The Practice of Law

Professional Negligence 101

Once upon a time, one of my litigation partners had a field day suing a very senior partner of a reputable law firm in the Toronto area. I will call that defendant “Max.”

The crux of the matter was that our client, who I will call Sue (appropriately, because that is what she ended up doing to Max) was involved in the sale of some shares of a corporation to the other shareholder. When Sue did not get paid, she came to see if we could do anything about it. When my partner asked Sue whether she was represented by counsel in the sale transaction, she identified Max as being her lawyer.

Max, on the other hand, said that he only represented the corporation and the purchaser of the shares. According to Max, Sue was unrepresented in the transaction.

If we want to be charitable to Max (and my litigation partner was not), we could say that what we had here was a failure to communicate. If we do not want to be charitable to Max, we could say that what we really had was a combination of arrogance and negligence.

I lean toward the uncharitable view myself.

One of the key pieces of evidence was that Sue attended the closing meeting at Max’s office without any lawyer in the room other than Max. There was no evidence that Sue was told that Max was not representing her interests. My partner took Max down. Big time.

You would think that with all of the complex matters a lawyer has to address, one of the simpler ones would be knowing who their client is. And yet, lawyers frequently screw this up. Just two of many examples:

First Example

A husband and wife meet with a lawyer and jointly give instructions to incorporate a company. The husband then meets the lawyer and provides instructions concerning a shareholder’s agreement. The agreement is drafted and sent to the husband for review. He approves the draft, and it is later signed by both shareholders.

When the couple gets divorced, it turns out that the wife is unhappy with certain provisions in the shareholders agreement. She says that the lawyer should have brought those provisions to her attention. The lawyer says that the wife was his client for the incorporation, but not for the shareholders agreement. After all, the husband called the lawyer and provided the instructions. The bill was issued to the husband (or maybe to the corporation, or maybe to the husband and the corporation) and paid by the corporation. The lawyer cannot produce any evidence that he made it clear to the wife that he was not representing her.

I would think that the lawyer has a problem.

Second Example

Mom and Dad own a corporation. They have a meeting to discuss the unwinding of a family trust pursuant to the twenty-one-year rule. (In Canada trusts are deemed to dispose of their assets after 21 years which results in capital gains tax becoming payable if the assets of the trust are not distributed.) 

The parents have had a tax plan prepared by their accountants pursuant to which the shares will be distributed to the children. They instruct the lawyer to prepare a shareholder’s agreement for everyone to sign which will ensure that Mom and Dad stay in control. The lawyer prepares the documents.  The whole happy family attends at the lawyer’s office to sign all of the documents. The lawyer explains everything and everyone cheerfully signs. The lawyer sends the bill to the corporation.

Some years later the children have a falling out with Mom and Dad and are unhappy with the terms of the shareholders agreement. They allege that the lawyer was in a conflict of interest and/or was negligent.  The lawyer says that she was representing only Mom, Dad, and the corporation. But again, there is no evidence that she made that clear to the children.

The lawyer might as well kiss her deductible goodbye and hope that the claim is within her policy limits.

There are a myriad of situations which can get lawyers into trouble if they do not focus on determining who their client is and making sure that they comply with Law Society rules on conflict of interest and joint retainers. A starting point is to ask if there is more than one person involved in the transaction (remembering to consider every corporation as a separate person).

Every single time that there is more than one person involved in a matter, the lawyer must determine whether they are represented by counsel. If they are not represented by someone else the lawyer has to proceed with caution, or else, sometime, somehow, when they least expect it, someone may step up to them and say, “You’ve been served.” 

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