Professional Indemnity Claims: Avoiding the Problems
Alan Eadie, Partner
2 April 2014
www.bto.co.uk
Professional Indemnity Claims:
Avoiding the problems

Standard of skill and care against which to measure
any breach of duty

The Issues of Reliance, Causation and Quantum
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Standard of Performance
Perhaps comfortingly……

Failure is expected

Success is never guaranteed
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Standard of Performance

contract before delict

express before implied contractual terms

regulatory principles and rules
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Why should contract be the primary
focus?

The obligation to exercise reasonable skill and care is not
the whole story

A professional will be liable for breach of specific
contractual requirements irrespective of the amount of
skill and care exercised

The defence of contributory negligence may not be
available
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Liability for Breach of Specific
Contractual Requirements
Sweett (UK) Ltd v Michael Wight Homes [2012]
EW Misc 3
Platform Funding Ltd v Bank of Scotland Plc [2009]
Q.B.426.
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Availability of Defence of
Contributory Negligence
Forsikringsaktiesleskapet Vesta v Butcher [1986] 2 All E R
488 per Hobhouse J
 Where the defendant’s liability arises from some contractual
provision which does not depend on negligence on the part
of the defendant, in which case there is no scope for
contributory negligence
 Where the defendant’s liability arises from a contractual
obligation expressed in terms of taking care (or its
equivalent) but not corresponding to a common law duty to
take care which would exist independently of contract, in
which case, because the duty of care is a product of
contract, there is no scope for contributory negligence
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Availability of Defence of
Contributory Negligence
Forsikringsaktiesleskapet Vesta v Butcher [1986]2 All
E R 488 per Hobhouse J

Where the defendant’s liability in contract is the same
as his liability in the negligence independently of the
existence of any contract, in which case the defence
of contributory negligence ought to still be
available even where the claimant frames his
action in terms of breach of contract
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Duty of Reasonable Skill and Care
Hunter v Hanley 1955 SC 200

usual and normal practice within the profession

extent and in what respects the solicitor in question has
not adopted that standard practice; and

course the solicitor has adopted is one which no other
ordinarily competent solicitor, exercising reasonable skill
and care, would have taken
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Qualifications to Hunter v Hanley





Not to be taken too literally!
Dynamic
New practices – science, technology, etc.
New attitudes – Rangers FC R.I.P.
New requirements
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Standard of Reasonable Skill
and Care

The standard that members of a given profession
do in fact ordinarily achieve
or

That which, in the opinion of the court, members
of the profession ought to achieve?
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Standard of Reasonable Skill
and Care

Lax practice / systemic imprudence
Edward Wong Finance Co Ltd v Johnson, Stokes and
Masters [1984] 1 AC 296,
Patel v Daybells (a Firm) [2002] PNLR 6
“If a practice in the profession exposes clients or patients to
a foreseeable and avoidable risk, the practice may not be
capable of being defended… and in those circumstances
the fact that it is commonly (or even universally) followed
will not exclude liability for negligence”
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Standard of Reasonable Skill and
Care - Areas of specialism
The degree of reasonable skill and care to be
expected of the ordinarily competent solicitor
specialising in the particular area of law concerned
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Standard of Reasonable Skill
and Care?
The degree of reasonable skill and care to be
expected of the ordinarily competent general civil
court practitioner who ought to know better than
be so idiotic as to go dabbling around in
specialised areas of law in which he is not
sufficiently well versed to avoid falling down a
great big hole
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Standard of Reasonable Skill and
Care - Defender’s specific
qualifications and experience

The standard of skill and care appropriate to a solicitor with
those particular qualifications and experience;
or

