6 Pages

Accounting & Financial Management
Course Code
AFM 231
Valerie B Irie

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READING NOTES Chapter 4 – Professional Liability Primarily concerned with application of contract and fiduciary law to professionals Professional Liability: The Legal Dilemma • Professionals are those with specialized knowledge and skills that clients rely on • Greater exposure to liability for professional negligence has led to extensive use of liability insurance which consequently raises price (as well as client expectations) in a vicious cycle Duty of Professionals • Contractual Duty: o Agreement to provide professional services to a client contains a promise to perform those services with due care (whether stated expressly or not) o A breach of that promise is a breach of contract • Fiduciary Duty: o In addition to tort liability, a principle of equity imposes a fiduciary duty of care where a person is in a special relationship of trust  Professional must do everything they can for the client  Why? Professional has upper hand because client is dependent upon them for service  Eg. TD vs. Hunt involving a non-discretionary sale of assets • Hunt argues that he did not tell the manager to sell BCE • Hunt won originally because of his old age and fiduciary duty • Case was appealed where the court ruled that Mr. Hunt was not in a fiduciary relationship because he had good health and demonstrated previous financial / business intelligence o Testing for imposing a fiduciary duty  Fiduciary has scope for exercise of power – fall in your grasp?  Fiduciary can use that power to affect the beneficiary’s legal or practical interests – able to affect them?  Beneficiary is peculiarly vulnerable to or at mercy of the fiduciary o Conflicts of interest  Situation where a duty is owed to two or more clients who may have competing interests  Requires complete fidelity and loyalty to the other party of the relationship  Why? A professional acting on behalf of two clients with competing interests may find it impossible to fulfill their duty to both • Eg. Remax agent who tries to combine buyers and sellers to save themselves time • Eg. Enron scandal where auditors had lucrative contracts and didn’t want to risk them by judging directors too harshly • Duty in Tort o Third-party liability  Important to note that a duty may be owed in tort to more people than just the client who is paying for the services  Eg. Engineers and architects design buildings that present risks to occupiers and others, not just the owners of the building itself  Same applies for insurance agents who’s contractual duty lies with the insurance company however they still may develop close relations with persons they refer to as clients • Choice of Action o How can you sue professionals?  Depends on situation, sometimes a professional may be liable in tort but not in contract, or liable for breach of fiduciary duty without having been negligent… choose the battle you can win! • Tort might prove more difficult in some cases due to aspects like contributory negligence  Time limits can affect decision because torts are calculated from the moment that a breach is discovered while contract is calculated from when the breach occurs • Determined by Limitation Act o Tort is from 2yrs upon discover of the tort, while contract is 2 yrs after breach  Form of action can affect damages as well • Tort’s again, are designed to restore the person to their original state while fiduciary are more imaginative about what could have been had breach not occurred Nature of Representation • Statement • Silence when there is a duty to speak – Negligent omission o Eg. Lifeguard needs to warn when water is unsafe • Expert opinion is treated like a factual comment • Disclaimer or exculpatory clause or limitation on liability o Put something in contract that says you can’t sue me! Liability for Inaccurate Statements • Note: You can be sued for both what you say (via misrepresentation) or don’t say (via omissions), and everything you say can be treated as fact unless protected by disclaimer • Misrepresentation o In all cases, the statement must be inaccurate, the associated category depends on the reason it is inaccurate o Innocent Misrepresentation (Can’t be used in Tort)  Mislead someone only due to some external force that is beyond your control.. • Eg.. Telling someone the bank is open until 5, and upon arrival they find that it closed early after being robbed o Deceit / Fraudulent Misrepresentation  Involves a person making a false statement with the deliberate intention of misleading another person  Also committed when a person deliberately conceals or withholds information  I lied and I did it on purpose o Negligent Misrepresentation  Note: the elements are setup differently  Requires only a breach of the duty of care and skill  Should’ve known something that the rest of your colleagues knew  Involves an incorrect statement made without due care for its accuracy  Leads to discussion of Hedley Byrne below with respect to liability • The Hedley Byrne Principle o Involves liability for negligent misrepresentation to third persons without contract and the scope of such liability o Originally, the court feared that an unexpected liability to third persons for advice given to (and intended for) a client might make the risk to wide and affect the freedom of professionals to practice o Development of Hedley Byrne case: 1) Easipower 4) Heller and Partners Ask for extenstion of credit Respond positively about from Hedley Easipower without checking most recent credit line! 2)Hedley Byrne 3)Hedley’s Bank Ask their banker for credit Ask Heller (Easipower’s bank) info
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