An In Brief Introduction
Under the law of negligence a manufacturer can be liable for defective products which it puts into circulation. Similarly, negligence law also applies to the provision of services, which in the context of professional liability specifically means the services involved in giving professional business advice. The law’s development in this area has mainly concerned cases involving accountants, but the principles can be equally applied to other professionals such as lawyers or surveyors. In common with other aspects of negligence law, there are a number of elements which must be satisfied before liability can be established. The most crucial of these is that a duty of care exists between the service provider and the injured party.
Liability for Negligent Statements
Liability for negligent statements is an increasing area of law. Following various developments in case law, including decisions being overruled, the courts have established that generally there must be some relationship or proximity between the maker of a negligent statement and the injured party. A contractual relationship is not necessary, but liability is restricted to what is reasonable. To prevent just anybody from making a claim two criteria ought to be considered. First, the injured party must be known as a user of professional statements. Second, the professional who makes the statement must know what the statement will be used for. For example, an accountant negligently overvalues a company’s assets. The accountant also knows that the company is in financial trouble, and that it is searching for investors. An investor is found who the accountant knows is willing to merge with the struggling company solely on the basis of its value as determined in the overvalued financial statements. Ultimately, the merger is not successful. In this situation a duty of care exists between the accountants and the investor, and the accountant is liable for the investor’s losses. Both criteria are satisfied. The accountants know that the investor uses professional statements. They also know what the overvalued financial statements will be used for, namely the merger.
Avoiding and Excluding Liability
One of the most appropriate ways for professionals to avoid liability is for them to adhere closely to the guidelines and recommendations issued by their respective regulatory bodies. Following professional procedures which are accepted as proper practice by those skilled in a particular art may well be sufficient to avoid liability, even if there is a contrary view about what constitutes proper practice. (See, for example, McNair, J in Bolam v Friern Hospital Management Committee ) Although concern has been expressed that some professions might be able to set their own standards, an accountant, for example, who fails to follow guidelines such as the Financial Reporting Standards, unless there is adequate justification, will be seen as being in breach of their duties.
Unfair Contract Terms Act 1977
It may also be possible, under s2(2) of the Unfair Contract Terms Act 1977, to exclude liability, but only if the exclusion is reasonable. Under s11(1) of the same Act, reasonableness is decided according to the circumstances as they were when the contract was made.
For more information on:
- Professional Negligence Insurance
- Companies Act 2006
- Limited Liability Partnerships
- Current Position