The Law and Business Administration in Canada, 14e Smyth, Soberman, Easson, & McGill

CHAPTER 5

Professional
Liability: The Legal
Challenges

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Smyth, Soberman, Easson, & McGill The Law and Business Administration in Canada, 14e

Objectives

To examine such questions as:

What duties are owed by professionals to
others?
What standard of care is expected of
professionals?
When are professionals in a fiduciary
relationship?
How does a plaintiff prove negligent
misrepresentation?
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The Duties of Professionals

The duties of professionals may be grouped

into three broad categories, namely:
Contractual duties
Fiduciary duties
Tort duties

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Fiduciary Duties

Fiduciary duties arise when:

The professional has scope for the exercise of
discretion or power
The professional can exercise the power in
such a way as to affect the other person
The other person is in a vulnerable position
Fiduciary duty may be broader than that
created by the contract (must avoid conflict of
interest)

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Duty in Tort

Client may choose to sue in contract or tort

where professional was negligent
Professionals may also be liable in
negligence to third parties

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Choice of Action

If a professional, may be liable in contract,

tort, and breach of fiduciary duty
Client may plead all causes of action in the
alternative
Will not recover higher damages only
because claim is for breach of fiduciary duty

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Liability for Inaccurate Statements

Misrepresentation (untrue statement)

A false statement of fact which misleads
another to their detriment
May be negligent or fraudulent (deceit)

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The Hedley Byrne Principle

Liability for negligent misrepresentation may

exist without a contractual or fiduciary
relationship
Duty to be careful owed to persons that
maker of statement could reasonably foresee
may rely on it
Hercules Mgt Ltd v. Ernst & Young (SCC)
Illustrates limits of duty, due to public policy

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Smyth, Soberman, Easson, & McGill The Law and Business Administration in Canada, 14e

Proving Negligent Misrepresentation

The requirements are:
1. duty of care based on a special relationship between the
representor and the representee;
2. the representation in question must be untrue, inaccurate, or
misleading;
3. the representor must have fallen below the requisite standard of
care required of a professional making such a representation;
4. the representee must have relied, in a reasonable manner, on
the negligent misrepresentation; and
5. the reliance must have been detrimental to the representee in
the sense that damages resulted.

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Smyth, Soberman, Easson, & McGill The Law and Business Administration in Canada, 14e

Extent of Liability to Third Parties

A two-part test:
1. Was it reasonably foreseeable that the
defendants act would harm the plaintiff?
Proximity of relationship - sufficiently close?
2. Was the misrepresented information used for the
purpose for which it was prepared?
Any policy reason to limit scope of duty?

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Standard of Care for Professionals

Professionals must exercise skill and knowledge

expected of the profession
Professional code of conduct and expert testimony
establishes the standard
But the court may still determine that the
professional standard was too low
Liability may result
But results not guaranteed (standard of perfection is
not reasonable)

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Reliance and Detriment:

Causation of Loss

Did client rely and act upon the advice of the

professional?
Where plaintiff would have so acted
regardless of professional advice, causation
is not shown

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Smyth, Soberman, Easson, & McGill The Law and Business Administration in Canada, 14e

The Role of Professional

Organizations

Set educational and entrance standards

Accredit educational institutions
Set standards of ethical conduct
Hear complaints and administer discipline
Look after general welfare of the profession if
there is an unfair attack

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Multi-disciplinary Partnerships

Traditionally, professionals have carried on their practices

either alone or in partnership with fellow members of the same
profession.
Professionals choosing to incorporate as professional
corporations remain personally liable for their torts and fiduciary
duties.
The other major development is the changing attitude towards
multi-disciplinary partnerships (MDPs). Ex- lawyers &
accountants
Concerns include the possibility that professional duties and
codes of conduct might conflict and big firms with diverse
services might more readily give rise to conflicts of interest.
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Strategies to
Manage the Legal Risks

Professionals providing opinions to the public should have third-party

liability coverage.
A written retainer includes a detailed description of the scope of work
and opinions to be provided to the client. Disclaimers should describe
the work not undertaken, the purpose for which the opinion is being
provided, as well as a restriction on who may use or rely on the
opinions.
Professionals should regularly participate in continuing education and
professional development programs.
Screening for conflict of interest should be done before a new client is
accepted to avoid creating a conflict with existing clients.

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