Attwood Marshall Lawyers Commercial Litigation Senior Associate and NSW Law Society Accredited Specialist in Dispute Resolution, Charles Lethbridge, spoke with Steve Stuttle on Radio 4CRB about the risks professionals could face in the aftermath of the COVID-19 pandemic if they fail to deliver appropriate advice and service.
History has taught us that there will be a surge in professional negligence or liability claims following an economic downturn. Such a trend followed previous significant economic downturns and we expect something similar will happen as a result of the COVID-19 pandemic. Throughout history, we have learned that there is a correlation between a recession and claims against professionals.
It has been reported that following on from the recession of the 1990s and the Global Financial Crisis, negligence claims against law firms materialised. Those claims included allegations by banks and institutional money lenders of lawyers’ failures to pick up on indicators of mortgage fraud during due diligence processes. Property valuers also came under scrutiny when people defaulted on their loans and there was a huge shortfall between the money under the mortgage and the sale price of the property.
Economic downturns cause people and companies to look for ways to raise revenue to survive. It can often become clear to those in financial strife, that had they received proper advice from a professional, they would be in a much better financial position, notwithstanding impacts to their business caused by events which trigger economic downturns. For example, a company may seek to pursue a financial professional (such as an accountant or financial planner, or both) with a liability claim if poor advice was given about business strategy and finances during the pandemic.
The COVID-19 pandemic has severely impacted the economy, forcing a vast number of businesses across a multitude of industries to “pivot” and change the way they operate. Many businesses have had to adapt to working remotely, or in part remotely. While taking away significant overheads, this new work environment opens the door for further risk and claims against professionals, certainly in the short term.
The Financial Review recently reported that one half of Sydney office spaces remain vacated, and an incredible two-thirds of Melbourne office space remains empty, despite workers being encouraged to return to the office.
While many see the upside of operating remotely, there are significant associated risks which professionals and businesses must consider. If they fail to do so, they run the risk of claims being made against them for negligence.
What types of claims may be made against professionals as a result of an economic downturn?
Claims against lawyers
The pandemic has seen a transformation in how law firms operate, with many now operating in part, remotely. While many firms have invested heavily in their IT systems and have well-developed risk management systems in place, there are others that do not. Law firms may face problems if their IT systems fail and critical deadlines are missed, or if confidential information and documents are not secure. Some firms may also not be setup appropriately to protect themselves against cyber fraud.
While many firms are operating in a new paradigm, litigation deadlines still need to be met, commercial deals still need to go ahead, and the Court system must continue to function. Law firms operating remotely must adapt quickly and efficiently; if they do not, they risk letting down their valued clients.
In addition to the technical risks that come with working remotely, there are other claims clients may make, including:
- Clients experiencing transactional regret. Due to the economic downturn, clients may feel blindsided and experience ‘transactional regret’ after entering into deals which they have come to regret. In this scenario, a client may allege that their lawyer failed to alert them to, or advise them about, some aspect of the deal.
- Business failures. Claims arising out of failed businesses which law firms helped a client establish, can come into question.
- Commercial contract issues. Many businesses have had difficulty meeting their contractual obligations and/or have experienced counterparties with the same difficulties with the effect that force majeure and frustration(legal doctrines relating to a party’s inability to perform obligations under a contract) have become of critical importance. Claims may be made against the law firm responsible for drafting the documents.
- Lease disputes. Similar to commercial contract issues, lease disputes will arise with businesses scrutinising their commercial leases and responding to what is widely considered to be a permanent shift towards more remote working. Where lease break clauses do not provide tenants and landlords with the protection they desire, many will look to the lawyer who drafted the lease with a claim.
Claims against accountants
With businesses operating remotely, logistical changes have necessitated new technology being used to obtain information and to transmit information. It will still be necessary for accountants to obtain appropriate data and records when instructed to produce, for example, financial statements, and evidence to support conclusions of their audits.
If things are missed by accountants due to technological advancements which they do not understand or which do not work properly, accountants could find themselves producing work for clients which is not accurate opening them up to negligence claims.
Claims against financial planners
Financial planners (and the banks they work for) came under intense scrutiny after the GFC and were also singled out for special attention in the recent Royal Commission into banking.
When the economy has a downturn, the share markets usually follow suit and people’s investments suffer losses. Sometimes, the losses are higher than usual due to poor financial advice or investing in high risk stocks or products in circumstances where there is a conflict of interest.
IT companies are very busy at the moment assisting businesses operate remotely and developing and enhancing software to assist this process. Unfortunately, IT professionals will find themselves in the firing line of their clients if the software they develop or the systems they put in place fail and causes their clients financial loss.
Claims against insurance brokers
Where insurance does not cover a client’s position in the way the client had expected, claims may be made against insurance brokers alleging failure to have advised appropriately on risk, for example about warranty and indemnity, cyber, business interruption and general liability insurances.
Understanding your rights if you have received negligent advice or service
If you have suffered financial loss because of the bad advice, or negligent service, provided by a professional, you may be able to sue them for damages.
Who is considered a “professional”?
A professional is a person who is engaged or qualified in a profession. What you can expect from a professional is the expertise, which they hold themselves out to possess, to be delivered at an industry standard. They commit to providing competent advice and to carrying out your affairs to ensure.
Fortunately, for the most part, professionals practice their duties with reasonable care and skill. However, unfortunately there are many instances where professionals fail to meet the required standard, causing innocent customers significant loss.
Claiming for damages
To claim for damages, it is not enough for a professional to act poorly or not live up to your standards. The professional must be found to have acted in a way that is not to industry standard, or not to have acted as a “reasonable professional” should. Those direct actions, or lack of actions, would then need to be connected to your losses.
Suing a professional is not an easy task and you have to be skilled and have the know-how to ensure the case is in the best possible shape to achieve a successful outcome.
Steps to take if you want to make a professional negligence claim against someone
Step 1: It is extremely important to keep records of any documents or communications had with the professional. Do not dispose of anything, including text messages! These will help support your case.
Step 2: Get advice at the earliest opportunity. There are strict time limitations that apply in both Queensland and New South Wales. If you have been negatively impacted by professional advice or services you have received, it is imperative that you get the right advice as quickly as possible to understand your rights.
Step 3: Attwood Marshall Lawyers will investigate your claim and guide you through the legal process, keeping you informed every step of the way.
Attwood Marshall Lawyers can help
At Attwood Marshall Lawyers, our dispute resolution and litigation team are skilled at providing the best possible advice in professional negligence matters. If you have suffered damages because of someone else’s professional negligence, we can act on a “No Win, No Fee” basis for approved cases.
We will assess your claim immediately to be able to advise you on your prospects of success and to be able to tell you if your claim is worth pursuing further. We want to reduce your risk as much as possible as we know you have already suffered enough loss. It is our intent to help you obtain justice, recoup your losses, and get your life back on track.
If you are involved in a professional negligence dispute, please contact our Department Manager, Amanda Heather, on (07) 5506 8245, email firstname.lastname@example.org or free call 1800 621 071 to find out where you stand.