What happens if you are let down by a professional adviser?

As the economy opens up in the aftermath of the pandemic, many SMEs will be looking to trusted accountants and lawyers to ensure they take appropriate steps to enhance their businesses as they start to expand. While many advisers prove themselves to be a very effective asset, poor advice from a trusted source could cause significant financial loss for SMEs, and can constitute professional negligence under the law.  Some SMEs will be in the fortunate position of never needing to bring a claim against one of their professional advisors.  But for those that do, that process may be an unfamiliar one. 

What are the most common types of claim?

There is no specific definition of ‘professional’ in this context and the term can cover many different sectors, with more emerging all of the time.  Indeed, the Pre-Action Protocol for Professional Negligence claims – which sets out the steps that the court expects parties to take prior to commencing court proceedings – states that ‘professional’ is deliberately left undefined in the protocol.  The most common types of claim which we tend to see for SMEs are claims against solicitors, accountants and surveyors but that is by no means an exhaustive list. 

When should you make a claim?

If you have doubts about the advice you are given at the time, then it is sensible to challenge it at that point and seek clarification from the professional advisor in writing.  If though those concerns arise some time later, then it is important to act quickly to see if it is possible to limit any damage and, if necessary, commence a legal claim against the professional within the relevant time limits.

Ensuring that you instruct regulated and well-respected professional advisors, and seeking advice from a true specialist in the particular area in question (especially important for SMEs operating in niche areas), are sensible steps to reduce the chances of ever needing to bring a claim at a later date.

How are most claims resolved?

Statistically, the vast majority of claims settle before a case reaches the point of a contested trial in court.  Settlement can be achieved through a number of different means, commonly referred to as alternative dispute resolution, or ‘ADR’ for short.  The most effective form of ADR when it comes to seeking to resolve professional negligence claims is, in my view, mediation. 

In brief terms, mediation is a confidential process in which the parties seek to negotiate a settlement over the course of (usually) a day with the assistance of a trained mediator (and their legal advisers).  The parties each set out their case in advance of the mediation and then on the day itself the mediator spends time separately with each party in order to test that case with them.  Crucially, the mediator isn’t there to give an opinion or judgment on the merits of the case either way, but rather to assist the parties in trying to reach a mutually agreeable compromise.  If a deal can be reached, then the parties will enter into a legally binding agreement recording that settlement and the case comes to an end.  Most professionals have the benefit of professional indemnity insurance so there is rarely an issue over recoverability of any settlement agreed or damages awarded.

The length of time for a claim to be resolved varies from case-to-case, but most claims settle long before trial and we often see cases resolved within 9-12 months of being instructed.  This may seem like a long time on the face of it, but once a formal Letter of Claim has been sent out to the professional setting out the case in detail, the professional then has a period of nearly four months in which to acknowledge and then investigate that claim.  It usually becomes apparent after that period, and when the professional has formally responded to the Letter of Claim, whether settlement negotiations are likely to begin imminently. 

What can you do to protect your business?

There are several key things that SMEs can do.  The first is to ensure that any particularly important advice from a professional is provided in writing, as it will be much harder to prove your case if you are just relying on oral evidence.  The second is to make sure that you have good document management and preservation processes, such that if you have the need to revisit professional advice provided some time ago (as can often be the case in these types of claim), you are in a position to do so.  Finally, seek specialist legal representation as soon as possible if you think that you might need to take action against the professional, as there are time limits in which claims must be brought.