Introductioni Legal framework
The core obligation of a professional is to provide services to the client with reasonable care and skill. Such a term is implied by statute2 in the contract of the retainer and usually arises concurrently in tort. A professional is rarely taken to have warranted to the client that any particular outcome will be achieved.
The scope of the 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'.3 In some cases, the court will 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 risk advice given by the professional. In some cases, the courts have adopted nuanced and complex tests for assessing whether the client was properly informed of material risks.4 Another strand of case law allows for the professional to be found liable despite being correct about a matter of interpretation if the court considers that he or she should have warned the client that others could take a different view.5
The role of professional regulation may also be significant in some circumstances: codes of conduct may be asserted as the distillation of good practice or even giving rise to an actionable duty. Many regulatory schemes also 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.6 They tend to be used for single low-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. The exercise of such powers may greatly increase the professional's liability exposure.
In addition to a failure to discharge the duty of care, a professional may also be found liable on other grounds (e.g., for breach of warranty of authority, for breach of trust when safeguarding client funds, and for 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 quantification of loss (see below).ii Limitation and prescription
The limitation period that is 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 quite straightforward to establish the date of the accrual; 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 a number of 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 statutory and case law governing how this works and there is a 15-year longstop provision.
The six-year period can 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. It is also possible to extend the limitation period in certain other cases. 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 (see Section 32 of the Limitation Act 1980). Limitation for claims in equity is subject to more complex provision and needs special care.iii Dispute fora and resolution
Civil claims against professionals are generally brought in either the business and property courts of the Chancery Division of the County Court and the High Court or in the Technology and Construction Court (TCC). The procedure for the prosecution of claims through the courts is set out in the Civil Procedure Rules 1998 (CPR), with Part 60 of the CPR and the related practice direction setting out the procedure specific to the TCC. The TCC primarily deals with claims against engineers, architects, surveyors and accountants where the amount in dispute is in excess of £250,000. The TCC also deals with claims against solicitors that involve technical matters such as planning, property and construction. Additional guidance on the conduct of claims can be found in the Chancery Court Guide and the TCC Guide.
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 the Construction and Engineering Disputes for claims against engineers, architects and quantity surveyors. The pre-action 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 pre-action protocols.
Even after proceedings have been issued, the courts encourage parties to engage in alternative dispute resolution (ADR). This can take the form of direct negotiations or mediation. Again, there is a risk of costs penalties being imposed by the court against any party or parties if they unreasonably refuse to engage in ADR, even if that party succeeds at trial.
Another method used for resolving claims against professionals is arbitration. It is most frequently used in claims involving construction professionals in circumstances where the parties have entered into a contract and it provides for any disputes arising from the contractual works to be referred to arbitration. Arbitration is a non-judicial means of resolving disputes where the parties appoint an arbitrator or panel of arbitrators. Arbitration is sometimes a quicker and cheaper means of dispute resolution than litigation. It has the benefit of being a confidential process but enforceable by the court. The arbitrator's decision is binding on the parties and there are limited grounds of appeal.iv 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'.7 This test requires the careful 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 he or she would have followed such advice so as to achieve some better outcome.8 Where the better outcome also involves the unrestricted volition of a third party the court may award damages for loss of the chance of achieving that outcome.9 Some cases have awarded claimants recovery for lost chances significantly smaller than 25 per cent.10 Defences to professional negligence claims commonly focus on these kinds of causation and loss arguments.
In addition, the courts do not compensate for loss arising from risks that it was no part of the professional's duty to protect against.11 A client is usually taken to have accepted the risks of a transaction in respect of which he or she has not sought advice. This principle traditionally required the court to make fine distinctions between the nature of advice and information provided by the professional, although recently the Supreme Court endorsed a shift towards examining the 'purpose' of the advice.12 The prominence of this principle when assessing a professional's liability tends to eclipse other filters for limiting damages (e.g., arguments that loss is too remote).
Compensation for the other forms of professional liability may be assessed on different bases: for example, the solicitor who incorrectly warrants authority to commence litigation may be liable for damages on the assumption the warranty was true; the professional trustee may be required to restore in full lost trust funds regardless of issues of fault; and the fiduciary that receives an undisclosed profit may be required to disgorge it to the principal even if the principal would have agreed to its retention if it had been disclosed.
Finally, while contractual devices for limitation and exclusion of liability are often used in retainers as a means of reducing liability exposure, they do not feature prominently in reported cases. There are probably two reasons for this: the first is that such devices are subject to statutory control13 and, therefore, are not always effective; the second is that the professional's regulatory arrangements often prohibit or limit their use.14