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Who gets the benefit of the cap?
These questions and answers regarding the Institute’s Limitation of Liability Scheme/s are a general guide only. They are not intended as professional advice, and you should rely on your own inquiries and assessment and other suitably qualified and specific professional advice.
The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these questions and answers. - Who is a member of the scheme?
- Can I elect to opt out of the scheme or is it mandatory for all CPP holders and affiliates?
- I am a concessional CPP holder. Why am I a member of the Institute scheme?
- What is a practice entity member?
- Who will have the benefit of the cap?
- Does the scheme cover all partners and employees?
- Does the scheme apply to my partner who is a member but does not have a Certificate of Public Practice?
- What if the act or omission is that of my non-member employee?
- If I provide services through a company or trust will my liability be capped?
- I provide services through a trust structure. Is there any benefit in relation to the capping scheme to my trust becoming a practice entity member?
- Within my practice structure I have a service company which employs staff. Is there any benefit in applying for practice entity membership for this company?
- The scheme excludes financial services licensees. I am an authorised representative of a licensee and hold a Certificate of Public Practice. Do I have the benefit of the cap?
- If I retire or take a break from practice will I get the cap?
- What cap will apply if my partner is a member of another scheme.
- Do I get the benefit of the cap if the partner responsible for the act or omission was not providing public accountancy services?
- What is the Institute’s definition of ‘public accountancy services’?
- I am a director of a company related to a practice entity. All the directors of the related entity are CPP holders. This related entity provides services which do not fall within the definition of “public accountancy services”. Do I have the benefit of the cap on liability for these services?
1. Who is a member of the scheme?
If you are a CPP holder, an affiliate member or a practice entity member you are named as a participating member in the Institute scheme. Any of these who hold an AFS licence are excluded from the scheme for all services they provide. However, if you are an authorised representative of an AFSL then you are not excluded from the scheme.
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2. Can I elect to opt out of the scheme or is it mandatory for all CPP holders and affiliates?
Professional Standards Legislation (PSL) prohibits a scheme where participating members may choose to 'opt in/opt out' except where the scheme allows a limited exclusion. Such a limited exemption has been included in the Institute scheme to allow the Institute to exempt a member if that member would suffer financial hardship in obtaining PI cover at the minimum level required in the scheme.
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3. I am a concessional CPP holder. Why am I a member of the Institute scheme?
Any member providing services to the public runs the risk that a claim may be made against them. The Institute scheme for all CPP holders provides the protection of a limitation on the amount of damages that may be awarded against you. A concessional CPP holder can also access, at a premium, the concessional PI policy arranged through Marsh which provides a level of cover which meets the requirements of the Institute scheme. Link to PI Broker Contact details: http://www.charteredaccountants.com.au/A117173694
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4. What is a practice entity member?
A practice entity member is a practice entity, entitled to use the ‘Chartered Accountants’ description, which chooses to become a member of the Institute to ensure access to the scheme. See Q. 9 below.
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5. Who will have the benefit of the cap?
The PSL only limits “occupational liability” which is defined as the civil liability arising from the act or omission of a member acting in the performance of his/her occupation.
This means that liability will only be capped in relation to the act or omission of a member and the service relates to public accountancy services.
If the court decides that the it is an act or omission of a member at the source of the claim then the PSL extends the benefit of the cap to that member and other related parties.
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6. Does the scheme cover all partners and employees?
Where the act or omission is that of a member acting in the performance of his or her occupation, the following ‘participating members’ will have the benefit of the cap:- CPP holders other than AFS licensees
- Affiliate members other than AFS licensees
- Practice entity members other than AFS licensees
- All member and non-member partners and employees as long as they are not entitled to membership
Where the court decides that the act or omission is that of a non member, the liability of participating members is unlimited.
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7. Does the scheme apply to my partner who is a member but does not have a Certificate of Public Practice?
Yes. The PSL provides that if the scheme applies to a person, it also applies to each partner of that person (unless * the partner is entitled to be a member of the Institute, but is not). .
* Exclusion does not apply in Tasmania
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8. What if the act or omission is that of my non-member employee?
The court may decide that the employer is vicariously liable for the acts or omissions of an employee if those acts or omissions are committed in the course of their employment. However, for the purposes of deciding whether the scheme applies, the court will decide whether the definition of occupational liability in PSL has been satisfied, i.e. whether the act or omission is that of a member of the Institute.
The PSL in NSW and Queensland include a provision that the scheme applies to the liability of the partner, employee etc, “whether or not the other person’s liability is an occupational liability” if the scheme applies to a person, it also applies to each employee of that person. However there is a drafting problem in the PSLs of all States other than NSW and Queensland, and in the PSLs of the ACT and NT: while the clear intention of all PSLs is that the scheme will also apply to non-member partners, employees etc of the member, the fact is that the scheme limits “occupational liability”, and “occupational liability” is defined as liability arising from anything done or omitted by a member of an occupational association. Only NSW and Queensland, have addressed this error in the drafting of the legislation.
