When a professional receives notice of a claim, it can be a very concerning time and, often, a professional will not understand how best to defend their position.
Here are some top tips to consider:
Notify your insurer
If you are put on notice of a claim, it is important that you notify your insurer. Failure to promptly notify may result in your insurers refusing to cover your claim. We therefore recommend that you familiarise yourself with your insurance policy so that any deadlines to notify your insurers of potential claims are not missed.
Ensure that you do not destroy any papers
As litigation is contemplated or has already been commenced, it is important that you understand your obligations in relation to the preservation and disclosure of documents which are relevant to this dispute. 'Disclosure' is the term used by the court for the process of the exchange of relevant documents by the parties.
There is an obligation to preserve and disclose not only documents which support your own case, but also those which may be damaging to your own case, or which support the other side’s case. This obligation extends to documents which you once had in your possession but no longer have, as well as those actually in your possession. It also includes documents which you have the legal right to possess such as documents held on your behalf by your accountants, agents etc.
It is important to note that a 'document' includes not only hard copy paper documents (originals and copies), and handwritten items such as telephone notes, but also electronic documents and any other means by which information is stored such as e-mails and text messages. It includes computer hard drives, disks and databases, mail servers, video or audio tape. Information stored and associated with electronic documents known as metadata may also need to be disclosed.
You must not destroy or delete any documents relating to the dispute. All routine destruction procedures must be suspended until the end of the dispute. Do not annotate, amend or mark documents that exist and may be relevant to the dispute.
Failure to properly secure documentation may prove extremely prejudicial to your case. It could result in criticism by the court, adverse inferences being drawn from a failure to preserve relevant documents, and adverse cost orders being made against you by the court. It is vital, therefore, that you both understand and adhere to your responsibilities. If there is anything upon which you need clarification, please do not hesitate to seek our advice.
Prepare a clear chronology of events
As time passes memory fades, write down everything that you can remember that hasn’t been documented as clearly as soon as possible, if your matter progresses, this chronology will assist you when pleading your defence and preparing witness statements in support of your defence.
Remember, the burden of proving the claim rests with the claimant.
It is important to remember that the burden of proof lies with the claimant, and it is possible for a claim in negligence to fail if the claimant cannot show that:
- You owed a duty of care to the claimant (usually either in contract or tort)
- You, as a professional have acted in breach of the duties owed to the claimant;
- This breach has caused the claimant to suffer a loss.
What claims may be brought and by whom?
A professional negligence claim can be pursued as a contractual claim, a statutory claim, a tortious claim, or a combination of any or all.
In order to be successful in proving a professional has breached their contractual duties, a claimant would need to be able to show that they had entered into a contractual arrangement with that professional and that the professional has breached the terms of the contract. Remember, contracts can be in writing or oral and the terms of a contract can be express (expressly agreed by the parties) or implied (not expressly agreed but required for the contract to be properly performed).
Regardless of whether a professional had contractual duties to a claimant, they may well have had tortious duties. By that we mean that the professional may have had a duty of care to the claimant and may have breached that duty.
To succeed in an action for negligence against a professional, a claimant would need to establish that:
- The professional owed a duty to the claimant (contractual and/or tortious).
- The professional breached the duty owed to the claimant.
- The professional’s breach of duty has caused the claimant to suffer loss.
In determining whether you owed the claimant a duty of care, the court will assess whether the damage was foreseeable. If you have held yourself out as specialising in the area of work in which you were instructed and you held yourself out to be someone with the qualification and special skill to carry out the work, it can usually be established that you will have owed a claimant a duty of care
In order to show that the duty has been breached, the claimant is also required to establish that your conduct fell well below the standard required of a reasonably competent professional practising in your area of expertise. That is, that no other responsible and competent professional would have acted in the same way in the same circumstances.
As to loss, it must be shown that any negligent act caused the loss. If the loss would have been incurred by the claimant in any event, then it is unlikely that a professional negligence claim will succeed, even if it can be shown that there was a negligent act.
If a claim exists, is it likely to succeed?
However, even if a professional has been negligent, the claim may, in any event, be unlikely to succeed. For example, as a professional, you may be able to show that:
(a) There has been no reliance on the negligent advice or negligent act:
If a claimant has not relied on advice given or the negligent act, it is unlikely that a professional negligence claim will succeed. For example, in the case of Barness v Ingenious Media Ltd  EWHC 3299, a large number of investors brought professional negligence claims against banks and financial advisers, for losses they had suffered following the failure of schemes, which had been promoted as tax efficient vehicles.
