When lawyers are sharing duties with their clients, they must draw a “bright line” in delineating the responsibilities, the Ontario Court of Appeal said in a ruling last week on a law firm’s negligence in a real estate matter.
In
Outaouais Synergest Inc. v. Lang Michener LLP, the firm, which has now merged with McMillan LLP, lost its appeal of a 2011 Superior Court ruling on the matter.
Lang Michener lawyer Charles Saikaley had been representing the purchaser of an Ottawa property who, after buying it, found out there was a restrictive covenant on the land that allowed the city to collect money from the buyer as cost recovery for roadwork done in the area.
If the buyer didn’t pay the money, the deal had it that the city would own a 0.3-metre reserve along the boundaries of the property. The purchaser, according to the appeal court, had bought the property for $850,000 and, to its “considerable surprise,” found itself asked by the city to pay an additional $433,466 before it could have road access to it.
The court found the defendant to have been negligent for not discovering that this agreement existed and awarded $290,000 in damages. In the appeal, Saikaley said he had made an agreement with his client, Marc Brunelle, that Brunelle would take care of matters related to the development of the property and the cost-recovery issues were part of his responsibilities.
The court of appeal didn’t accept that argument.
“Legal matters relating to title and to ingress and egress are not normally matters that are delegated to the client, at least not without a clear delineation of responsibilities by the lawyer, and the client’s acceptance of those responsibilities,” wrote appeal court Justice Robert Blair on behalf of a three-judge panel.
In coming to its conclusion, the court talked about a “bright-line” rule when it comes to lawyers’ duties. It cited a 2005 decision that established 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.”
In essence, the court is saying that if lawyers share duties with their clients, they must clarify not just what they entail but also that they’re not responsible should anything go wrong with the client’s portion of the work, says Allan Rouben, an appellate counsel with experience dealing with matters of professional negligence.
If lawyers are going to argue they’ve delegated some responsibility to the client, “it should be clearly documented and that just seems to be basic good practice,” says Rouben.
“This happened in a real estate context, but you can see how it could occur in other contexts as well.”
Tara Sweeney, who represented respondent Outaouais Synergest in the appeal, says the decision sends a warning to all lawyers to “outline the four corners of their retainer clearly.”
“This decision sends an important message to all lawyers who may have clients who wish to act independently with respect to some aspect of the file, either by investigating issues relating to the development of a property, as in this case, or even handle their own accident-benefits claims in a motor vehicle case,” says Sweeney.
Both the appeal and lower courts have affirmed that clients, “sophisticated or not,” must clearly understand the limitations of the lawyer’s retainer, Sweeney adds.
In
Outaouais Synergest, the Court of Appeal and the Superior Court agreed that this didn’t happen.
“Here, the trial judge concluded, on ample evidence, that this process had not occurred; that Brunelle, in taking on responsibility for development issues, did not appreciate the access implications of the 0.3 metre reserve; and that it was Saikaley’s obligation to address the access issue with his client, which he did not do,” wrote Blair.
A search report prepared for Saikaley and a deal signed by the parties alluded to a 0.3-metre reserve. Although Saikaley saw the reference, he didn’t inquire with the city about exactly what it entailed.
“Despite being advised of this limitation respecting access, Saikaley made no inquiries of the municipality about what the costs associated with dedicating the reserve might be and was content to rely on the advice of the real estate agent that they only related to development costs,” wrote Blair.
Eric Williams, counsel for Lang Michener, was unable to comment on the case last week as he hadn’t yet received instructions on whether to do so by press time.
But for Sweeney, the ruling is “a good affirmation of the settled law with respect to the duty of a solicitor, particularly a real estate solicitor, to undertake their practice in a careful and prudent fashion.”
Saikaley had made an alternative appeal to have the vendor, Harold Keenan, pay costs for not clearly communicating with the purchaser about the agreement with the city. (The agreement wasn’t registered on the title, something Saikaley said he hadn’t seen in his 26 years of practice.)
The appeal court dismissed that argument as well, finding that despite the omission, the buyer-beware principle applies and the lawyer in this case had enough indications about the 0.3-metre reserve to have raised an eyebrow.
“It seems, on the face of it, the court was saying that there was enough information that came out of the title search that led to further questions that the lawyer should have gotten clear answers to before closing the transaction,” says Rouben.
