When individuals or businesses suffer unexpected financial loss, the first natural step is to consider whether something has gone wrong and who may be responsible. Professional advisers, such as auditors, accountants and financial consultants are often drawn into focus where losses arise from issues that were not identified, warned against, or appropriately managed. Common examples include undiscovered fraud, misstated financial information, flawed advice supporting a major transaction, or failures in controls or reporting that later come to light.
These advisers are engaged for their specialist expertise and are relied upon to provide careful, informed guidance to support key decisions and manage financial risk. A negligence claim alleges that an adviser failed to exercise reasonable care in carrying out their professional duties, and that this failure caused the claimant to suffer loss. While such claims are frequently pursued in the aftermath of a problem, the legal hurdles are significant, and outcomes remain highly fact-dependent.
The Key Elements: What Must Be Proven
A negligence claim requires proof of:
- a duty of care
- breach of that duty
- reliance and causation
- resulting loss
In practice, disputes most often turn on reliance and causation rather than duty alone.
Duty of Care: Did the Adviser Owe You an Obligation?
Professionals who provide services requiring specialised skill owe a duty to exercise reasonable care and diligence. This includes financial advisers, auditors, brokers and accountants engaged to provide advice or analysis.
The duty is defined by the scope of the engagement. It is not unlimited.
In some cases, a duty may arise even without a contract where:
- advice is given in circumstances where reliance is expected
- the adviser knows, or ought to know, the advice will be relied upon
Breach: Did the Adviser Fall Short?
A breach occurs where the adviser fails to meet the standard of a reasonably competent professional in that field.
Under the Civil Liability Act 2002 (NSW), a professional will not be liable if they acted in a manner widely accepted in Australia by peer professional opinion as competent practice.
Courts assess:
- the nature of the engagement
- the standards applicable at the time
- what a reasonable professional would have done
Reliance and Causation: The Critical Connection
Even where breach is established, a claim fails unless the loss was caused by that breach.
Reliance
You must prove that you actually used and depended on the adviser’s work when making the relevant decision. Receiving advice alone is insufficient — you must show you acted on it.
Causation
The central test is whether the loss would have occurred “but for” the adviser’s breach.
If the loss would have happened anyway — due to market forces, commercial risk, or third‑party misconduct — causation is not established.
Example
If Person A gives poor advice to Person B, but Person B does not act on it, and no loss flows from it, there is no claim despite the breach.
In complex transactions or fraud scenarios, proving this causal link can be difficult.
Limits on Professional Responsibility
The courts are cautious to confine a professional adviser’s liability to the role they were actually engaged to perform. Advisers are not expected to safeguard against every potential cause of loss associated with a business or transaction, but only against the particular risks that fall within the scope of their engagement.
For example, an auditor’s role is to examine and report on financial statements — not to guarantee the absence of fraud or commercial success.
Even where negligence is established, any compensation is limited to losses within the scope of that duty. Losses arising from unrelated risks are generally unrecoverable.
Ultimately, even where an adviser’s conduct can be criticised, liability will only arise if there is a clear and direct connection between that conduct and the loss claimed. Absent compelling evidence of reliance and causation, negligence claims against professional advisers face significant obstacles.
Proportionate Liability
In Australian jurisdictions, professional negligence claims involving economic loss are subject to proportionate liability regimes under legislation such as the Civil Liability Act 2002 (NSW) and the Wrongs Act 1958 (Vic). Where multiple concurrent wrongdoers have contributed to the same loss — for example, both an auditor and a fraudulent director — each wrongdoer is liable only for their proportionate share of the loss. This means a claimant cannot recover the full loss from a single defendant where others are also at fault.
The practical effect is that the solvency and availability of all concurrent wrongdoers becomes a material consideration when assessing the value and strategy of a claim.
How M+E can help you
If you have suffered financial loss and are considering a claim against a professional adviser, it is important to seek legal advice early. These claims are highly fact‑specific and require careful analysis of the adviser’s duties, the decision‑making process, and the true causes of the loss. Limitation periods apply and can extinguish a claim if not commenced in time – early advice is essential to preserve your position.
Our Disputes team can help assess your position and guide you on the most appropriate next steps. Please contact Isabella: isabella@morganenglish.com.au