The standard of skill and care appropriate to members of
the profession generally, operating in that field of practice?
Andrew Master Hones Ltd v Cruikshank & Fairweather[
1981] RPC 389, Per Graham J:
“The degree of knowledge and care to be expected is thus seen to be
that degree possessed by a notional duly qualified person….the test is
therefore, if I may put it that way, an objective test referable to the
notional member of the profession, not a subjective test referable to the
particular professional man employed.”
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Standard of Reasonable Skill
and Care – Nearly There!
That degree of skill and care that:

ought ordinarily to be exercised by reasonably
competent members of the profession

who operate in the same field of practice, profess the
same specialisation (if any); and

hold broadly the same status or formal rank
as the defender
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Standard of Reasonable Skill
and Care – and finally…
Where the defender is a an organisation offering
professional services…..
The standard of skill and care appropriate to those
professional staff who ought have undertaken the
work
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Reliance, Causation and Quantum
Negligence
Reliance
Causation
Loss
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Reliance, Causation and Quantum
Causation – a two stage process

Whether the losses are consequences of the breach - a question of fact

Whether those consequences are within the limits of
what the law considers recoverable –
- a question of law
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Stage One Causation

Causation pure and simple

“But for….”

Question of fact
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Stage One Causation
What the claimant did in fact do as a result of the professional's
breach of obligation or duty
Vs
What hypothetically the claimant would otherwise have done
What hypothetically other parties would otherwise have done
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Stage One Causation
What the claimant did in fact do as a result of the
professional's breach of obligation or duty

All about reliance

Shouldn’t be taken for granted
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Stage One Causation
What, hypothetically, the claimant would have done
instead
Lord Hoffman in Chester v Afshar [2004] UKHL 41:
“The burden is on a claimant to prove that the
defendant's breach of duty caused him damage. Where
the breach of duty is a failure to warn of a risk, he must
prove that [had he been advised of it] he would have
taken the opportunity to avoid or reduce that risk.”
Tested of balance of probabilities an “all-or-nothing” question
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Stage One Causation
What, hypothetically, a third party would have done
Tested on loss of chance – a question of percentages
Claimant needn’t prove what a third party would have done….

As regards what the third party would have done, the
claimant merely has to demonstrate a chance - albeit a
substantial rather than merely speculative one – that the
third party would have reacted to the claimant's
benefit……. Allied Maples Group Ltd v Simmons &
Simmons (a firm) [1995] EWCA Civ 17
But Defender may want to!
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Stage One Causation

McCann v Waddell & Mackintosh
[2014] CSOH 15

McCrindle Group v Maclay Murray & Spens
[2013] CSOH 72
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McCrindle Group v Maclay Murray &
Spens [2013] CSOH 72

What the claimants actually did in reliance on advice –
accept an offer of £90,000

What they would otherwise have done on balance of
probability – accept an offer of £450k had it been made

What the third party might otherwise have done,
assessed on a loss of chance basis – a 40% chance
that they would have made an offer of £450k : 40% x
450 = £180k
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Stage Two “Causation”

Whether the losses are consequences of the breach - a question of fact

Whether those consequences are within the limits of
what the law considers recoverable –
- a question of law
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Stage Two “Causation”
Where the consequences have been affected by
competing factors other than just the professional’s
negligence:




The acts of the claimant
The acts of third parties
The input of other professionals
Fluctuations in the market
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Stage Two “Causation”
What’s it all about?

Law: Remoteness

In contract: Transfield Shipping Inc v Mercator
Shipping Inc [2008] UKHL 48

In delict: South Australia Asset Management Corpn
v York Montague Ltd [1996] UKHL 10 ('SAAMCO')
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Stage Two “Causation”
What’s it not about?

Fact: cause and effect

Transaction and no transaction

Effective and Dominant causes

Causa causans and causa sine qua non
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SAAMCO made Simple

Duty to provide information (category 1)

Duty to provide advice (category 2)
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SAAMCO made Simple
Preferred Mortgages Ltd. v Shanks & Ors. [2008]
PNLR 20
Surveyor
Solicitor
negligent overvaluation
entire loss
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SAAMCO made Simple
Capita Alternative Fund Services (Guernsey) Limited
and Anor v Drivers Jonas (a firm) [2011] EWHC 2336
(Comm)



