If your adviser falls short of the expected standards and lets you down then you may be able to recover your losses by bringing a claim against them. Such a claim may be based on the following:
• Breach of contract,
• Breach of a duty of care,
• Bread of fiduciary duty and,
• Breach of statutory duty.
A duty of care can arise irrespective of whether or not there is a contractual relationship. If there is a contractual relationship, then the professional adviser may owe you a duty in both contract and tort.
In general, professional advisers have taken on a responsibility towards their clients and therefore they owe their clients a duty of care in tort as well as have obligations under the contact between the adviser and the client.
This is a significant point as the contract may impose more onerous obligations than the duty of care imposed by the law of tort and/or contain additional exclusions and limitations.
In most instances the adviser will have a contractual obligation to the client and this allows the client to choose as to whether to bring proceedings in contract or tort. An important fact upon this choice is that of the limitation period i.e. the period within which proceedings must be issued.
In relation to claims for breach of contract and negligence the limitation period is 6 years from the date of the cause of action. There are some distinctions between a claim for breach of contract the cause of action is completed as soon as the breach occurs whereas in tort all elements of duty, breach and damage must be present.
The basis of a contractual liability arises from the terms of the contract or retainer, which is the source of the adviser’s duties owed to the client. Usually, a client will be asked to sign a retainer or be provided with terms and conditions. These will govern the contractual relationship.
In addition to the specific terms the retainer may include contractual terms that are not expressly stated by implied by one of the following:
• Trade custom,
• A bystander test,
• A previous consistent course of dealings and,
In service contracts, there will be an implied term that the adviser needs to carry out the service with reasonable care and skill. This is both an objective and a subjective standard. On an objective basis the client is entitled to expect the adviser to act with the skill and care that a competent adviser would exercise however if the adviser has or claims to have a specialisation then the client would be entitled to expect a higher standard of care.
The tort of negligence has three basic requirements. These are:
• A duty of care,
• A breach of duty and
There are two elements which must be proven in relation to causation.
The first element is what is often referred to as the “but for” test, namely that but for the adviser’s negligence the loss would not have been suffered and the second element being that the negligence was the cause of the loss suffered. If negligence is proven in order to bring a claim the act of negligence must be shown to have been the cause of loss.
The client must establish that there is a breach of duty owed to them to bring a claim in both contract and tort and that the adviser failed to comply with the standard duty owed to the client. To bring a claim the client must show that the adviser made an error which no reasonable professional adviser would have made when considered on an objective basis.
This is usually determined by the use of expert evidence to review the advice given and action taken in the circumstances.
In some cases, the standard of care will be set out in the contract itself or implied by statue. In relation to a claim for incorrect advice there is an implied contractual duty of reasonable care and skill.
In relation to a claim in negligence, the measure of the standard of care required is that of a reasonable man, which means that the test is objective. In isolation the mere fact that an adviser has made an error is not of itself sufficient toconstitute negligence.
In relation to a professional adviser the standard by which reasonable skill and care is measured is against that of a reasonably competent adviser with regard to the standards normally adopted in their profession.
The level of experience is not relevant as the standard of care will be that of a reasonably competent adviser, however, if the adviser holds themselves out as being possessed of a special skill or specialism, then they must comply with the standards of care of a reasonably competent specialist.
A significant hurdle to overcome in any breach claim is that of causation. Even if it can be established that the advice was negligent unless it can be illustrated that their advice caused the loss sustained any claim will fail.
Causation is divided into 2 categories:
1. Factual causation,
2. Legal causation or remoteness.
Factual Causation is the first test, also known as the “but for test” which involves comparing the client’s actual position and the position the client would have been in if no negligence had taken place. If the client’s loss would have happened in any event irrespective of the alleged breach then that breach could not be shown to have created the loss.
Another consideration could be that the loss caused was by an intervening act of a third party or that the client opposed their breach. However, the critical point is if the intervening act could show that broke the chain of causation, dependent on whether the intervening act was foreseeable, was in the contemplation of both parties and was just the sort thing that was likely to happen and whether it was unlikely to have broken the chain of causation.
If as a matter of fact causation is established consideration will need to be directed as to whether the action or omission constituting the breach was the legal cause of the loss. Legal causation is referred to as remoteness and the test differs in contract and tort.
In contract the test is that a Claimant can recover either –
• Losses arising naturally according to the normal or ordinary course of things from the breach of contract itself, or
• Losses as may reasonably be supposed to have been in contemplation of the parties at the time they made the contract, as a result of the breach.
In the case of tort the test is that the type of damage must be reasonably foreseeable.
Damages for loss are assessed with the aim of putting the wronged party if the same financial position that they would have enjoyed had the breach/negligent act not occurred. This is achieved by a comparison of the actual position that the clients find themselves in as against the position that they would have been in had the breach or negligent act not taken place.