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Liability To Non-Clients: Combatting Expansion Of This Exposure

About twenty years ago, a series of cases substantially expanded solicitors' potential liabilities to non-clients in negligence. Ross v. Caunters [1979] 3 All E.R. 580 (Ch.D.) held that a solicitor was liable to a disappointed beneficiary where the will was not properly witnessed. This outcome, if not the legal analysis, was affirmed by the House of Lords in White v. Jones [1995] 1 All E.R. 691. Tracy v. Atkins, (1977), 83 D.L.R. (3d) 46 (B.C.S.C.), affd 105 D.L.R. (3d) 632 (B.C.C.A.) held that a solicitor for a dishonest purchaser was liable to the defrauded vendors, where the vendors reasonably relied upon the solicitor to protect their interest, to the solicitor's knowledge. These cases have withstood the test of time, and must now be taken as the law in Ontario.

LAWPRO, however, is firmly resisting attempts to expand solicitors' liability in this area. These claims are generally motivated by the plaintiffs' inability to recover their losses from the parties who are truly responsible. The following are examples of some successful defences by LAWPRO or its insureds:

The Case:
A solicitor was retained by a borrower to prepare a promissory note in favour of the lender. The borrower signed the promissory note in the solicitor's office in the presence of the solicitor and the lender. The solicitor helped the lender fill out the cheque for the loan advance. When the loan was not repaid, the lender sued the solicitor for failing to recommend that additional security be obtained.

The Judgment:
The action was dismissed. While the plaintiff relied upon the solicitor, she never asked for the solicitor's advice, or communicated her reliance to him in any way. The solicitor never suggested that he would protect her interests. The fact that others led the plaintiff to believe the solicitor was acting in her interests did not make it so.
Lobelio v. Pichini (Unreported, Ont.Ct.Gen.Div., June 5, 1998, Dunn, J.)

The Case:
A solicitor was retained by an individual who stated that he wished to loan money to two borrowers to be secured by a mortgage. The client brought to the solicitor a cheque payable to the solicitor in trust, drawn by a third party. The cheque was deposited in the solicitor's trust account, and the mortgage funds advanced. The client then instructed the solicitor to draw up a promissory note and direction from himself in favour of the third party. The solicitor did so. The mortgagors eventually defaulted, and the third party was unable to collect on the promissory note executed by the solicitor's client. She then sued the solicitor.

The Judgment:
The plaintiff's action was dismissed. A solicitor owes no duty to a non-client who loaned money to his own client, where it could not be said that the non-client reasonably relied on the solicitor, to the solicitor's knowledge. The fact that the client brought to the solicitor a cheque drawn by a non-client payable to the solicitor in trust did not give rise to a fiduciary or trust relationship with the non-client. Nor did receipt of such a cheque give rise to any duty to inquire. If there is reason to believe that a client is dealing improperly with a non-client, there may be an ethical as opposed to a legal duty to cease to act.
Budrewicz v. Stojanowski, (1999) 41 O.R. (3d) 78 (Ont.Ct.Gen.Div.)

The Case:
A solicitor was retained by the promoters of a land syndication project to act on behalf of the corporation which was taking title to the land. The purchase was funded by a number of investors who were shareholders in the corporation, as well as cestui que trust of the corporation, which held the land as bare trustee. The investors eventually lost their money. They were unable to recover from the promoters, and then sued the solicitors, alleging breach of duty to make full and proper disclosure of the material aspects of the transaction to the investors.

The Judgment:
The action against the solicitors was dismissed. A solicitor for a corporation owes no fiduciary duty to the shareholders/investors. It was not shown that the solicitor had any scope for the unilateral exercise of any discretion; nor if he had, that the shareholder/investors were vulnerable to the exercise of such discretion or power. None requested the solicitor's advice, or gave him instructions. A corporation's solicitor is obliged to take instructions from the corporation's authorized directors. The solicitor is not obliged to investigate the directors' instructions to determine whether they are in the shareholders' best interests. This duty falls on the directors themselves.
Filipovic v. Upshall, (1998) O.J. No. 2256 (Ont.Ct.Gen.Div.); (1998) 19 R.P.R. (3d) 88 (Ont.Ct.Gen.Div.)

The Case:
A firm of solicitors was retained by a developer and manager of a condominium project. In that capacity, they assisted with the preparation of the Offering Memorandum. The limited partnership project proved to be a failure, and the investors lost a substantial amount of money. They sued the limited partnership, the developer, manager, and the law firm, among others. Among other things, the investors alleged that the law firm failed to ensure that proper disclosure was made to the investors in the Offering Memorandum

The Judgment:
This allegation was struck from the statement of claim. No duty of care was owed to the investors. No solicitor-client relationship existed between the investors and the firm. It could not be said that the investors reasonably relied upon the firm to protect their interests, to the firm's knowledge. The Offering Memorandum stated that the firm acted for the developer and the manager of the limited partnership. Prospective investors were advised to get their own independent advice. The firm offered no advice or legal services to the investors, other than two opinions on very limited matters, which were not challenged. The statements in the Offering Memorandum were those of the general partner, not of the solicitors. It could not be said that the solicitors had any "discretion" to exercise to the detriment of the investors. It could not be said that the investors were "particularly vulnerable to" or "at the mercy of" the firm.
Anand v. Medjuck (Unreported, Court File No. 93-CQ-38318, Spence, J. (Ont.Ct.Gen.Div., released December 15, 1994)


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