Limitation of Liability Clause: Can You Still Sue Your Adviser?

Yes. A limitation of liability clause in your engagement letter or terms of business does not stop you suing a solicitor, accountant, tax adviser, surveyor or other professional who got it wrong. It may cap the amount you can recover, but in many disputes the adviser must prove the clause is reasonable before a court will apply it, and an individual dealing as a consumer may not be bound by it at all.

Most people find the clause after the loss: a tax bill nobody warned about, a survey that missed the damp, an investment that collapsed. The usual assumption is that signing the letter settled the matter. Signing rarely settles the point.

What Is a Limitation of Liability Clause in an Engagement Letter?

A limitation of liability clause is a term in the contract between you and your adviser that restricts what the adviser has to pay if they make a mistake. It usually sits in the engagement letter, the client care letter or a separate set of terms of business. The common forms are a cap on the total sum payable, a cap set at a multiple of the fee, an exclusion of loss of profit or “indirect” loss, and a short deadline for bringing a claim. We act in every kind of professional negligence claim, and these clauses appear often in the engagement letters we are asked to read.

The clause only matters once you have a claim. You still have to show that the adviser owed you a duty, fell below the standard of a reasonably competent practitioner and caused you loss, which our guide to how compensation is calculated in a professional negligence claim explains. A cap then limits the figure at the end. It does not remove the claim.

Where to Find a Liability Cap and Whether It Binds You

Start with the engagement letter or proposal you signed or accepted by email, then look for a client care letter and any “terms of business” attached to it. Some firms refer to a web page instead of attaching the terms, so ask for the full set, including later variations and the version in force on the day you instructed them. The same search applies to a negligence claim against a financial adviser, an IFA or a broker.

A term binds you only if it became part of the contract. Terms that were never sent, that arrived after the work was done, or that sat behind a link you were never shown may not bind you, so keep the emails showing what you received and when. Then check who you contracted with and who the clause protects: the firm only, or its partners and staff too. Our pages on suing a negligent solicitor and on claims against negligent accountants and tax advisers explain how these claims start.

Does a Limitation of Liability Clause Stop You Suing for Negligence?

No. If you instructed the adviser as a business, the Unfair Contract Terms Act 1977 controls the clause. “Negligence” in that Act includes breach of a contractual duty to take reasonable care and skill (section 1(1)), and the Act applies to business liability (section 1(3)). Under section 2(2) a person “cannot so exclude or restrict his liability for negligence” for loss other than death or personal injury “except in so far as the term or notice satisfies the requirement of reasonableness”.

Section 2(3) adds that agreeing to a term, or knowing about it, is not “of itself” to be taken as voluntarily accepting the risk, so a signature does not end the argument. Some contracts sit outside these sections. Schedule 1, paragraph 1 says sections 2 and 3 do not extend to contracts of insurance or, so far as they relate to them, interests in land, intellectual property, the formation or dissolution of companies and securities. Whether a particular retainer falls inside those exclusions can be arguable, and the scope of the engagement matters, as our note on claiming compensation for negligent advice shows.

How a Court Tests Whether a Liability Cap Is Reasonable

Under section 11(1) the question is whether the term “shall have been a fair and reasonable one to be included”, judged on what the parties knew, or ought to have known, when the contract was made. The test is applied at the date of the contract, not after the loss. Where the clause caps liability at a fixed sum, section 11(4) directs the court to have regard in particular to the resources the adviser could expect to have available to meet the liability and to “how far it was open to him to cover himself by insurance”.

The burden sits with the adviser. Section 11(5) says it is for the person claiming that a term satisfies the requirement of reasonableness “to show that it does”. A cap that is small beside the value of the work, or well below the insurance the adviser carried, tends to be harder to defend than one that was discussed with you and sits in line with that insurance. Where the firm has closed or become insolvent, the insurance position changes again, as our page on claiming against an insolvent professional’s insurer explains.

Liability Caps and Consumers: Extra Protection for Individuals

If you instructed the adviser for purposes wholly or mainly outside your own trade, business or profession, you are a consumer under section 2(3) of the Consumer Rights Act 2015, and a trader who says otherwise must prove it (section 2(4)). The reasonableness test in the 1977 Act does not apply to terms in consumer contracts (section 2(4) of that Act). Under section 57(1) of the 2015 Act, a term in a services contract is not binding on a consumer to the extent that it would exclude the trader’s liability for failing to perform the service with reasonable care and skill.

A limit is treated differently from a total exclusion. Under section 57(3) a term that limits that liability is not binding to the extent that it would stop you recovering the price you paid or the value of any other consideration you gave. Any other limit is tested for fairness under Part 2. A term is unfair under section 62(4) if, “contrary to the requirement of good faith”, it causes a “significant imbalance” in the parties’ rights and obligations to the consumer’s detriment. A homebuyer, a person making a will or an individual with a personal tax return is typically in this category.

Time Limit Clauses, Loss Exclusions and Other Wording That Works Like a Cap

A cap is not the only clause that reduces a claim. Section 13(1) of the 1977 Act extends the controls to terms that make a liability or its enforcement subject to “restrictive or onerous conditions”, that exclude or restrict any right or remedy, or that exclude or restrict rules of evidence or procedure. A clause requiring claims to be started within twelve months, or notified in writing within weeks, is therefore tested for reasonableness as well. Clauses that exclude loss of profit, or make the adviser liable only for a “proportion” of the loss, are in the same position.