The court found that there were no reasonable grounds for bringing the claims. The judge found that in order for the banks or financial investors to be found to have assumed responsibility, and in order for a duty of care to the investors to have arisen, there would have to have been some communication between the banks and the investors to the effect that the banks were assuming responsibility for the tasks in question. In addition, the investors would have had to rely on that. The judge commented that: "[it was] impossible to see how anyone can bring a claim based on an assumption of responsibility when they have not relied on it".
(b) The claimant would have acted in the same way, regardless of the advice provided by the professional.
Even if the advice provided by a professional is negligent, if the claimant would have acted in the same way, regardless of that advice, a professional negligence claim is likely to fail.
For example, in the case of Zaki and others v Credit Suisse (UK) Ltd  EWHC 2422 (Comm) the claimant lost a total of US$69.4 million on a series of investments. One of the issues required to be determined by the court was whether the professional defendant gave the claimant advice and, therefore, "personal recommendations" for the purposes of the investments.
The court found that the claimant was familiar with the investments and would have invested even if he had received proper advice. Accordingly, the claim failed even though the advisers had been negligent.
(c) The claimant has contributed to their own loss or failed to mitigate their loss.
If the claimant has the opportunity to take action to remedy the situation or to minimise their loss, then the court will expect them to take reasonable steps. Likewise, if a claimant acts unreasonably, which increases its loss, the court will determine the claimant’s conduct as if the claimant had instead acted reasonably.
The burden of proving that a claimant has failed to mitigate the loss will rest with the defendant.
In addition, the obligation to mitigate the loss by the claimant only extends to a requirement to take reasonable steps
What will be considered to be reasonable action by the claimant will be fact specific. However, the following are examples of what steps would be considered to be reasonable steps to mitigate:
- Due to the negligent drafting of a will, beneficiaries to an estate were subject to a substantial tax liability. Whilst the estate had a claim in negligence against the solicitor that drafted the will, in order to mitigate its loss, the estate made an application to the court for permission to retrospectively amend the deed of variation to include provision of the Inheritance Tax Act  and the Taxation of Chargeable Gains Act . The court gave the necessary permission and the beneficiaries avoided the expected liability. The claim against the negligent solicitor was therefore limited to the legal costs incurred in making the necessary application to court.
- Despite providing the necessary undertaking to discharge a mortgage upon completion of a property sale, the seller’s solicitor negligently failed to obtain the discharge from the bank. Whilst the buyer had a professional negligence claim against the seller’s solicitor, the buyer mitigated its loss by liaising with the seller and obtaining the banks consent to the removal of the charge post completion.
If you are faced with a potentially valid claim, what next?
By contrast, if you are found to have breached the duty owed to the claimant which has directly resulted in a loss that the claimant is unable to mitigate their it is likely that you will be put on notice of the potential claim. Given the court rules make it clear that proceedings should only be issued as a last resort, it is likely that, as a professional you will be given adequate time to consider the claim and to liaise with the claimant before any court proceedings are formally issued.
(a) Get advice at the earliest opportunity
It is recommended that you seek advice at the earliest possible opportunity, any delay in the initial stages may affect your actions and decisions as the matter progresses. Seeking advice at the outset will provide you and your insurer with a detailed analysis of your position which will include;
- Merit; the strengths and weaknesses of the claimant’s claim(s) against you;
- Proportionality; if the loss claimed by the claimant is of a relatively low value, it could be the case that pursuing any action would be disproportionate to the value of the overall claim. If parties are likely to incur substantial costs in bringing and defending that claim which could outweigh the overall value;
- Realistic value; taking into account the losses that the claimant may seek to recover from you and/or your insurer;
- Strategy; advice as to how to progress the matter, strategies moving forward and the likely timescales involved.
As explained in (7) above, the court rules make it clear that proceedings should only be issued as a last resort.
Parties should follow the Pre-action Protocol for Professional Negligence (“the Protocol”).
The aim of the Protocol is to assist the parties to resolve the dispute sooner, without resorting to court proceedings.
Parties are encouraged to consider engaging in some form of Alternative Dispute Resolution (“ADR”). The Protocol suggests an assortment of types of ADR including; mediation, arbitration, early neutral evaluation, adjudication and ombudsman schemes.