Professionals: limiting liability

Limitations of liability are now regularly employed by professional firms, as they seek to protect themselves in an increasingly demanding environment, in which the size of transactions continues to increase and few (if any) relationships are sacrosanct.

Professionals and the clients who instruct them need to be aware of:

• the options available to firms (e.g. a specific monetary amount or "liability cap", a limitation based upon the firm's available insurance cover etc)
• the court's likely approach if the "reasonableness" of any limitation of liability is challenged under the Unfair Contracts Terms Act 1977
• limiting liability to third parties (where a duty of care is assumed)
• drafting issues (e.g. the use of aggregate limitations of liability, the scope of the operative clause etc)
• practical steps for firms to consider
• future developments, including the impact of cultural issues (such as the attitude of partners and clients), the approach of professional indemnity insurers and other factors which will influence the extent to which limitations of liability become more commonplace

These matters are relevant to the formulation of any policy on limiting liability and in considering whether existing limitations are likely to prove to be enforceable in the face of a challenge in the courts.

Full article below as appeared in Insurance Day on Friday 12th January. The article focuses on solicitors but addresses issues of general application to all classes of professionals.

Solicitors' liability at 'Know your risk'

In the face of an increasingly demanding environment for law firms and reducing levels of premium income, containing the liability of solicitors has never been more important for insurers underwriting solicitors' business.

Issues of quantum and contribution were, therefore, the principal themes at CMS Cameron McKenna's Fifth Annual Solicitors' "Know your risk" seminar, held in London recently.

Delegates, comprising representatives of large law firms and leading insurers and brokers, heard presentations from Peter Maguire, Maxine Cupitt and Peter Mansfield, partners in the firm's insurance and reinsurance group.

Recent cases on loss of chance, particularly the House of Lords decision in Gregg v Scott [2005], have clarified and reaffirmed the traditional approach to the doctrine of loss of chance and this remains a very fertile area for claims against solicitors.

The generally harsh approach of the courts, particularly in lost litigation cases (as exemplified in Dixon v Clement Jones [2004]), has only served to encourage this trend.

There was better news for firms and their insurers in the Court of Appeal's application of SAAMCO principles concerning the scope of duty and recoverable loss. In Andrews v Barnett Waddingham LLP and Another [2006], a consultant actuary was found liable at first instance on the basis that the claimant's loss was "inextricably linked to the negligently given information".

The decision was reversed by the Court of Appeal on the grounds that there was no causative link between the element of the advice complained of and the loss which the claimant had suffered in taking out an Equitable Life with profits annuity.

In terms of the information/advice distinction, the Court of Appeal was prepared to focus on the particular breach in question, rather than on the adviser's role as a whole. This is a significant development and, depending on the particular facts, similar arguments will be available to solicitors and other professionals.

The theme of reducing the ultimate liability of law firms continued with a discussion of the legal and practical matters arising out of claims for contribution or, as one judge put it, "the dextrous art of passing the buck".

There is a dearth of case law on apportionment of liability as between barristers and solicitors, although a finding of liability was made against counsel in Hickman v Blake Lapthorn and Another [2005], a case involving under-settlement at the court door.

Having regard to his role as the barrister with conduct of the claim, his seniority and his leading role in valuing the claim and advising on settlement, the court apportioned liability two-thirds to counsel and one-third to the solicitors.

In terms of procedural developments, some concern was expressed about the new provisions of CPR 5.4, under which, from October 2, 2006, non-parties can obtain access to pleadings on the court files.

Although the rule was originally intended to be retrospective in effect, the Law Society's swift response in obtaining injunctive relief and in making an application for judicial review persuaded the Department of Constitutional Affairs to introduce a new rule on December 18, 2006, abandoning the proposed retrospective effect of the rule.

Going forward, adverse publicity may be a concern for solicitors involved in litigation and, although any party or other person identified in the pleadings can apply to the court to restrict access, the new provisions are likely to encourage arbitration and ADR.