True value c £35,000,000
Defenders’ valuation £48,000,000
Claimants’ actual loss: £63,000,000
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To conclude….
Smith New Court Securities Ltd v Citibank NA
per Lord Steyn
“The development of a single satisfactory theory of causation
has taxed great academic minds…... But, as yet, it seems to
me that no satisfactory theory capable of solving the infinite
variety of practical problems has been found. Our case law
yields few secure footholds. "
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I think the main focus would be best to be on solicitors’ professional indemnity.
Registration is from 5.30pm with the actual talk starting at 5.45pm. The seminar qualifies for 1.5 hours CPD so
should go on till approx. 7.15pm (including any time for questions).
Screen and powerpoint are available but it’s entirely up to you whether you want to use slides or not.
I think attendees are generally appreciative of a hand-out, but again that’s entirely up to you.
We had 21 attendees signed up for the original date so I would imagine that the numbers would be roughly the
same, possibly higher, for the later date.
To my mind, many of the problems and the issues that arise in professional indemnity claims stem from
confusion and misunderstanding around some of what we think of as very obvious prerequisites of any claim,
namely:
Standard of skill and care against which to measure any breach of duty
The issues of Reliance, Causation and Quantum
And given the huge amount of judicial consideration given to these issues – not all of it wholly consistent – there
is an understandable tendency, in trying to unravel it all, to get tied up in ever more tangled bundles of string.
So my aim this evening is to focuson these aspects and try to de-mystify them a bit; and the task I have set
myself is to reduce each of these 2 topics to one slide a piece.
Unfortunately for you, however, to get to that, I am going to need a few more slides along the way. So, starting
with….
Standard of Performance
The problem here is that it is something of a moveable feast and professions generally operate in spheres
where the intended result or a favourable outcome cannot always be achieved, sometimes because of factors
outwith the professional’s direct control –
in a medical context, the age and stamina of a patient will be as much a factor as the doctor’s skill,
in a litigation context,no amount of skill and care may compensate for a witness’s lack of credibility
So, if an employment lawyer told you he’d lost 40% of the employment tribunal hearings he’d ever run, you’d
probably be fine with that
But if a conveyancer told you that only 20% of his clients acquired good title to the properties he purchased for
them; that might raise an eyebrow
what if an engineer told you that maybe only 10% of the bridges he’d designed had ever collapsed?
so there can be massively different expectations among different professions and also within different branches
or practice areas within the same profession;
The context is therefore all important and the only sweeping generalisation might be that professionals are not
generally held to be under a duty to warrant that they will achieve the result their clients want.
So, whether you’re on the pursing side or the receiving end of a claim, always bear in mind that contract
rather than delict should provide the primary basis for analysis, supplemented where appropriate, by
consideration of regulatory principles and rules. That is often the key to finding to a better definition of the
scope of the services agreed to be provided, making a more precise determination of the scope of the duties
owed and, where duties those have been breached, assessing what the what consequences the professional
ought to be liable for.
Something not to lose sight of, however, is that a contract is the product of a bargain struck between solicitor
and client whereby the former will perform legal services in return for the latter paying fees. It is a bilateral
animal so a client can’t simply impose a list of requirements and then blame the solicitor for failing to tick off
each and every one of them, unless of course the solicitor has expressly undertaken to do so.
That might sound a bit extreme but I’ve actually been involved in seen quite a few claims of late based on
allegations of a solicitor failing to follow a client’s express instructions, not in the broad sense of failing to
negotiate a divorce settlement or successfully pursue a case but in the very specific sense of failing to deploy
a particular argument or introduce a particular piece of evidence or raise a particular point at a given time, in
spite of the client’s express instructions to do so.
In one such claim I dealt with recently, the file was littered with demands from the client telling his solicitor to
raise a particular matter, introduce a particular argument, ask a witness a specific question, issue a letter to
the opposition that he, the client, had effectively “ghost written” for the solicitor: and the claim proceeded on
the basis that, had the solicitor slavishly followed the client’s tightly choreographed set of steps, it would
