When taking over an existing company it is common to take financial advice from a range of professionals as to the prospective business’s financial health and the integrity of its books. However, in the event that the advice falls below the accepted standard, that of reasonable competency, it may be possible to instruct professional negligence solicitors to make a negligence claim.
Breach of contract
The Supply of Goods and Services Act 1982 confers a duty upon any professional to exercise reasonable care and competency in providing their services, whether they are material, advisory or informational.
In the event that a bank, accountant or financial advisor provides advice that falls below this standard, it may be possible to proceed with a negligence claim for breach of contract.
If a duty of care can be established and breach of this duty is proven, where there has been significant economic loss, it may be possible for professional negligence solicitors to recover damages for the claimant.
However, as much case law demonstrates, it is still necessary to prove that the advisor was aware that the advice was being given purposefully and that it was likely to be acted on.
Public company takeover – Caparo Industries v Dickman
If a person or group of persons carries out a take over of a public company on the basis of advice that later transpires to be negligent, a negligence claim may be made.
The case of Caparo Industries v Dickman (1990) provides illustration of how such a claim may be successfully made. In this case the claimant sought damages from the defendant, an auditor, on the basis that pre-takeover accounts of an electrical company, Fidelity plc, which it sought to takeover were negligently performed and failed to disclose that the company had been operating at a loss.
The accounts had been issued to shareholders and, as a shareholder, Caparo Industries received the reports which showed the company was operating at a profit. Caparo bought more shares and finally held control. At this point the true state of Fidelity’s accounts was revealed and Caparo sued Dickman.
In the first instance the court ruled that no duty of care was owed by Dickman to Caparo as there was insufficient proximity between Caparo and the auditors. Caparo appealed the decision.
The case was settled in the appellant’s favour and established an important standard for duty of care in negligence cases. This standard, sometimes referred to as the “three-fold test”, lays out that the harmful impact of the negligence must be reasonably foreseeable, that the parties must be in a relationship of proximity and that it must be fair and just to impose liability in such a case.
Healys LLP has a team of professional negligence solicitors whose advice can help you negotiate tricky legal waters in the event that the advice of an accountant, bank, auditor or other professional has led you to suffer financial loss.
Call our Brighton or London offices today, on 01273 685 888 or 020 7822 4106 to find out more about our services.