Suing your accountant for negligent advice
As Tim Newsome, dispute resolution solicitor at Myers & Co Solicitors explains, ‘If you have received negligent advice from your accountant which has led to financial loss, you may be entitled to bring a claim against them.’
Consider making a complaint
Before considering whether you might be able to bring a professional negligence claim against your accountant, it is usually worth following the complaints procedures provided by the two bodies that regulate the profession, the Association of Certified Chartered Accountants (ACCA) and the Institute of Chartered Accountants in England and Wales (ICAEW).
It is very likely that the accountant will be accredited by one of these organisations, both of which have procedures to deal with complaints of poor service. However, note that not all organisations or individuals that provide accounting or book-keeping services are members-only Certified or Chartered accountants can be.
You are not required to follow these procedures and you do not need a decision from either body before you can sue the accountant.
Assessing whether you have a claim
Where you have suffered financial loss and believe that it is a result of negligent advice, as opposed to poor service, then you may have a cause of action against the accountant. Common reasons for bringing a negligence claim against an accountant include:
- incorrect tax advice;
- failure to prepare accurate accounts;
- incorrectly conducted audits; and
- inaccurately valued company assets.
In order to bring a claim of negligence, you have to be able to prove that:
- the accountant had a duty of care to you;
- they breached that duty of care; and
- their breach of duty caused you loss.
All three elements (duty, breach and causation) must be present if your claim is to have a chance of being successful.
Your accountant’s duty
Whether or not you have a contract with your accountant, as your professional advisor they will owe you a duty of care. Every professional has a duty of care to their clients to provide a service using reasonable care and skill. If their work or advice falls below the standard that you are reasonably entitled to expect from them, they may have breached their duty and you may be able to sue them for negligence.
It is vital that you are able to prove that your accountant’s breach of their professional duty of care has resulted in financial loss to you or your business. Your accountant may have provided an inadequate service, but this is different from negligence in legal terms. You must therefore make sure that you have sufficient evidence to support your claim that their advice fell below a reasonable professional standard, and of the financial consequences of their failures.
The aim of a professional negligence claim is to put you in the financial position that you would have been in had it not been for the negligent advice. If your claim is successful, the compensation that you receive may be substantial and will usually be paid by your accountant’s professional indemnity insurer. Both the Association of Certified Chartered Accountants and the Institute of Chartered Accountants in England and Wales require members to carry insurance as a condition of membership, to protect their clients.
Bringing a claim
If the three elements are present in order to bring a claim, the first step in the process is to provide your solicitor with all the necessary documentation and evidence of your financial loss. Having reviewed these, your solicitor will then write to the accountant setting out the legal basis of your claim and a summary of the loss. This letter is called a pre-action letter and is the first step in the litigation process. It is part of the pre-action protocol which is designed to limit the number of cases that go to court by encouraging solicitors and their clients to resolve disputes early on in the process.
The accountant (or their solicitor) will write back either stating that they accept your claim or that they intend to defend it, and on what basis. Settlement is often reached before a claim is issued at court through the process of mediation. However, if resolution is not possible, a formal claim will then be issued.
As with all claims in negligence, there is a strict statutory time limit for bringing a claim, known as the limitation period. For professional negligence claims, this period is usually six years from the date of the negligence. If the claim is not started within this period the accountant will have a strong defence, so it is crucial that you contact your solicitor as soon as you realise that the actions of the accountant have caused you a financial loss. It is also important to remember that if you decide to follow the ACCA or ICAEW complaints procedures the limitation period will be running during this time.
If you think you may have grounds for a claim in negligence against the accountant, or require advice on any other dispute resolution matter, please contact Tim Newsome on 01782 525 011 or email firstname.lastname@example.org.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.