have yielded a much more favourable result for the client.
In one such claim I dealt with recently, the file was littered with demands from the client telling his solicitor
to raise a particular matter, introduce a particular argument, ask a witness a specific question, issue a
letter to the opposition that he, the client, had effectively “ghost written” for the solicitor: and the claim
proceeded on the basis that, had the solicitor slavishly followed the client’s tightly choreographed set of
steps, it would have yielded a much more favourable result for the client.
The thing is, it might have done (although I happen to think it probably wouldn’t) but the point is that, to
present a claim on that basis is to adopt an overly prescriptive approach to the way in which legal services
are provided and legal advice is given. A solicitor, or indeed any professional, is not there simply to execute
a series of steps; he needs to gauge the situation for himself and exercise his own judgement on how best to
play the situation: and he will be judged objectively against the contractual obligations to which he has
agreed to sign up or the objective standards of skill and care to which he is required to adhere, not to the
unilateral demands of his client, however unreasonable those may be.
The thing is, it might have done (although I happen to think it probably wouldn’t) but the point is that, to
present a claim on that basis is to adopt an overly prescriptive approach to the way in which legal services
are provided and legal advice is given. A solicitor, or indeed any professional, is not there simply to execute
a series of steps; he needs to gauge the situation for himself and exercise his own judgement on how best
to play the situation: and he will be judged objectively against the contractual obligations to which he has
agreed to sign up or the objective standards of skill and care to which he is required to adhere, not to the
unilateral demands of his client, however unreasonable those may be.
One of the really important things about focusing on the contractual duties is that, unlike delictual duties,
contractual duties are often defined terms of specific requirements which leave little, if any, room for error or
omission….. It’s about “you will procure this result. You will report this matter. You will be taken to have
certified this fact etc.” not that you’ll try your best to. If a solicitor has undertaken to fulfil specific contractual
obligations, he will be liable if he breached them, quite irrespective of the amount of skill and care that he has
exercised.
The classic example of this is where a solicitor acts for a lender under instructions which are governed by
the Council of Mortgage Lenders Handbook.
There the requirements imposed by the CML Handbook are very often prescriptive and absolute. E.g. having
to notify the lender if there has been a back to back sale or if the deposit isn’t actually paid at settlement. No
lender is going to be interested in a solicitor making a decent stab at putting in place a valid security: I tried
my best – failed woefully – but, hey, I acted reasonably.
Having said that, courts will generally be slow to construe professional retainers as giving rise to strict
obligations and strict liability but that doesn’t mean there aren’t situation where they will do.. I’ll give you a
couple of cases falling either side of the divide:
Sweett (UK) Ltd v Michael Wight Homes [2012] EW Misc 3 (CC)
But drilling down a stage further, what is the standard of skill and care against which a given professional ought
to be judged in a given situation?
Well, my immediate answer to that question would be that it’s not really the right question: or at least it’s not the
first question you should be asking.
Because it’s important to bear in mind that it is contract, rather than delict, that provides the background to the
majority of claims against members of professions. So the correct starting point is establish the nature of the
bargain as reflected in express and implied contractual terms.
Yes, by the time we get to the implied terms, the distinction between contract and delict becomes a bit more
blurred because, for the most part, implied contract terms will generally amount to an adoption, of the standard
delictual duty of care, applicable in the circumstances – and I will come onto that.
But implied terms and delict really only come into it as a fall back or a concurrent basis of claim because there
is some sort of obstacle to establishing straightforward contractual liability. And the fuzzy notion of a duty owed
to a legal neighbour is often too blunt an instrument with which to undertake a sophisticated analysis of a
solicitor’s performance o fa particular task in a particular context.
So, whether you’re on the pursing side or the receiving end of a claim, always bear in mind that contract rather
than delict should provide the primary basis for analysis, supplemented where appropriate, by consideration of
regulatory principles and rules. That is often the key to finding to a better definition of the scope of the services
agreed to be provided, making a more precise determination of the scope of the duties owed and, where duties
