profitable they are. A client making a claim against a professional can therefore expect both his resolve and his wallet to be tested in the early stages of a claim , firstly by being tested as to his arguments and evidence supporting the claim and secondly by being forced as a result to spend money with his legal team .

Making a successful claim

The law of negligence is often misunderstood and it is vital to appreciate what is required for a successful claim. Negligence has the following components:

A duty of care must exist owed by one party ( the professional ) to the other party ( the client ). Generally that duty exists where a professional is acting in the course of his profession for a client;

There must have been a negligent act, i.e. an act by the professional which fails to come up to the standard required by the duty of care. That standard is one of reasonable care to be expected of a competent professional in the exercise of his profession having regard to all relevant circumstances.

There must be loss arising as a result of that negligent act. The loss does not have to be actual – it can be future loss. Often claims in professional negligence cases are for “loss of a prospect” or “loss of a chance” (the same thing). For example, certain solicitors have been known to allow cases to be struck out because of their neglect – in such situations the Court in the ensuing negligence action by the client against those solicitors would have to assess the client’s chances of success in the action struck out , i.e. the prospect the client would have had of winning the case had it been allowed to continue. It follows that if the Court decided that the client would not have won that case, then sadly and ironically the negligent solicitor will have done the client a favour by allowing the claim to be struck out and no loss arises.

If the client’s loss does not arise from the act of negligence, then there can be no claim. So for example, if a structural engineer designs a building for a particular site which if built to that design would collapse, but if it proves impossible to build the building because of a restrictive covenant affecting the site, then there is probably no loss arising from the negligence.

A claim in professional negligence may well include a claim for economic loss. Such loss is recoverable in principle provided there is a relationship between the parties analogous to a contract. Be watchful therefore where a professional has subcontracted out work to a third party – the relationship analogous to contract may not exist. Economic loss is notoriously difficult to prove as to amount, generally being for loss of profit or contribution and often very speculative; Judges inevitably take a very cautious view in that situation. Finally economic loss often involves expert evidence from accountants and perhaps other professionals (for example in building cases) and this can be very expensive.

A professional’s liability may be limited in other ways. It may be that the extent of the service provided and thus the duty of care is limited by contract between the parties. For example a tied financial advisor is unlikely to have a duty to give best advice as to insurance products outside those of the company to which he is tied. Building contracts often define very clearly the obligations of an architect or supervising officer ; it is unlikely a duty exists to go further than those obligations.

In addition, some contracts with professionals incorporate exemption clauses. This remains a troublesome area of law because unusually in commercial law, the Judge is required to exercise discretion, in this case as to whether reliance on the exemption clause is reasonable in the circumstances . We have produced a specific information sheet on the subject of standard trading conditions including exemption clauses and will happily provide this on request. Suffice it to say that we would expect a Court as a general rule to be unimpressed with a professional firm or body seeking to rely on an exemption clause, although in appropriate circumstances there is no reason in principle why this should not be done. It does however follow that it is well worth taking legal advice in advance on other than the most straightforward of contracts for professional services.

The format

The conduct of a professional negligence action follows largely the format of other civil cases. If it is a substantial case, it may be referred to one of the specialist judges at a regional trial centre. However before issue the protocol referred to above requires the following:

An initial written indication that a claim may be made;

A copy of that indication in the hope that the professional will pass it on to his insurers (he would be most unwise not to , but it does happen);

A detailed letter of claim as soon as possible itemising the negligence and the loss arising (which should be quantified if possible);

The professional/his insurers then have a period of 3 months in which to investigate the claim and reply, particularly as to whether it is to be contested or not and if so why. They can and often do ask for that time to be extended;

There is generally provision of documentation relied upon or asked for by either side.

Beware the pitfalls

N.B.Here is a trap for the unwary. Often in professional negligence cases the potential negligence becomes apparent before the final bill is drawn up/paid to the professional. Clients who consider a professional has been negligent are understandably reluctant to pay. The non-payment may however entitle the professional to claim a “lien” on the papers in his possession which might prove the negligence. Also, some professions, notably the accountancy profession, take the view that files belong to the professional, not the client; solicitors accept that a file once paid up to date belongs to the client.

There are three ways round this:

• pay the invoice, but do so without admission, reserving all rights and under protest. This may not appeal but where only small sums are involved, it is practical;
• some professional bodies, notably the Law Society and its complaints arm, seem to deplore such conduct and on a formal complaint may require release of the file;
• as a last resort, threaten an application to the Court for “pre-action disclosure” by which the Court is empowered to order disclosure of documents necessary to a prospective claimant , here the client, who has reason to believe he may have a claim but needs access to documents in the hands of another, here the professional , to verify this. Our expectation is that most Judges hearing such an application would be taken aback that matters had got this far without co-operation from the professional/his insurers and might well order costs against the professional for unreasonable conduct of litigation.

The “Summary Judgement”

In certain unusual cases it may be possible to apply to the Court for “summary judgment” or a payment on account of damages expected to be awarded to the client. The burden on the client in either application is very high indeed and is really only available in “sure thing” situations. However sometimes a case is that clear-cut and delay may be disastrous to a client (generally for financial reasons, themselves often arising out of the negligence) so that an application can be justified. The beauty of doing so is that money is obtained at an early stage, perhaps only a couple of months into the litigation, rather than after trial many months later.

Mediation matters

Finally a brief word about mediation and alternative dispute resolution (“ADR”). Please bear in mind that mediation is well-suited to professional negligence claims and in our experience more often than might be supposed produces a negotiated result.

In Summary

In summary therefore, professional negligence cases are not a free pot at an advisor’s insurance policy. The onus is on the claimant to make all the running and he can expect insurers for the professional to test him out. Such proceedings can be costly if experts are involved. However because insurers are professional litigators, where they are on risk of losing and when opposed by an experienced and skilled solicitor acting for the claimant, they will aim to settle rather than allow costs to escalate overmuch. All in all once identified as such, a good case will win as insurers well know.

At Cutler Buttery Solicitors, Neil Cutler has 30 years specialist experience of acting in a wide range of professional negligence claims for both claimants and for defendant professionals and their insurers. Please contact Neil Cutler for detailed guidance and advice in relation to all aspects of professional negligence and claims arising.