Analysis of Heads of Loss in Professional Negligence Claims
The number of professional negligence claims has increased significantly over the last few years. Insurers have paid out over £2 billion in the last 10 years to victims of negligence; around 50% of these claims are as a result of negligent conveyancers and property lawyers. For example, in 2021 professional negligence claims increased by 289% on the previous year and this number is expected to increase in the coming years.
Our team recently attending a professional negligence seminar provided by one of the biggest professional indemnity insurer brokers in the UK and there are concerns amongst the insurance providers that the professional negligence claim will only increase in the next few years.
If you have a professional negligence claims, our lawyers are here to help. We have a proven track record of successfully recovering compensations for clients. Please call us for a Free Consultation today on 0207 459 4037.
How much could I recover from the Negligent Professional?
It depends on the facts of your case and the evidence; as explained above, the losses must be not too remote and reasonably foreseeable. What you had told the professional acting for you at the relevant time will be critical to your claim.
It should be noted that 1 in 5 claims resulted in indemnity payment and 98% of all claims where an indemnity payment was made were settled for less than £580,000.
The highest claim pay-outs are claims for professional negligence in:
- Commercial Conveyancing – where the maximum payment was £6,367,000. The average pay outs were £139,000 and the median pay out was £37,000. The total value of the professional negligence claims for commercial conveyancing was £206,007,000.
- Residential Conveyancing – where the maximum pay out was £5,896,000. The average claim pay out was £57,000 and the median value was £19,000. The total value of the professional negligence claims for residential conveyancing was £393,911,000.
- Litigation – where the maximum pay out from the insurers was £2,571,000. The average claim pay out was £49,000 and the median pay out only £9,000. The total claims for the 10-year period between 2004 to 2014 was £94,378,000.
Do I have a Professional Negligence claim?
A professional negligence claim can occur when a professional’s error, mistake or bad service falls below the standard expected of a reasonable competent professional causing you financial loss or damage. Very often these errors or mistakes are fatal to your underlying claim causing you delays, additional costs and stress – their mistake could be classed as professional negligence.
Professionals will usually have professional indemnity insurance of at least £3m to cover any loss or damage caused to you by a negligent error or service (and that insurance policy will also cover the majority of your legal costs of bringing the professional negligence claim); some professionals will have a greater indemnity limit.
There are many clients where the first two tests of professional negligence are satisfied namely (i) the existence of a duty of care – which can usually be demonstrated by the existence of a signed client care letter or engagement letter; and (ii) a breach of that duty of care i.e. the negligent act. There are two further tests that need to be satisfied in any professional negligence claim (3) causation; and (4) loss which flows from the negligent act. In this article, we will be focusing on the different types of loss and damages, and how to quantify loss in a professional negligence compensation claim.
Can I recover all the losses suffered from the Negligent Professional?
It depends on whether the losses where “not too remote and reasonably foreseeable”. The Court that will determine your professional negligence claim will only award losses that can be said to have been in the parties’ mind at the time the contract or working relationship was agreed; the evidence including expert evidence is critical.
The aim of an award of compensation is not to punish the professional, but to compensate the client and put them back in the position they would have been had the negligence not occurred. The principle can be found in the historic judgment of Lord Blackburn in Livingstone v Rawyards Coal Co., where he stated that the measure of damages is:
“…that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”
For example, in a conveyancing transaction involving the purchase of a property, the lawyers, negligently, failed to advise on restrictive covenants and pre-emptive rights in relation to that property to the extent that you were not aware that they existed. In the circumstances, it would have been reasonably foreseeable and within the parties’ contemplation that the value of the property would have been reduced by the existence of the restrictive covenants and pre-emptive rights. This loss is called direct loss.
If at the time of purchasing the property (i) it was clear that you wanted to lease out the property out for a period of 10 years and wanted to benefit from the increase in capital but the restrictive covenants and/or pre-emptive rights prevented this; (ii) had no intention of selling the property; (iii) you made your solicitors aware of that, then it is quite possible that you may recover those losses as well. The reasons for this is that both you and your solicitors could be said to have reasonably foreseen then you will lose out on the funds generated; there is no limit on the amount that you may be able to claim as long as it is not too remote and reasonably foreseeable. This type of loss, flowing from you not having the benefit of what you had intended. This type of loss is called consequential losses.
What losses are foreseeable in Professional Negligence Claims?
Whether the losses are reasonably foreseeable will depend on what the parties knew or could reasonably be said to have known or contemplated as a likely loss if the transaction was not carried out as planned. Each case will be decided on its facts, and the evidence (including expert evidence).
It is also worth mentioning that proving consequential losses can be quite a hard and costly exercise; it will require the assistance of expert evidence (including property/surveyor expert evidence and forensic accountancy).