those have been breached, assessing what the what consequences the professional ought to be liable for.
Something not to lose sight of, however, is that a contract is the product of a bargain struck between solicitor
and client whereby the former will perform legal services in return for the latter paying fees. It is a bilateral
animal so a client can’t simply impose a list of requirements and then blame the solicitor for failing to tick off
each and every one of them, unless of course the solicitor has expressly undertaken to do so.
That might sound a bit extreme but I’ve actually been involved in seen quite a few claims of late based on
allegations of a solicitor failing to follow a client’s express instructions, not in the broad sense of failing to
negotiate a divorce settlement or successfully pursue a case but in the very specific sense of failing to deploy a
particular argument or introduce a particular piece of evidence or raise a particular point at a given time, in spite
of the client’s express instructions to do so.
That might sound a bit extreme but I’ve actually been involved in seen quite a few claims of late based on
allegations of a solicitor failing to follow a client’s express instructions, not in the broad sense of failing to
negotiate a divorce settlement or successfully pursue a case but in the very specific sense of failing to
deploy a particular argument or introduce a particular piece of evidence or raise a particular point at a given
time, in spite of the client’s express instructions to do so.
A quantity surveyor was contractually obliged to procure a performance bond from a contractor. It didn’t
happen and the contractor became insolvent. The Court ultimately held however that the contractual
provision did not impose an absolute obligation but merely an implied duty to use reasonable skill and care
to get the performance bond executed. The surveyor had done enough to satisfy this duty by drafting the
bond, and putting pressure on the contractors to sign it.
Contrast that with the case of Platform Funding Ltd v Bank of Scotland Plc [2008]EWCA Civ
930Q.B.426 in which a valuer who certified that he had inspected the relevant property was held to be
subject to a strict obligation to inspect that property and not another one, even although he had been
directed to the wrong property by the borrower. The Court of Appeal observed in that case that:
“although there is a presumption that those who provide professional services normally do no more than
undertake to exercise the degree of care and skill to be expected of a competent professional in the relevant
field, there is nothing to prevent them from assuming an unqualified obligation in relation to particular
aspects of their work”. When deciding whether a particular obligation is qualified or unqualified the question
to ask is “whether, having regard to the facts and matters known to both parties when the instructions were
accepted, the professional person assumed an unqualified obligation in relation to the particular matter in
question.”
The other significant point about contractual, as opposed to delictual breach, is that it does not allow the
same scope for pleading contributory negligence.
The issue here is whether, because the concept of contributory negligence is a product of the law of delict or
negligence, it is competent to plead a defence of contributory negligence to a claim brought in contract
alone. Criteria for determining this was set out by
Mr Justice Hobhouse in the case of
ForsikringsaktiesleskapetVesta v Butcher [1986] 2 All E R 488 where he divided the cases where the
issue arises into three categories:
“(1) Where the defendant’s liability arises from some contractual provision which does not depend on
negligence on the part of the defendant, in which case there is no scope for contributory negligence.
(2) Where the defendant’s liability arises from a contractual obligation which is expressed in terms of taking
care (or its equivalent) but does not correspond to a common law duty to take care which would exist in the
given case independently of contract,in which case, because the duty of care is a product of contract,
there is no scope for contributory negligence
(3) Where the defendant’s liability in contract is the same as his liability in the tort of negligence
independently of the existence of any contract”in which case the defence of contributory negligence
ought to still be available even where the claimant frames his action in terms of breach of contract.
One of the really important things about focusing on the contractual duties is that, unlike delictual duties,
contractual duties are often defined terms of specific requirements which leave little, if any, room for error
or omission….. It’s about “you will procure this result. You will report this matter. You will be taken to have
certified this fact etc.” not that you’ll try your best to. If a solicitor has undertaken to fulfil specific contractual
obligations, he will be liable if he breached them, quite irrespective of the amount of skill and care that he
has exercised.
The classic example of this is where a solicitor acts for a lender under instructions which are governed by
