Spell it out in the contract

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By Donald H. Lapowich

Here’s some information about an American case involving lawyers in a potential E & O case. I’m writing about it because of the recent changes to CREA’s rules and the debate about offering “partial” versus “complete” real estate services to a client. If you are drawing such a contract with a client, make sure you specify what you are NOT providing as well as the limited services you are retained to do.

A trustee sued a law firm for $500 million in a legal malpractice action on the basis that the law firm did not catch the fraud of a CEO.

The law firm won a dismissal based on their retainer letter that stated that only a special committee of a corporation was retaining the law firm to assist in the investigation of the corporation. 

The lawyer’s letter identified the “client” that was being represented, the law firms’ undertaking and that no other individual or entity including the company shareholders, directors, officers or employees were clients.  The firm stated it was to assist the special committee to investigate facts and circumstances of the resignation of three members of the finance staff of the company. 

The law firm found no evidence of fraud in the transactions reviewed and the three resignations.  The lawyers did recommend to the committee that remedial steps be taken to strengthen the company’s management structure.

The court held the trustee (for the creditors) were not clients, nor was there any implied attorney-client relationship. 

Remember, set out clearly what you intend to do and for whom. You should also indicate that you are not retained to do any other services.

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As an example of the principle that the plaintiff (person who sues) has the burden of proof (to prove negligence), I refer to a horrendous injury case.  The matter is cited to remind Realtors that their liability rests, in part, on their “causing” the damages (just like any other professional that is sued). 

The plaintiff’s wife rode on the back of a motorcycle driven by her husband.  The bike capsized and flipped.  The wife was thrown off and sustained a severe brain injury.

In the action against the husband (to collect on his insurance policy), the plaintiff failed to prove that the bike would not have flipped “but for” her husband’s negligence.  Causation was therefore not proved in court.

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In another case, Property X was between M’s property and the lake.  D purchased the property.  The previous owners of the property had permitted M to cross the land without accusing M of being a trespasser.  M asserted she had an easement by prescription (passage of time). 

The court held that M’s property did not have an easement over the property in question.  M did not gain any ownership right in the land, but only had authority to enter onto it, which was a “personal” licence. The court found that M always knew the land was owned by the neighbours.  She did not need an easement to enjoy her own land over property owned by others.

Donald Lapowich, Q.C. is a partner at the law firm of Koskie, Minsky in Toronto, where he practices civil litigation, with a particular emphasis on real estate litigation and mediation, acting for builders, real estate agents and lawyers.

1 COMMENT

  1. In other words, don't forget to tie your shoe laces before leaving home. You might step on on them and fall.

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