Personal liability of employees: An emerging issue

Whether personal liability should be imposed on an employee has been a troublesome issue for the courts when dealing with claims for professional negligence. In this article, we explain why this issue is gaining prominence, the competing arguments it gives rise to and the different approaches that have been taken to it by the courts.

An increasingly prominent issue

Historically, the issue of personal liability for professional negligence on the part of employees was a relatively benign one. This was for a number of reasons. Firstly, as many professionals traded as partnerships, for which personal liability on the part of all principals is joint and several, there was frequently no need to look to an employee for compensation. This could be sought from any combination of the principals in the practice, who were often best placed to provide satisfaction. Secondly, those in the traditional professions were usually required by their governing bodies to maintain reasonable levels of professional indemnity insurance (PII) cover, which itself would satisfy the vast majority of professional negligence claims made against a practice. Thirdly, the legal duties of professionals recognised by the courts were generally more restrictive, making for fewer professional negligence claims in the first place.

However, over the last 20 years, many professionals have shunned the unincorporated structures of the past, preferring to trade through private limited companies (PLCs) and limited liability partnerships (LLPs). In doing so, the potential to recover compensation from multiple principals has been reduced to a single legal entity. Further, and for the sole practitioner too, personal contracts of appointment have been replaced by corporate ones, only then to be performed by employees.

At the same time, and in conjunction with a growing service-based economy, the professional sector has witnessed the emergence of a diverse range of new professions. While some of these have become well established, many have limited regulatory oversight and, in comparison to the traditional professions, less onerous obligations regarding the PII cover that members must maintain.

Latterly too, and in an economic trading environment that lays claim to a substantial number of ‘zombie’ companies struggling to remain solvent, PII purchasing practices have changed. Now many small and some medium sized professional practices choose to purchase their PII policies online, without using the services of an insurance broker. As a consequence, the cover obtained can be more limited and less suitable than it should be or is realised. In some instances, cost pressures mean that PII cover is dispensed with altogether, often by the very practices that need it most.

Finally, and with Brexit on the horizon, there is the potential for a significant fiscal shock, leading to ever more challenging, and perhaps recessionary, economic trading conditions. In turn, a significant number of professional practices, small, medium and large, could face closure, just at the time when professional negligence claims activity traditionally increases.

In combination, these events suggest that it may become increasingly common for claimants to assert liability on the part of professional employees personally, in order to recover compensation for the losses they have sustained as a result of professional negligence.

The scope of the issue

While the use of incorporated vehicles to deliver professional services may fuel the issue of employee liability, it is not only within this framework that the issue arises. It can also arise where professionals are employed by traditional partnerships, sole practitioners and local authorities.  

Moreover, and when considering whether any liability in negligence should attach to an employee, it is always necessary to consider the type of harm against which any claimant is entitled to be protected. As Lord Bridge stated in the case of Caparo Industries v Dickman:

‘It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless.’

In the case of physical injury, directly inflicted to person or property, the courts have been quite ready to uphold a personal duty of care and, in turn, personal liability on the part of a professional employee. However, in professional negligence claims, it is more common for the harm suffered to be of a purely financial nature. Therefore, it is an employee’s personal liability for pure economic loss that is considered further below.

Competing moral standpoints

In considering such liability, the courts have had to consider a range of competing arguments.

For professionals, who have gone to the time, trouble and expense of creating a stand-alone legal entity through which to trade, often with the deliberate intention of availing themselves of the limited legal liability status widely known to be associated with it, it is argued that the imposition of personal liability for negligence is positively unjust. Arguably, this is even more so in circumstances where a client has been advised in writing that the counter-party to the retainer is not the professional but a limited liability, corporate entity. It is also argued that such liability would lead to the perverse scenario whereby those who usually receive no direct benefit from the transaction or service being provided, would nevertheless be expected to shoulder any liability for it, where an error or mistake occurred.

For claimants, especially vulnerable ones, it is argued that the notion that a negligent employee cannot be held personally accountable is equally unjust. This is particularly so where the service was personal in either its nature or delivery and/or involved a significant element of trust. Arguably, it is even more so where, in the absence of personal liability, the claimant would be left to suffer loss or damage without redress. It is also argued that it is reasonable to expect professional employees to ensure that they are protected by appropriate PII cover and that the consistent imposition of personal liability would incentivise them to do so.

The approach taken by the courts

Over the course of the last 20 years the issue of employee liability for professional negligence has come before the courts for consideration on a number of occasions. As can be seen from the cases summarised below, the decisions reached have not always been consistent.

Hale v Guildarch Ltd & Others

In Hale the claimants were an elderly and infirm couple, who wished to release some of the equity in their home to fund certain improvements and the purchase of a car. The claimants met with two financial advisers from ADC Group Ltd (ADC), who advised them to enter into a home income plan. However, this proved disastrous and by the date of trial, the compounding interest on their loan had become unserviceable and had eroded the remaining equity in their property.

Unfortunately for the claimants, ADC was subsequently struck off the register of companies and dissolved. It was also not insured against any liability to the claimants. Therefore, the claimants initiated a claim for professional negligence against the two advisers personally.

