In brief – Professionals must disclose their limited liability and ensure eligibility for insurance schemes

There are liability caps in schemes approved pursuant to professional standards legislation. Professionals who fail to meet the prescribed eligibility requirements when otherwise entitled to participate in such a scheme risk exposing themselves to awards of damages and costs that could have been capped at a lower level.

What is professional standards legislation?

Professional standards legislation exists in each state and territory and is recognised under certain commonwealth legislation. It provides for capping of liability pursuant to schemes approved by the Office of Professional Standards Councils. (The schemes are then gazetted.)

There are presently schemes for accountants, barristers, building consultants, engineers, computer professionals, solicitors, surveyors and valuers. However, many of these schemes are not in force in all jurisdictions.

Requirement to disclose limited liability status in documentation

Eligibility criteria and liability caps vary from scheme to scheme. Professionals should seek advice about these matters in relation to their own specific circumstances.

Two general aspects to bear in mind are, however, the requirement that a relevant professional be a member of a prescribed occupational association and the obligation imposed upon a scheme participant to disclose their limited liability status in certain prescribed ways.

Failure to give that disclosure is an offence under the PSL and in some jurisdictions will result in liability capping not being available in response to a particular claim or claims.

ICA invited to comment on effectiveness of SA Act

In August this year, the Insurance Council of Australia (ICA) responded to an invitation from the South Australian government to comment upon whether the Professional Standards Act 2004 (SA) had achieved the following objectives referred to in Section 3 of the Act:

  • to enable the creation of schemes to limit the liability of professionals and others
  • to facilitate the improvement of occupational standards of professionals and others
  • to protect the consumers of the services provided by professionals and others
  • to establish the Professional Standards Council to supervise the preparation and approval of schemes to assist in the improvement of occupational standards and protection of consumers

Some professionals inadvertently fail to qualify for protections

Having consulted with members of its Professional Indemnity Committee the ICA considered that, although the Act met those objectives, "the experience of its members was that some professionals are not as well apprised as they could be of how to benefit from the regime established by the Act".

Examples cited by the ICA were accountants who may either fail to provide the appropriate information in their documentation, or else set up shell companies that are not registered as qualifying for the protection of the liability limits.

All professionals should ensure they are eligible for liability caps under a scheme

Although the ICA's comments are ostensibly directed at the SA legislation, their observations are pertinent to all professionals. If you wish to have the benefit of liability caps in a scheme, you must ensure that the vehicle by which the professional services are provided is eligible for membership of the scheme.

You must also take the steps necessary to bring yourself within the ambit if the scheme, including by complying with the disclosure policy required under the legislation.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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