PROFESSIONAL NEGLIGENCEPROFESSIONAL NEGLIGENCE

PROFESSIONAL SUICIDE: HOW TO AVOID PROFESSIONAL SUICIDE: HOW TO AVOID THIS CATASTROPHE !!THIS CATASTROPHE !!

WHAT IS PROFESSIONAL WHAT IS PROFESSIONAL NEGLIGENCE ?NEGLIGENCE ?

NEGLIGENT ADVICENEGLIGENT ADVICE

NEGLIGENT MISSTATEMENTNEGLIGENT MISSTATEMENT

LINK TO “WROMGFUL ADVICELINK TO “WROMGFUL ADVICE

FUNCTIONS OF THE PROFESSIONALSFUNCTIONS OF THE PROFESSIONALS

PRIMARY FUNCTION IS TO GIVE PRIMARY FUNCTION IS TO GIVE ADVICEADVICE

ALSO TO CARRY OUT INSTRUCTIONSALSO TO CARRY OUT INSTRUCTIONS

THE ADVISER OWES A ‘duty of care’THE ADVISER OWES A ‘duty of care’

to clients and to others affectedto clients and to others affected

What is ‘Advice’?What is ‘Advice’?

Covers a wide range of activity, primarily leading to the providing information and presenting options to be chosen by the client

Examples – plans (of buildings), reports, analyses, audits, business opportunities

What is incorrect advice ?What is incorrect advice ?

Wrong informationWrong information

Incomplete informationIncomplete information

Incorrect analysisIncorrect analysis

Advice that is inappropriate due to Advice that is inappropriate due to misunderstanding the client’s objectivesmisunderstanding the client’s objectives

Consequence of incorrect adviceConsequence of incorrect advice

For the client – financial loss And the right For the client – financial loss And the right to bring a claim for compensation against to bring a claim for compensation against the adviserthe adviser

For the professional adviser – damage to For the professional adviser – damage to professional reputation and loss of clientsprofessional reputation and loss of clients

Compensation for client’s loss is covered Compensation for client’s loss is covered by professional indemnity insurance by professional indemnity insurance premiumpremium

Extent of professional indemnity coverExtent of professional indemnity cover

For mistakes made so extends to civil For mistakes made so extends to civil liability ONLY liability ONLY

Accountants: professional misconduct is Accountants: professional misconduct is punished and is a personal liabilitypunished and is a personal liability

Cover does not extend to advice assisting Cover does not extend to advice assisting the client to avoid criminal chargesthe client to avoid criminal charges

Extent of liability for ’Negligent MisstatementExtent of liability for ’Negligent Misstatement

Caparo v Dickman 1990 shows that to Caparo v Dickman 1990 shows that to bring a successful claim against an bring a successful claim against an adviser three elements must be proved:adviser three elements must be proved:

proximityproximity between claimant and defendant between claimant and defendant ForeseeabilityForeseeability of loss of loss That it is That it is just and reasonablejust and reasonable for the for the

defendant to be liabledefendant to be liable NB each claim is looked at accounting to NB each claim is looked at accounting to

its own material factsits own material facts

Examples of negligent adviceExamples of negligent advice

accountants: Caparo v Dickman 1990 accountants: Caparo v Dickman 1990 shows who can rely on the adviceshows who can rely on the advice

solicitors :Ross v Caunters 1980 shows solicitors :Ross v Caunters 1980 shows obligation to advise a client where failure obligation to advise a client where failure to give advice results in lossto give advice results in loss

Examples of negligent adviceExamples of negligent advice

Solicitors: liability extended to persons Solicitors: liability extended to persons who were NOT CLIENTS bywho were NOT CLIENTS by

White v Jones 1993 failure to carry out White v Jones 1993 failure to carry out instructions; solicitors knew (i.e. should instructions; solicitors knew (i.e. should have been aware) that failure would result have been aware) that failure would result in loss to the beneficiaries)in loss to the beneficiaries)

Solicitors: limit on extended liability for Solicitors: limit on extended liability for professional advisers decided in: Hennens professional advisers decided in: Hennens v Wilson Browne 1993v Wilson Browne 1993