A business that has lost money after acting on professional advice must make a decision before bringing a claim. Negligence and professional negligence describe a loss that follows from a failure to take reasonable care. Whether those terms fit a particular matter depends on the engagement, what the adviser did under it, and the records of what passed between the parties. The engagement itself is where that examination begins.
What negligence and professional negligence refer to
Negligence describes a failure to take reasonable care, causing loss, by a person who owes a duty of care. Professional negligence applies the same idea to a person a business engages for skill in a particular field, such as an accountant, valuer, engineer or financial adviser. These are descriptions in general terms only. Whether they apply to a particular engagement is a question for advice on the facts of that matter.
A loss on its own does not establish a claim. What the adviser did, the terms governing the work, and the connection between that work and the loss all matter, and documents prove each of them rather than recollection.
Which entity engaged the adviser
Where a company entered into the contract, the contractual rights and obligations will ordinarily belong to the company rather than personally to its directors or shareholders. Identifying the contracting parties is therefore an important first step.
The question is a practical one in groups of companies. If the engagement letter names one entity while another paid for the work and carried the loss, resolve that difference before sending any demand.
What the engagement documents establish
A contract may also be formed partly through oral discussions, partly in writing and partly by the parties’ conduct. Standard terms, purchase orders, order confirmations, invoices and website terms may all be relevant. Where each party has sought to contract on its own standard terms, it may be necessary to determine which terms, if any, were incorporated into the agreement.
The parties must also have intended to be immediately bound, rather than to remain subject to a later formal agreement. So locate the proposal, the acceptance and any mention of a formal document to follow, together with whatever scope of work the adviser recorded.
How long a claim remains available
A contractual claim is commonly subject to a six-year limitation period running from the date of breach, but different periods and exceptions may apply. The source is section 5(1)(a) of the Limitation of Actions Act 1958 (Vic). For an ordinary breach, time runs from when the breach occurs, even where the loss comes to light later. A deed or other specialty may be subject to a 15-year period under section 5(3).
Other matters can affect the running of time, including fraud, mistake, disability, acknowledgment or part payment. Because of those exceptions, a business should identify the relevant dates rather than assume them, and obtain advice before relying on its own calculation.
What to check before taking a position
Most of what decides a claim of this kind sits in the business’s own files. A decision-maker weighing whether to pursue the matter can usefully assemble the following material:
- the engagement letter or retainer, and the scope of work it describes
- the instructions given to the adviser, with the drafts, file notes and emails that record them
- which entity engaged the adviser, and which entity paid
- any standard terms the adviser relied on, including limitation or exclusion clauses
- the amount of the loss, and the documents that would prove it
- the date of the work complained of, and the date the problem came to light
That material decides how a demand would be framed. It is also far easier to collect while the files are intact and the people involved are still with the business.
How a dispute of this kind ordinarily proceeds
Court proceedings are not ordinarily the first step in resolving a commercial dispute. A letter of demand setting out the relevant contractual term, the alleged breach, the resulting loss and the remedy sought will generally be sent first. That approach is consistent with the overarching obligations under the Civil Procedure Act 2010 (Vic), including the obligation to use reasonable endeavours to resolve the dispute by agreement and, if the dispute cannot be resolved, to narrow the issues in dispute. The Act does not make a letter of demand compulsory in every case, particularly where urgent interlocutory relief is required.
Before proceedings are commenced, the parties may exchange information, engage in without-prejudice negotiations or attend mediation. Care should be taken to distinguish open correspondence, which may later be relied upon in Court, from without-prejudice communications directed to settlement.
Where a matter does proceed, a Victorian contractual dispute may be heard in the Magistrates’ Court of Victoria, the County Court of Victoria or the Supreme Court of Victoria. The contract may also contain an exclusive jurisdiction or governing law clause.
Frequently asked questions about professional negligence
Professional negligence describes negligence by a person a business engages for skill in a particular field, such as an accountant, valuer or engineer. The idea is the same failure to take reasonable care, and the standard reflects the work that person agreed to perform.
A contractual claim is commonly subject to a six-year limitation period running from the date of breach, but different periods and exceptions may apply. Because of those exceptions, identify the relevant dates early and put them to a lawyer rather than assume them.
No. Court proceedings are not ordinarily the first step in resolving a commercial dispute, and a letter of demand will generally be sent first. The parties may also exchange information, negotiate on a without-prejudice basis or attend mediation before anyone commences a proceeding.
Starting with the engagement file
Collect the engagement terms and the contemporaneous record first: the instructions the business gave, the documents the adviser produced, and the correspondence showing what the company did next. Then put a figure on the loss and identify the documents that would prove it. Those two pieces of work determine whether the business can frame a demand at all, and they take far longer once the people involved have moved on.
Mazzeo Lawyers is a Melbourne litigation practice acting for clients throughout Victoria in property and business disputes. The firm does not generally provide contract drafting or transactional contract advisory services. It acts in disputes arising from contracts, including disputes concerning a contract’s interpretation, performance, breach, termination and enforcement. Nick Mazzeo, the Principal, began practising law in 1994, and every matter the firm acts in receives the time and personal attention of an experienced lawyer. All enquiries are handled in strict confidence.
If your business has suffered a loss after work it engaged an adviser to perform, and you are weighing what to do about it, an initial conversation does not commit you to anything. Arrange a confidential discussion about your matter.