A different kind of clause defines the job rather than limiting liability, such as “we do not advise on tax” or “this valuation is for the lender only”. The question then becomes what the adviser actually agreed to do, which depends on the whole retainer and on what was said and written. If you hold an engagement letter and cannot tell which kind of clause you have, our second opinion from a solicitor and barrister is designed for that.

Auditors: Liability Limitation Agreements Under the Companies Act 2006

Auditors are in a separate position. Under section 532(2) of the Companies Act 2006, a provision exempting an auditor from liability to the company for negligence in the audit is “void, except as permitted”. Section 534(1) permits “an agreement that purports to limit the amount of a liability owed to a company by its auditor”, but the agreement must relate to one financial year (section 535) and be authorised by the members (section 536). Under section 537 it is not effective to limit liability to less than “such amount as is fair and reasonable in all the circumstances of the case”. Section 534(3) takes these agreements outside sections 2(2) and 3(2)(a) of the 1977 Act, so the Companies Act test applies instead.

If your company has a claim against its auditor, ask for any liability limitation agreement and the members’ resolution approving it. A missing resolution, an agreement covering the wrong year or a figure well below what is fair and reasonable can each weaken the cap. Not every accountant is an auditor, and a cap in a tax adviser’s letter falls under the 1977 Act or the 2015 Act instead. Our page on financial negligence claims against accountants, auditors and brokers lists the professions we act against.

Limitation of Liability Clause or Limitation Period? Clearing Up the Confusion

Three similar phrases cause trouble. A limitation of liability clause is a contract term that restricts what the adviser pays. A limitation period is the statutory deadline for starting a claim, which our guide to the limitation period in professional negligence claims covers. Limited liability is the protection a company gives its shareholders, and it says nothing about what an adviser owes a client.

The last of these often confuses directors. A company’s limited liability does not shield a director who has acted wrongfully, as our pages on director liability after a winding up petition and on the personal risks directors face explain. If bad advice from an accountant pushed your company towards insolvency, the adviser’s cap and your own exposure need to be looked at together.

Is It Worth Suing If Your Loss Is Bigger Than the Cap?

Often it is. A cap limits the damages, not the right to sue, and the capped figure may still be substantial. Part of the loss may also sit outside the clause, for example against a second adviser or under a separate engagement. You can also challenge the clause as unreasonable or unfair, and if you succeed the cap falls away. A cap can shape settlement talks too, and our guide to what mediation involves explains how those talks work.

Tax claims show the point. If negligent advice led to an HMRC penalty, the tax you would have owed anyway is generally not recoverable from the adviser, but the penalty, interest and extra professional fees caused by the advice may be. Those figures can exceed a modest cap quickly. Our pages on HMRC penalties and on negligent tax advice claims set out both sides of that dispute, and our guide to negligent tax scheme advice covers claims against advisers who recommended avoidance schemes.

Time Limits for Suing Despite a Liability Cap

The clause does not pause the clock. A claim in contract must be brought within six years of the date the cause of action accrued (section 5 of the Limitation Act 1980), and a claim in tort within six years under section 2. Time generally runs from the adviser’s breach in contract and from the date you suffered damage in tort, and those dates can differ. Check at once whether your letter shortens the period, because a short contractual deadline is judged by the reasonableness test above and may still be enforced.

Where the damage was not obvious when it happened, section 14A(4) allows the later of six years from accrual or three years from the “starting date” in section 14A(5), the earliest date you had the knowledge needed to sue. Under section 14A(9), knowing that the adviser was legally negligent is irrelevant to that date. A 15-year longstop applies under section 14B(1), running from the last negligent act or omission. Do not wait for the adviser’s insurer to tell you where you stand.

Pre-Action Protocol: The Letter of Claim and the Adviser’s Insurers

Claims against solicitors, accountants and most other professionals follow the Pre-Action Protocol for Professional Negligence. The letter of claim should set out the allegations, the chronology, the estimated loss and a request that the letter be forwarded to the professional’s insurers (paragraph 6.2(h)). The professional should acknowledge within 21 days (paragraph 7.1) and has three months from the acknowledgment to investigate and respond (paragraph 8.2). Architects, engineers, quantity surveyors and healthcare providers are outside it. Our page on the letter before claim explains the general pre-action process.

The protocol does not change the statutory time limits (paragraph 4.1). It points to a standstill agreement, or to issuing the claim and inviting an agreed stay, so that a limitation date cannot pass while letters are exchanged. Our guide to starting a professional negligence court claim and our step-by-step guide to the protocol cover what follows, and the government’s page on how to make a court claim for money explains the online and postal filing routes.

How We Can Help

We act for businesses, directors and individuals with substantial claims against solicitors, accountants, tax advisers, surveyors, auditors, brokers and independent financial advisers. Our professional negligence practice reads the engagement letter and terms of business, tests any cap, exclusion or time limit against the statutes above, and tells you plainly whether a claim is worth bringing. We do not offer free legal advice or legal aid, and we generally take on substantial matters only. If the same advice has also left you in a dispute with HMRC, we can give a second opinion on your HMRC dispute.

We are dual qualified solicitors and barristers with chambers at 4 Middle Temple Lane, next to the Royal Courts of Justice. We offer a fixed fee advice conference with both a solicitor and a barrister, where we review your documents and give you a view on the claim and on the cap. To begin, complete our professional negligence case assessment form.

This article is general information, not legal advice.