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Advisers urged to limit liability in T&Cs

Advisers urged to limit liability in T&Cs

Advisers should consider limiting their liability in the event of a court claim by including specific terms in their client agreements, a solicitor who specialises in financial services litigation, has said. 

Speaking at the CISI Financial Planning Conference in Birmingham today (September 30) Philippa Hann, partner at Clarke Willmott, said there was "no real downside" to advisers including limitations in their terms and conditions which restrict the amount to be paid out in the event of a client claim. 

Ms Hann has experience in litigation both for and against financial advisers and said courts historically favour certainty and the "black letter of the law". 

She said: "A lot of IFAs say to me, 'well I can’t do anything about my contract because the FCA won’t let me. I have to treat my customers fairly and I’m not allowed to put anything in there which protects my business'.

"And that simply isn’t true. In my firm’s terms and conditions is a limit on liability on the amount we’ll pay out.

"And we limit that to the extent of our insurance policy. Why would you not do that?"

The liability cannot solely be limited to the conceptual maximum of a firm's indemnity cover but must also include an actual figure, Ms Hann said. 

Ms Hann was talking about claims in court, not with the Financial Ombudsman Service, which can award as much as £350,000 in compensation for claims brought after April.

The Unfair Contract Terms Act 1977 requires a disclaimer included in terms and conditions must be reasonable as of the time the contract was first entered into, and this extends to limitations on liability. Companies acting as claimants are not covered by the Act, but individuals are, she said.

Ms Hann said: "I am not suggesting in your client agreement you have anything in there which says even if we advise you, you can’t rely on it - I don’t think this would get through the Unfair Contract Terms Act test.

"But there is no real downside to including a limitation because even if you go to trial and the court decides it was unreasonable - say you are doing a particularly risky thing for your client and they were likely to lose significantly more than the limit of your insurance, and in which case it would not count as being reasonable - even in those circumstances all that happens is the court simply strikes it out and it is as if that clause never existed in your contract." 

Advisers can also include contractual disclaimers which limit the amount of time a client, or former client, has to make a claim in court, Ms Hann said. 

The Limitation Act 1980 imposes a statutory limit on certain claims which can be brought in cases of a breach of contract or negligence, and these can be relied upon where an adviser has not specified their own contractual time limits.