the Council of Mortgage Lenders Handbook.
There the requirements imposed by the CML Handbook are very often prescriptive and absolute. E.g.
having to notify the lender if there has been a back to back sale or if the deposit isn’t actually paid at
settlement. No lender is going to be interested in a solicitor making a decent stab at putting in place a valid
security: I tried my best – failed woefully – but, hey, I acted reasonably.
Having said that, courts will generally be slow to construe professional retainers as giving rise to strict
obligations and strict liability but that doesn’t mean there aren’t situation where they will do.. I’ll give you a
couple of cases falling either side of the divide:
Sweett (UK) Ltd v Michael Wight Homes [2012] EW Misc 3 (CC)
A quantity surveyor was contractually obliged to procure a performance bond from a contractor. It didn’t
happen and the contractor became insolvent. The Court ultimately held however that the contractual
provision did not impose an absolute obligation but merely an implied duty to use reasonable skill and care
to get the performance bond executed. The surveyor had done enough to satisfy this duty by drafting the
bond, and putting pressure on the contractors to sign it.
Contrast that with the case of Platform Funding Ltd v Bank of Scotland Plc [2008]EWCA Civ
930Q.B.426 in which a valuer who certified that he had inspected the relevant property was held to be
subject to a strict obligation to inspect that property and not another one, even although he had been
directed to the wrong property by the borrower. The Court of Appeal observed in that case that:
“although there is a presumption that those who provide professional services normally do no more than
undertake to exercise the degree of care and skill to be expected of a competent professional in the
relevant field, there is nothing to prevent them from assuming an unqualified obligation in relation to
particular aspects of their work”. When deciding whether a particular obligation is qualified or unqualified
the question to ask is “whether, having regard to the facts and matters known to both parties when the
instructions were accepted, the professional person assumed an unqualified obligation in relation to the
particular matter in question.”
The other significant point about contractual, as opposed to delictual breach, is that it does not allow the
same scope for pleading contributory negligence.
The issue here is whether, because the concept of contributory negligence is a product of the law of delict
or negligence, it is competent to plead a defence of contributory negligence to a claim brought in contract
alone. Criteria for determining this was set out by
Mr Justice Hobhouse in the case of
ForsikringsaktiesleskapetVesta v Butcher [1986] 2 All E R 488 where he divided the cases where the
issue arises into three categories:
“(1) Where the defendant’s liability arises from some contractual provision which does not depend on
negligence on the part of the defendant, in which case there is no scope for contributory negligence.
(2) Where the defendant’s liability arises from a contractual obligation which is expressed in terms of taking
care (or its equivalent) but does not correspond to a common law duty to take care which would exist in the
given case independently of contract,in which case, because the duty of care is a product of contract,
there is no scope for contributory negligence
(3) Where the defendant’s liability in contract is the same as his liability in the tort of negligence
independently of the existence of any contract”in which case the defence of contributory negligence
ought to still be available even where the claimant frames his action in terms of breach of contract.
www.bto.co.uk
Standard of Skill and Care




contract before delict
•
liability for breach of specific contractual requirements
•
Availability of Defence of Contributory Negligence
express before implied contractual terms
regulatory principles and rules
delict - duty of care
•
•
Hunter v Hanley with appropriate qualifications
That degree of skill and care that
ought ordinarily to be exercised by reasonably
competent members of the profession
o who operate in the same field of practice, profess the
same specialisation (if any); and
o hold the same status or formal rank
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as the defender.
o
Reliance, Causation and Quantum
Stage 1
Whether the losses are consequences of the breach
– a question of fact
 What the claimant did in fact do - reliance
 What the claimant would otherwise have done - balance of
probabilities
 What other parties would otherwise have done - loss of chance
Stage 2
Whether the consequences are within what the law considers
recoverable - a question of law
 Remoteness
 Duty to provide information (category 1) - loss capped to
consequences of information being wrong
 Duty to provide advice (category 2) - potential liability for full
loss (subject to foreseeability and mitigation)
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Professional Indemnity Claims: Avoiding the Problems
Alan Eadie, Partner
2 April 2014
www.bto.co.uk