It follows that as the PSLs are currently drafted, it is only in NSW and Queensland that the scheme clearly also covers the employee in their own right.
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9. If I provide services through a company or trust will my liability be capped?
The Institute scheme names practice entity members, which may be incorporated practice entities, as participating members of the scheme.
If the services which have given rise to the claim have been provided by a member through his or her incorporated practice entity, the practice entity will inevitably be the primary defendant in the proceedings, although the individual members who have actually provided the services are also likely to be joined as defendants. In this case, unless the practice entity is itself a member of the Institute, it will not be covered by the scheme, and its liability in the proceedings will accordingly not be capped by the PSL. If it is a practice entity member, the definition of occupational liability would be satisfied and that practice entity and its officers would have the benefit of the cap.
If the act or omission is that of an officer of the company who is a member and the service is within the range of public accountancy services then the cap would apply to that officer and any other officers.
The best way to ensure that services provided through a company or trust are provided by a ‘member’ is to apply for practice entity membership for your incorporated practice entity or the corporate trustee of a trust. Only practice structures which have lodged the practice entity membership application form together with the $500 application fee since July 2007 will have been approved as practice entity members.
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10. I provide services through a trust structure. Is there any benefit in relation to the capping scheme to my trust becoming a practice entity member?
If the trustee of the trust is a company rather than an individual member holding a CPP, the corporate trustee will benefit from practice entity membership. As the trustee of the trust will be vicariously liable for the acts of its employees, the corporate trustee will not itself be covered unless it also is a practice entity member.
Any proceedings would be brought against the corporate trustee, which would only get the benefit of the cap on liability if it is a member of the Institute.
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11. Within my practice structure I have a service company which employs staff. Is there any benefit in applying for practice entity membership for this company?
Yes. The same principle applies to a service company as to an incorporated practice entity.
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12. The scheme excludes financial services licensees. I am an authorised representative of a licensee and hold a Certificate of Public Practice. Do I have the benefit of the cap?
Yes, an authorised representative of a licensee will have the benefit of the cap since you hold a Certificate of Public Practice, and are not yourself a financial services licensee.
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13. If I retire or take a break from practice will I get the cap?
The scheme limits the liability of any person to whom the scheme applied at the time when the act or omission occurred. As long as you were a participating member of the scheme at the time when the act or omission occurred then you will have the benefit of the limitation of liability. You will not get the benefit of the cap unless you can satisfy the court at the time a claim is made that you hold PI cover to the level of the limitation amount. The Institute’s PI Regulations require PI cover to be held by CPP holders for a period of seven years after retirement.
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14. What cap will apply if my partner is a member of another scheme.
The cap will be determined on the basis of the scheme which applies to the person who the act or omission.
If the act or omission is that of an Institute member, the cap which applies to that member and their partner, whether a member of the Institute scheme or another scheme, will be the cap set out in the Institute scheme.
If the act or omission partner, who is that of a member of another scheme, it will be the cap in that scheme which apply to that partner and his partners as long as the service is one which a court would consider to be of a kind provided by a member of the other professional association and the requisite level of PI cover is held.
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15. Do I get the benefit of the cap if the partner responsible for the act or omission was not providing public accountancy services?
The PSL caps apply to ‘occupational liability’ which is defined as:
‘anything done or omitted by a member of an occupational association acting in the performance of his or her occupation.’
The court hearing a claim against a member would decide whether an activity were ‘in the performance of the occupation’ of the member. It making this determination the court would have regard to all relevant material, including the Institute’s definition of ‘public accountancy services’ in the Supplemental Charter, and evidence as to the nature and scope of the services ordinarily provided by members of the Institute at the time of the act or omission the subject of the claim.
16. What is the Institute’s definition of ‘public accountancy services’?
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Public accountancy services are defined in the Article 2(f) of the Eighth Supplemental Royal Charter as meaning such services as the Board may from time to time determine to be “public accountancy services”.
The Board’s determination, as stated in Regulation 4 which will be included in the April 2008 Update to the Members’ Handbook:
The Board has determined such services to be accounting, auditing, management consulting, taxation, financial management and insolvency. With effect from 1 July 2005, the Board has also determined that forensic accounting, risk management and corporate advisory services are “public accountancy services”
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17. I am a director of a company related to a practice entity. All the directors of the related entity are CPP holders. This related entity provides services which do not fall within the definition of “public accountancy services”. Do I have the benefit of the cap on liability for these services?
No, not if the claim was against the related company and you in your capacity as directors. It is probable that liability arising from the provision of non “public accountancy services” would not be considered to be “occupational liability” and would therefore not be limited.
However if the principal claim was against you in relation to the provision of “public accountancy services”, and a related cause of action (resulting from the same event as that from which the principal cause of action arose) were brought against directors of the related company who were your partners or employees, then both you and those other directors would be covered – even though their liability was not an occupational liability.
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Last Update: 10 March 2008 |
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