What type of losses/damages could I recover from the Negligent Professional?
There are various types of losses that clients can recover, which we will deal with further below:
1. Compensation for loss of chance
In our lawyers’ experience, loss of a chance claims are common in professional negligence claims. They arise where the injured party has, through the mistake of a professional, been prevented from securing a financial gain (or avoiding a liability) which itself was contingent upon the actions of a third party. If such claims are successful, the court will award as damages often a percentage of the loss suffered which reflects the chance that the claimant otherwise had if the negligence had not occurred.
Case Example: Wellesley Partners LLP v Withers LLP [2014] EWHC 556 (Ch) (solicitor negligence claim)
Wellesley Partners, the claimant, sought to expand its business and sold a 25% stake to another entity Addax, a Middle Eastern bank, for £2.5 million. The firm instructed law firm, Withers LLP to draft the sale contract.
In drafting the contract, Withers LLP altered a clause that gave Addax the option to reclaim 50% of its investment within 41 weeks, contrary to the original instruction.
Exercising the Option: Addax exercised this option, leading to financial hardship for Wellesley Partners and impeding their plans to open a US office and pursue a lucrative contract.
The court estimated a 60% chance that Wellesley would have secured the contract and a 25% chance for an exclusive appointment, leading to a combined 15% chance for exclusivity.
Projected Profits and Compensation: Based on projected profits of £3,262,551 for an exclusive appointment and £1,262,016 for a shared appointment, the court awarded compensation of £489,383 and £567,907 respectively, totalling £1,057,290 for loss of chance.
2. Compensation for diminution in value
Damages awards for the reduction in the value of property is also common in professional negligence claims. The court can award damages representing the difference between the price paid for the property (if it represents market value, without any defects) and its true market value taking into account the defects that the negligent professional failed to identify. Our lawyers have extensive experience in successfully arguing and resolving such claims for clients.
Case Example: Watts v Morrow [1991] 1 All ER 937 (surveyor negligence)
The case involved the claimants, Mr. and Mrs. Watts, and the defendant, a building surveyor named Morrow.
The Watts instructed Morrow to conduct a full structural report on a house they were looking to buy. However, the surveyor’s report failed to identify significant defects in the property. After purchasing the house, the claimants discovered that extensive remedial work was required.
The court found that the surveyor was negligent for not reporting significant defects in the property.
Initially, a higher amount (£33k) was awarded based on the cost of rectifying the defects. However, upon appeal, the court revised the measure of damages. It held that the appropriate compensation was the difference between the price paid and its true value, considering the unreported defects.
The court awarded damages of £15,000 plus interest. This figure represented the diminution in the property’s value due to the defects that the surveyor failed to report.
This case highlights that in cases of negligent property surveys, the damages may be assessed based on the property’s reduced value due to unreported defects, rather than the cost of repairs.
3. Compensation for wasted expenditure
In professional negligence claims against solicitors, the assessment of loss can be more nuanced than in the case of claims against surveyors. In some instances, where, for example, a party removes themselves from a transaction brought about by professional negligence, the court may award reasonable costs incurred by a party in both entering into and exiting such a transaction.
Case Example: Hayes & Another v James & Charles Dodd (a firm) [1990] 2 All ER 815 (solicitor negligence)
The claimants, a motor repair business, and the defendant, a firm of solicitors (James & Charles Dodd). The claimants sought to expand their business and instructed the defendant to assist in the purchase of a lease for a workshop and yard. The solicitors advised that the property included a right of way over adjacent land.
However,it emerged that the claimed right of way did not exist, significantly impacting the claimants’ ability to operate their business effectively.
The court found that the solicitors were negligent in wrongly advising the claimants about the right of way. The claimants were awarded compensation for the costs they incurred and then extricated themselves from the transaction.
The total award amounted to £102,447.81, inclusive of interest. This covered various costs such as the purchase price, rent, loss of goodwill, bank interest, travel expenses, and conveyancing costs.
This case highlights the responsibilities of solicitors in providing accurate and comprehensive advice on property transactions. The decision emphasizes the breadth of compensation in professional negligence cases, extending to cover all reasonable costs incurred as a result of the negligent advice.
4. Compensation for additional legal costs
As a consequence of a mistake or error made by a professional, a client may find themselves embroiled in litigation with another party. Alternatively, a client may start litigation against another party to try to mitigate the losses that he or she would otherwise incur. In either case, the additional costs incurred may be recovered from the negligent professional as part of your claim.
Case Example: Hermann v Withers LLP [2012] P.N.L.R. 28 (solicitor negligence for advice on property right of way)
The claimants were interested in purchasing a property at 37 Ovington Square, Knightsbridge, for £6.8 million. A key selling point noted in the property’s sales particulars was “Access to communal gardens.” Withers LLP was instructed by the claimants to act on their behalf in the property purchase.
