Risk Update

Professional Responsibility — Conflict + Breach of Standard of Care ≠ Negligence

Posted Dan Bressler

Interesting story from Canada: “Professional Negligence Claim Dismissed Against Lawyer Despite Conflict Of Interest And Breach Of The Standard Of Care” —

  • “The plaintiffs, a husband and wife, sued their former lawyer, who had been disbarred by the time of the hearing. Their claim had nothing to do with allegations of missing trust funds or dishonesty which led to the lawyer being disbarred. Rather, it was a claim for professional negligence and breach of retainer.”
  • “In mid-2011, the lawyer was asked to prepare documents in order to secure the outstanding loans from the plaintiffs. The lawyer prepared a General Security Agreement (GSA) over the assets of Maplesoft and registered the security under the Ontario Personal Property Security Act (PPSA). The plaintiffs were not directed to obtain legal advice, and the lawyer did not obtain written consent to the joint retainer or otherwise comply with the rules concerning conflicts of interest as required by Rule 3.4 of the Law Society of Ontario’s Rules of Professional Conduct.”
  • “At first blush, it may have appeared that the plaintiffs had a strong claim. There was no doubt that their lawyer had acted in a conflict of interest and had failed to document the consent and instructions of his various clients. The lawyer admitted that he should have prepared a promissory note in 2011 in order to “paper the loan.” There was little doubt that the lawyer’s actions and omissions were careless and fell below the standard of care required of a reasonable and prudent lawyer in the circumstances of the retainer.”
  • “None of this was sufficient, however, to establish liability for negligence. In that regard, the plaintiffs failed to show how the lawyer caused their alleged damages. Proof of loss is an essential element of an action for professional negligence. As stated by Justice MacLeod, “there can be no liability for negligence unless some consequential damage has been suffered by the plaintiff.”
  • “Similarly, conflict of interest is not an independent cause of action without proof of damages resulting therefrom: Lacroix v. CMHC and McCann v. CMHC, 2016 ONSC 2641 (Div. Ct.)… it was not clear how the lawyer’s conflict of interest gave rise to any losses. The male plaintiff negotiated directly with the CEO of Maplesoft and there was no evidence that the plaintiffs had relied on the lawyer for business or financial advice. The male plaintiff had signed a release and subordination of security interest at Maplesoft’s request without seeking any advice from the lawyer before doing so.”
  • “The decision affirms the principle that a finding of a breach of a duty of care or conflict of interest by a professional does not end the question of whether the professional was negligent or caused the plaintiffs any losses. Negligence requires proof of foreseeable damages that result from the alleged error or omission. Plaintiffs who focus on the alleged error or omission without taking steps to quantify and prove the damages that allegedly result therefrom may face a summary dismissal of their claim.”