Having noted that the claimants’ mortgagee had agreed not to redeem the loan during their lifetime, the court held that no duty of care was owed to the claimants by either adviser personally. This was on the basis that not only had there been no voluntary assumption of responsibility by either adviser, but there had also been no reliance on such an assumption by the claimants, who had always looked to ADC. Therefore, the claim failed.

Harris & Another v Wyre Forrest DC & Another

In Harris the claimants were two young first-time buyers who applied to Wyre Forrest DC (WFDC) for a loan to purchase a modest residential property. In turn, WFDC instructed its in-house surveyor, Mr Lee, to prepare a valuation report. A loan was then granted to the claimants, who had not seen the report, enabling them to proceed with their intended purchase.

Unfortunately, it subsequently transpired that Mr Lee had failed to appreciate that the claimants’ property suffered from serious settlement and was in a dangerous and unstable condition. As a consequence, it was unmortgageable without extensive remedial works being undertaken.

In a claim for professional negligence against WFDC and Mr Lee, the House of Lords held that a duty of care was owed to the claimants by Mr Lee personally, who had been negligent. In doing so, Lord Griffiths stated that:

‘I do not think that voluntary assumption of responsibility is a helpful or realistic test for liability…The valuer is discharging the duties of a professional man whether he is employed by the mortgagee or acting on his own account or is employed by a firm of independent surveyors…Mr Lee was in breach of his duty of care to the Harrises and the local authority, as his employers, are vicariously liable for that negligence.’

Merrett v Babb

In Merrett the claimant and her mother were intending to purchase a residential property with the assistance of a loan from the Bradford & Bingley Building Society. To this end, the building society instructed Clive Walker & Associates, a valuation and surveying practice, of which Mr Babb was a salaried employee.

In due course, Mr Babb inspected the property and provided a self-certified mortgage valuation report to the building society, a copy of which was released to the claimant. However, the report failed to identify the presence of settlement cracks between the original structure and a later extension, which were only discovered after the property was purchased.

Unfortunately for the claimant, Clive Walker & Associates subsequently ceased trading and its sole principal was declared bankrupt. It was also not insured against any liability to the claimant. Therefore, the claimant commenced a claim for professional negligence against Mr Babb personally.

Having considered earlier authorities, the Court of Appeal concluded that a professionally qualified person giving advice may owe a duty of care to an effective recipient of that advice, the question in each case being whether the law recognises a duty of care. Further, and as a matter of fact in this case, it concluded that Mr Babb had assumed personal responsibility to the claimant for his advice, since he had certified his report in a personal capacity and had known that it would be relied upon by the claimant, as indeed it was.

Summit Advances Ltd v Bush

In Summit the claimant was a tertiary mortgage lender who had provided a bridging loan to support the purchase of a substantial 16-bedroom mansion house. Before doing so, it had relied upon a valuation report provided by Mr Bush, who was an employee of Livemore Partnership LLP, who had itself been commissioned to provide the report on behalf of Allied Surveyors plc, at the instruction of a third-party mortgage broker.

In the event, the loan was not serviced and there was insufficient equity to discharge it following the repossession and sale of the property. Therefore, the claimant commenced a professional negligence claim against Mr Bush personally, alleging that he had over-valued the property. In turn, Mr Bush applied to the court for summary judgment.

At first instance the Master dismissed Mr Bush’s application, enabling the claim to continue. However, that decision was then overturned by the High Court on appeal.

In granting summary judgment, the High Court observed that the principles to be derived from Harris and Merrett did not extend to a financial institution, so as to create what would in effect be an insurer of last resort in the form of Mr Bush. It further concluded, upon considering the wording of the valuation report itself, that there had been no acceptance of personal responsibility by Mr Bush to the claimant.

Protective measures

To safeguard against the need to pursue a claim against a professional personally, those instructing professionals should undertake appropriate due diligence, which should include obtaining confirmation that appropriate PII arrangements have been made. While this alone will not guarantee that insurance cover will be in place, that it will be sufficient and that it will respond to any subsequent claim made, it may improve the prospects. For those not in a direct contractual relationship with the professional being appointed, acting promptly in the pursuit of a claim following the discovery of negligence may assist.

Preventative action can also be taken by professionals. In this vein, retaining a specialist PII broker to advise on, and assist with, placing appropriate cover is eminently sensible. Such brokers can also assist with claim notifications, which if mishandled may prejudice the availability of cover, as well as the renewal process. Employees can also obtain their own independent PII cover if they have doubts as to the scope or duration of cover arranged by their employer.


Neither claimants nor the professionals that they instruct should assume that personal liability for professional negligence will never arise. It is clear from the above cases that, in appropriate circumstances, the courts will find a professional personally accountable for his/her acts or omissions. This is so even where the loss suffered is purely economic in nature. To avoid this eventuality, for the benefit of all concerned, an appropriate PII policy should be arranged, maintained and complied with, preferably with the assistance of a specialist insurance broker.

Further legal assistance

As professional negligence solicitors, we act for clients nationwide to resolve claims against a wide range of professionals.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at

At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

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