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Case update

Published: 02 November 2017

It’s better for the cap not to fit, but in any event time waits for no-one…

In claims against professionals it is not always possible to recover compensation for all of the financial loss that flows, as matter of fact, from the negligent advice. This is because the professional is only liable to pay compensation in respect of loss and damage which he/she is under a legal duty to avoid. A recent ruling from the Supreme Court seeks to provide clarity around the compensation that a professional is legally liable to pay upon a finding of negligence.

Here we seek to summarise the complexity of the law relating to the recoverable compensation for professional negligence.

As a first step it is always important to try and identify whether or not the professional was under ‘… a duty to provide information for the purpose of enabling someone else to decide upon a course of action … [or] … a duty to advise someone as to what course of action he should take…’ (Saamco v York Montague Limited [1997] AC 191 (Paragraph 214d of the Judgment)). This principle gave rise to what became known as the ‘SAAMCO cap’ (from the name of the leading case in which the notion of a ‘cap’ or ‘limit’ on recoverable compensation was discussed).

Earlier this year the Supreme Court (BPE Solicitors v Hughes-Holland [2017] UKSC 21) confirmed that the use of the term ‘cap’ was not in fact correct, not least because the word suggested that there is a maximum sum that can be recovered in any claim. This is not, and never has been, the position. The word ‘cap’  is just a shorthand expression for the legal test which is applied to decide what compensation the professional is legally liable to pay in the event that they are found to have been negligent.

The recent decision of the Supreme Court (BPE Solicitors v Hughes-Holland [2017] UKSC 21) has also confirmed that these principles apply in claims against all professionals, and not just in claims against the valuers (where the SAAMCO “cap” was applied).

As mentioned above one of the most important determining factors when deciding how much compensation a professional is liable to pay in the event that they are negligent is whether or not the duty owed was to provide information, or give advice.

An application of these principles can be seen in a recent case involving a claim brought against accountants (Halsall and others v Champion Consulting Limited and Others [2017] EWHC 1079 (QB)).

The case highlights

In the case in question HM&S alleged that they had been negligently advised by their accountants to invest in tax savings schemes which ultimately proved to be ineffective.

As part of their defence, the accountants alleged that they had simply provided information about the schemes and it was HM&S’s decision whether or not to invest.

The Court, however, had no difficulty in holding that the accountant in question, an experienced tax advisor, had guided the whole decision making process and had therefore advised HM&S what course of action they should take. This meant that the accountants were potentially liable to pay compensation in respect of all the losses that were a reasonably foreseeable consequence of the tax saving schemes proving to be unsuccessful.

There was accordingly no ‘cap’ or limit on the recoverable compensation because the accountant’s role had been limited to providing information to enable HM&S to make their own decision.

Unfortunately for HM&S the question of what loss and damage was recoverable proved to be academic. This was because the Court decided that the claim against the accountants had not been issued in time. Generally speaking a claim in negligence must be brought within six years of the negligent act causing loss and damage, or within three years of the date when the client first had a reason to suspect that he/she might not have been properly advised.

In summary

The outcome in this recent accountants’ negligence claim, and its application of established legal principles, raises two important points for clients to consider:
  1. the importance of always identifying the professional’s actual role in any particular transaction. From a client’s perspective, the more the professional knows, and the more advice that is given in consequence, the better; and
  2. if things do go wrong the fundamental importance of the client seeking advice (on the possibility of bringing a claim in negligence) at the first opportunity.

"This is exactly why we like to work with people who understand the industry and can identify potential issues and create solutions."

Jon Saltinstall, Senior HealthCare Banking Consultant, Lloyds Bank