A large portion of my practice involves expert testimony on behalf of real estate and business solicitors accused of negligence. There’s a real dearth of good case law directly on point mainly because the matters that get to trial are usually pretty fact specific. That said, every now and again a case comes along that alters the landscape of the law and provides the bar with guidance as to where to draw that liability line. The Ontario Court of Appeal decision in
Outaouais Synergest Inc. v. Lang Michener LLP may be one such case.
In
Outaouais Synergest, a lawyer with a sophisticated client apportioned the due diligence on a commercial vacant land acquisition between himself and his client such that the client was to deal with the development and rezoning issues while the solicitor handled the traditional title matters. As it turns out, a 0.3-metre reserve separating the property from the seemingly adjoining public road rendered it legally landlocked. To make matters worse, the reserve was subject to rather onerous discharge terms that required the payment of development charges amounting to almost half of the purchase price.
At trial, the court determined the solicitor was liable for failing to advise his client on the municipality’s exact requirements for lifting the reserve and failing to clearly demarcate the lines of responsibility as between the law firm and the client regarding what was a development issue and what was a title matter.
It’s this latter issue that will have the most profound impact on the practising bar. Most lawyers, especially those practising in the corporate commercial sphere, will have clients of sufficient sophistication to represent themselves for certain aspects of the due diligence. Furthermore, there’s a growing number of allied professionals who now make up the modern commercial acquisition team. They include surveyors, environmental engineers, land-use planners, risk consultants, and others. It’s not uncommon to allocate due-diligence responsibilities accordingly.
The Court of Appeal, citing with approval the rule in
Accurate Fasteners Ltd. v. Gray, stated that “‘while the lawyer is not required to act as a quarterback, co-ordinating and directing the activities of the purchaser’s team, the prudent solicitor must explain the clauses that require due diligence inquiries by the purchaser and ensure the client understands the consequences of waiving the conditions.’”
Accurate Fasteners is actually a twofold test: First, there needs to be that bright-line demarcation of responsibility; and, second, solicitors have to advise the client on the due-diligence hot buttons even if they’re not the ones who will ultimately be addressing them.
So in
Outaouais Synergest, the solicitor would have to have advised the client clearly that he wasn’t proposing to include a review of the requirements for lifting the reserve as part of his legal retainer. He’d also have to have warned about the implications of the reserve.
Although
Outaouais Synergest is a real property case, its ratio transcends well beyond its facts and actually applies very poignantly to other areas of corporate commercial practice. Commercial leasing and acquisitions and dispositions of businesses all lend themselves to limited retainers and mixed teams of professionals.
While most solicitors have now gotten the hang of the limited retainer,
Outaouais Synergest adds a further wrinkle to warn about the risks outside of it. After-the-fact assertions of a limited retainer and apportioned due diligence without express limits and warnings about the risks will now probably fall on deaf judicial ears.
While the finding as to the solicitor’s liability in
Outaouais Synergest is itself probably not that surprising, the court’s conclusion that questions “relating to ingress and egress affect whether the vendor can convey a good and marketable title” raised some eyebrows. This was an unfortunate statement by the appeal court because, frankly, it’s wrong. Although access can affect the value dramatically, it’s not and has never been a determinant of good and marketable title. One can own Blackacre in fee simple with a perfectly good and marketable title even if there’s no legal access to it.
Of course, the distinction probably would have made no difference to the outcome of
Outaouais Synergest. Frankly, I believe, as did the solicitor in
Outaouais Synergest, that reserves like the one at issue here are generally development issues handled by the person otherwise dealing with the development approvals. The client in
Outaouais Synergest had agreed to deal with development issues and, therefore, the reserves probably fell on its side of the due-diligence allocation. As the Court of Appeal made clear, however, unless that retainer had expressly and clearly allocated access as a client responsibility and it was aware of the importance of the reserves, their exact nature as a title or a development issue is ultimately moot.
In the end, there was arguably nothing wrong in what the solicitor did as part of his real estate closing retainer in
Outaouais Synergest. His negligence, determined after the fact with the benefit of hindsight, was in the failure to draw the bright line before the engagement started and in failing to warn the client of the perils that lurked on the other side of that line.
Jeffrey W. Lem is a partner in the real estate group at Miller Thomson LLP. His e-mail address is [email protected].