The seller information did not conclusively establish the right to access the communal garden. However, the defendant solicitors, after conducting research and enquiries, advised the claimants they had a statutory right to garden access under the Kensington Improvement Act 1851. After completing the purchase, it became apparent that the property did not have a statutory right to garden access as it was not located within the square itself.
The claimants sought a legal declaration for garden access rights, leading to litigation against the Garden Committee and the Royal Borough. The court ruled against the claimants, confirming that No.37 did not have garden access rights under the 1851 Act.
The claimants filed a negligence claim against Withers LLP, alleging negligent advice in the firm’s legal advice and the handling of the property purchase. The claim included compensation that the claimants had incurred in obtaining independent legal advice as to whether they had a right to use the garden and in negotiating the purchase of such a right. These costs totalled £55,906.28 and were to be assessed on an indemnity basis.
The court found Withers LLP to be negligent in their advice. The firm had assured the claimants of the right to garden access without adequately addressing the uncertainties or limitations in the information available.
5. Compensation for lost management and staff time
In commercial claims, it is not uncommon for a considerable amount of additional management and staff time to have been expended. The courts are aware of the costs and, in appropriate circumstances, will compensate a business with an award of damages.
Case Example: R+V Versicherung AG v Risk Insurance and Reinsurance Solutions SA & Others [2006] 1 WLUK 541 (damages for management time)
The claimant was a German reinsurance company whose main underwriter had dishonestly conspired with a representative of the defendant insurance broker. The case concerned the negotiation and operation of two binding authorities or “Binders” allowing Risk Insurance to write reinsurance contracts on behalf of R+V in the London market. The Binders concerned short-tail property and contingency risks, and personal accident risks.
The claimant alleged that the Binders was entered without its authority following a fraudulent conspiracy. The court found evidence of a dishonest conspiracy at the claimant’s expense. The claimant argued it was entitled to recover for the expenses of managerial and staff time spent in investigating, mitigating the conspiracy, and handling claims, arguing this caused significant disruption to its business
The court held that wasted management and staff time spent on the investigation and/or mitigation of the defendant’s wrongdoing was recoverable, notwithstanding that no additional expenditure or loss of revenue or profit could be shown. It also held that the claimant could recover as damages its additional staff costs of handling insurance claims arising from the business written under the two binder agreements.
6. Compensation for loss of profit / income
Where the purpose of a commercial transaction is to generate profit and where that intention is well known to the professional at the time, the courts can award loss of profit or income as compensation for professional negligence.
Case Example: Keydon Estates Ltd v Eversheds LLP [2005] EWHC 972 (Ch) (damages for loss of rental profits or income)
The claimant, Keydon Estates Ltd (K), a commercial property investor the defendant firm of solicitors, Eversheds to act for it in respect of the intended purchase of a commercial office building known as Willow House.
However, the defendant firm was negligent in the purchase. The defendant solicitors knew, the purchase was intended as an investment and therefore the existing tenant’s covenant to pay rent was of the utmost importance. However, after the purchase, the tenant failed to pay rent on the valid ground that it had assigned its lease because of previously granting a sub-lease. The claimant sought damages from the defendant for professional negligence and breach of contract regarding the purchase of a commercial property for investment.
Eversheds accepted liability for the loss arising from negligent legal advice but there was disagreement as to the assessment of damages. The defendant law firm argued that the appropriate measure for assessing damages was the diminution in value of the property. However, in contrast, the claimant contended that its rent loss and accumulated interest substantially exceeded the damages under the diminution in value rule and sought a different method of assessment.
The court decided that while the diminution in value rule is generally appropriate, it should not be applied in this case as it was intended to be an investment property for rental income. The High Court ordered the defendant solicitors to pay £660,000 in damages for the consequences of their advice.
7. Compensation for mental distress
While damages awards for mental distress can be made by the courts in professional negligence claims, they are not common. Generally, such awards will only be made where either (i) one of the main reasons of the professional’s retainer was to provide pleasure, relaxation, peace of mind or freedom; or (ii) the distress was accompanied by physical inconvenience. In either case strong evidence will need to be shown including medical evidence.
Case Example: Farley v Skinner [2001] UKHL 49 (loss for mental distress and inconvenience)
The claimant instructed Skinner to survey a property near an airport, specifically requesting an assessment of potential aircraft noise impact. Skinner reported the property was unlikely to be affected by aircraft noise.
However, following the purchase, the claimant found the property substantially affected by such noise, contrary to surveyor report.
The claimant argued the survey was substandard and breached the contract, failing to address his specific concern about aircraft noise. He sought damages for the diminished enjoyment of his property due to the noise, claiming compensation for non-pecuniary losses (mental distress and discomfort).
