Professional negligence is a big risk to anyone starting a business. But if the worst does happen it pays to be prepared, say Matthew Goodwin

The very nature of being a professional means that, if something goes wrong, your client is likely to look to you to put things right.  Whether you be an accountant assisting with taxes, a valuer advising on the value of a property or any other professional person acting in the course of your business, you will owe what is known as a “duty of care” to the person paying for your services.

A duty of care is an obligation on a professional to provide a quality of service which would be expected of a professional engaged in that business.  An accusation of professional negligence will usually be made when the accuser considers that the professional’s services have fallen below what would be expected of a “reasonably competent professional in that field”.

Professional negligence is a serious matter, but there are various steps that can be taken to limit your exposure should you receive such a complaint.

Is there a claim?

For a professional negligence claim to succeed, there are three key criteria which would have to be found to be present:

Breach of Duty of Care

You must owe a duty of care to the complainant. If you were under a retainer with the complainant or instructed to act in their best interests, it is likely you owed them a duty of care.  It will need to be shown that you have breached this duty by acting below a reasonable level of competency.

Loss

If there is no loss arising from the breach of the duty of care, then there is no claim for professional negligence. If the complainant has not suffered as a result of the breach, they are unlikely to seek to pursue a claim.

Causation

If you have breached your duty of care, and the complainant is claiming a loss, causation means that the loss has to have been caused by your breach.  If the breach, in fact, arises from a separate issue, then the claim for professional negligence will not succeed.

These are of course very headline tests.  If you are in receipt of any allegations of professional negligence, you should seek legal advice.

Don’t Bury Your Head in the Sand

Whilst you may consider that there is no real claim for professional negligence, an accusation of professional negligence should be carefully considered. Do not ignore it.  If you receive an accusation, either respond to it in the best way you can, or ask your solicitor for assistance. 

Some professional negligence claims may well be “try ons”, but the best way to sort the wheat from the chaff is to treat all claims on an even keel.

Notify Your Insurer

If you have professional indemnity insurance, which is a requirement in some professional industries such as financial advice, then you should notify your insurer immediately upon identifying the possibility of a claim against you.

Take Legal Advice

As briefly set out above, there are lots of steps which need to be present for a professional negligence claim to be a cause for concern, both procedurally and legally.  You should consider taking immediate legal advice.  Most solicitors would be happy to have an initial no obligation discussion as to a claim you receive.

Consider Every Claim Neutrally  

Naturally, there is a tendency to be defensive when accused of negligence. However, sometimes errors are made and need to be addressed. Accepting where there are problems at an early stage, can enable significant costs to be saved and may also enable you to retain clients, even if matters have gone wrong. If you do have insurance in place, it is important that you do not make any admissions without your insurer’s consent.

Retain Relevant Documents

As soon as you are aware of a potential issue, you should make sure that you collate all documents (both physical and electronic) which relate to the claim. They will be required to be disclosed if the matter proceeds to Court and will be important for your solicitors to review them to understand the strength of your position.

Pre-Action Protocol for Professional Negligence

The Pre-Action Protocol for Professional Negligence is designed by the courts to enable parties to engage in detailed correspondence about the claim in the hope of avoiding litigation.  Failure to abide by this protocol can lead to costs sanctions from the courts.

In order to satisfy the protocol, a complainant should notify you of the claim initially, and then send to you a substantial letter of claim setting out, among other things:

• The identify of any parties involved in the dispute;
• A clear chronological summary of the facts the complaint is based on;
• The allegations of wrongdoing;
• An explanation of how the alleged error has caused loss; and
• An estimate of the financial loss suffered, together with any supporting documents.

Upon receipt of this letter, there are certain timeframes within which you need to act.  You must acknowledge the letter within 21 days, and respond in substantive detail within 3 months of your acknowledgement.

The letter of response is a vital element in the first stages of a claim.  Whilst it is not binding in subsequent litigation, it sets out the key points you intend to rely on in defending the subsequent claim.  It can also be a vital tool in avoiding litigation and entering substantive negotiations with the complainant, if that is your intention.   

Summary

Receiving a complaint of professional negligence is very serious.  There are various steps which need to be satisfied for any such complaint to gain any traction, but the earlier these complaints are dealt with, the less management time and pressure you will suffer in the long run. 

Matthew Goodwin is a solicitor in the Professional Negligence team at Wright Hassall LLP