What is professional negligence?

Professional negligence exists when a professional (for example: surveyors, accountants, lawyers, valuers, professional trustees) within his specific area fails to meet the required standard of responsibility (i.e. has been negligent) and, as a result of his actions, has caused another party to suffer loss enabling a claim to be brought against him. Such actions include: breach of duty of care in tort; breach of a contractual term; breach of a fiduciary duty; or breach of a statutory duty. Damages for such claims seek either to put the claimant in the position he would have been in if the contract had been properly performed (contractual negligence claims) or to put the claimant in the position he was in prior to the tort taking place (negligence claims in tort). Generally, only under contractual negligence claims can the claimant seek to recover future economic loss.

The claim is usually brought by the professional's client, although there are occasions where it is possible for third parties to also take action. For most professions, professional indemnity insurers will be involved, even before solicitors are instructed, and the professional's role in the matter may become secondary as the insurers take an active role in managing the claim.

When bringing or defending a claim there are certain steps that need to be followed under the Professional Negligence Pre-Action Protocol, these are explored in more detail below.

The basic requirements

A negligence claim requires evidence to show that the professional breached his duty to the claimant, that the claimant relied on the actions (in most instances, the advice) of the professional, and that the breach caused the claimant loss. Should there be any break in the chain, this may enable the professional to raise a defence. In contract the standard of care may be expressed in the contract itself or by statute (i.e. the requirement for reasonable care and skill under section 13 Supply of Goods and Services Act 1982). Whilst the standard of care owed in tort is broadly that the error made by the professional is one that no reasonable member of his profession, in the same circumstances, would have made. It is important to remember that the professional may owe duties both in contract and in tort (see below).

However, professionals' duties are not endless and certain limits have developed through common law, for example, solicitors are not expected to give commercial advice on transactions.

Professional negligence under contract

When considering contractual professional negligence, the starting point is to examine the professional's retainer and contract to determine the scope of their duties. Further, the retainer (which remember may have been varied through correspondence, and which should also be checked) should clarify whether the professional was asked to advise on the whole transaction or matter, or only part of it; for example, in relation to lawyers, was tax advice expressly excluded?

Professional negligence under tort

A tortious duty can arise regardless of whether there is also a duty in contract and it is for the claimant to elect which action is most favourable to him when considering the available damages and what, if any, hurdles may exist. As explained above the standard of care against which the professional will be judged is that of the reasonable member of his profession. It is an objective test and an error alone will not constitute negligence, only if it fails the threshold test.

Quantifying loss

Consideration should always be given to the value of the claim and whether it is financially viable to take action. Instead of taking steps through the Court, it may be more judicious to seek early settlement, where possible.

How to bring a professional negligence claim

The starting point is to identify the type(s) of negligence that has arisen (i.e. contractual, in tort, statutory, or fiduciary?) and to ensure that the requirements for duty, breach, causation and loss can be established. Next, consideration should be given to the value of the claim – is it financially worth pursuing? Thirdly, it is always prudent to put yourself in the professional's shoes to see what defences may be raised, whether there are any issues with the claim (for example, is there a limitation defence? Should a standstill agreement be entered into? Is the loss claimed too remote? Did the claimant contribute to his own loss? Should he have taken steps to mitigate the loss? Is there any contractual provision to limit liability?), and whether there is likely to be a counterclaim?

Once these hurdles have been cleared, the steps set out under the Professional Negligence Pre-Action Protocol should be followed and the client should be advised of its obligations for disclosure and the importance of preserving documents.

In summary, the procedure includes notifying the professional as soon as possible in writing about the claim and asking the professional to advise his professional indemnity insurers. This is typically the stage when the professional (or insurers) involves solicitors to advise on strategy and to handle the claim. The professional has 21 days to acknowledge receipt of the letter, following which the claimant will particularise his claim in a detailed letter of claim. Upon receipt of the letter of claim, the professional and his advisors have three months to investigate and respond to the claim.

Additional points to consider when defending a professional negligence claim

A couple of additional commercial points to consider when defending a professional negligence claim are: Is there a counterclaim to bring against the claimant, for example, for unpaid fees? Is privilege a hurdle to overcome for any claim involving lawyers? Is it necessary to consider including a reservation of rights to ensure that the insurers maintain their ability to assert their rights under the policy? Is the policy underwritten by a Lloyd's syndicate which means that certain additional rules apply?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.