The case raised the question of whether damages for mental distress are recoverable in breach of contract cases, especially when there are no financial losses.
The defendant surveyor argued that damages for mental distress are generally not recoverable unless the contract’s object is specifically to avoid such distress.
The court awarded Farley £10,000 for his discomfort. It was established that damages could be recoverable for the loss of a pleasurable amenity, even if it had no economic value, provided it was important to the claimant.
The case is significant in establishing non-pecuniary losses, such as mental distress and loss of enjoyment, can be grounds for compensation in breach of contract cases, especially when such aspects are integral to the contract’s purpose.
8. Compensation for physical inconvenience
The courts have also been prepared to compensate individuals for the physical inconvenience and discomfort that they have suffered because of professional negligence.
Case Example: Wapshott & Another v Davis Donovan & Co (A Firm)
The claimants had instructed Davis Donovan & Co for the purchase of a leasehold flat in 1986. The solicitors failed to advise the claimants that there was no good title to part of the property they were purchasing, specifically an extension over an adjoining property.
This negligence meant that a significant portion of the property did not have a clear legal title. The problem surfaced in 1988 when the claimants, after the birth of their first child, decided to sell the flat and found that they were unable to do so due to the title issue.
The property became unsaleable because an extension had been built on neighbouring land, a fact missed by the conveyancing solicitor.
The claimants brought a case against the defendant conveyancers, alleging professional negligence due to the failure in their duty of care during the conveyancing process.
The failure to identify and inform the claimants about the title issue significantly affected the claimants’ ability to use and sell their property.
On appeal, the court held that physical inconvenience was a foreseeable consequence of the solicitors’ mistake in the conveyance and it could see no reason why the law would refuse compensation or recovery in the circumstances. It therefore awarded the claimants additional damages of £3,000 each.
9. Compensation for cost of reinstatement / cure
In claims against construction professionals including where defects arise as a result of negligence in the design, execution and/or supervision of a project, the main head of compensation will typically be for the costs incurred in curing those defects, through rectification or reinstatement works.
Case Example: Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd (compensation for reinstatement)
The claimant engaged Wayne Tank and Pump Co to design and install a pipe system in their factory for conveying hot molten wax. The defendants chose to use plastic piping for the system.
The system, installed with plastic piping, had a faulty thermostat. During an unsupervised initiation of the system at night, the molten wax overheated, melting the plastic pipes, leading to a fire and the destruction of the entire factory.
The claimant started a negligence claim against the defendants seeking damages following the destruction of their factory.
The defendants sought to rely on a contractual clause limiting their liability for damages.
The Court of Appeal ruled that the breach by the defendants was so gross as to constitute a “fundamental breach.” Consequently, the limitation clause in the contract became ineffective, making the defendant fully liable for the claimant’s losses.
Lord Denning stated that, contrary to usual rules of damages and betterment in insurance claims, the defendant was liable to pay for the construction of a new factory, machinery and stock as repairing the old ones was not feasible.
My professional had an indemnity limit, can I recover more than the limit?
Although you may be able to claim several types of loss from the professional and there is strictly no limit on the amount that you may be able to claim; you may not be able to recover all of these losses as the amount taken together may exceed the indemnity limit of the professional.
Solicitors are required to have a minimum professional indemnity limit of £3m but there are some firms especially those that deal with conveyancing to have a limit which is greater (sometimes £10m or more).
You will have been informed about the professional’s indemnity limit at the time that you instructed the professional; it is most usually set out in the retainer documentation or the terms & conditions.
Expert Professional Negligence Claim Solicitors in London
Our professional negligence lawyers acted for a construction company that purchased the freehold of a property located in London. However, the conveyancing solicitors acting in the property purchase failed to properly alert our client and advise that there were restrictive covenants which significantly affected the freehold reversion value of the property.
Our lawyers were instructed by the construction client and successfully settled the claim during the pre-action phase as the insurer’s solicitors sensibly admitted liability early without court proceedings having to be issued by our client.
The claimant client left the following feedback for our negligence lawyers:
“Very satisfied with the way that Karim and his team took hold of a messy conveyancing professional negligence claim, and progressed it through to an amicable settlement in just over 6 months. Professional, courteous, knowledgeable, and also pragmatic with advice and strategy. I would not hesitate to recommend.”
Our expert negligence lawyers in London have significant experience in obtaining and negotiating successful outcomes for our clients in professional negligence claims against lawyers, property and finance professionals.
We can assess and advise you on the value of the losses you may be able to recover, which losses may be too remote and the likely outcome for you.
Please call us on 0207 459 4037 or complete our online booking form for a Free Consultation today to discuss your negligence claim.
