Textbook Notes (362,734)
Canada (158,032)
Business (2,364)
BU231 (315)
Valerie Irie (149)
Chapter 4

2. Chapter 4 – Professional Liability- the Legal Challenge.pdf

5 Pages
Unlock Document

Wilfrid Laurier University
Valerie Irie

BU 231 Lecture 2 Wednesday, May 15, 2013 Chapter 4 – Professional Liability: the Legal Challenge Professional Liability: The Legal Challenges  Professionals: those who have specialized knowledge and skills that their clients rely on and are prepared to pay for  will be held to a higher standard than the ordinary person  Tort is one way to assign liability to a professional  Professional may be found liable for breach of contract if there is a contract to supply the advice  Sometimes the professional must honor fiduciary responsibilities separate from any tort or contractual obligations  Professional can cover any damages by raising fees and using insurance protection  If court awards damages to everyone who relies on bad advice, people will be discouraged from entering the profession, and they’ll raise the price of advice beyond reach  Vicious circle: most professionals have insurance and so raise fees to cover insurance costs. Then clients expect more for their money, and sue when they are disappointed.  Liability may arise from three relationships, generating 3 different causes of action: 1) Contractual Obligations: leads to a breach of contract cause of actionmost common o Agreement to provide professional services contains a promise, whether stated expressly or not, to perform those services competently 2) Fiduciary Duty: Fiduciary relationship leads to breach of fiduciary duty o Fiduciary duty: duty imposed on a person who stands in a special relation of trust to another o Can arise even without a contract, even with free services o Highest standard of care o First, establish that the relationship is one to which the fiduciary duty applies for the person to be held liable. Then, determine if the professional’s behaviour breaches the fiduciary obligations. o 3 characteristics of fiduciary relationships: 1. Fiduciary has the scope for the exercise of some discretion or power 2. Can unilaterally exercise power/discretion to affect beneficiary’s legal/practical interests 3. Beneficiary is peculiarly vulnerable to the fiduciary holding the power/discretion o Some professional relationships are inherently fiduciary lawyer, doctor, etc. o Professional must act honestly, in good faith, and in the best interests of the client o 5 factors for assessment of fiduciary nature of financial advisor-client relationship = vulnerability, trust, reliance, discretion, and the standards expressed in a professional code of conduct o Conflict of interest: occurs where a duty is owed to a client whose interestss conflict with that of the professional, another client, or another person to whom a duty is owed  fiduciary obligation requires complete loyalty to the other party to the relationship  is held liable! 3) Tort Liability: The duty of care owed in tort leads to a tort cause of action (foreseeable) o When a professional deliberately/carelessly causes damage to a client, a tort has occurred o Contract may also have been breached o Plaintiff used to only be able to sue for contractual reasons; now he can sue in contract or in tort o Other people may rely on professional opinion given to ONE client  ex: when an auditor expresses an opinion on the fairness and accuracy of the client firm’s financial statements, which is given to lenders, potential investors, etc. o Third party liability: liability to some other person who stands outside a contractual relationship  common for real estate agents and insurance agents  professional only owed a duty in tort to third parties (not a contractual duty) 1 BU 231 Lecture 2 Wednesday, May 15, 2013 Choosing a Cause of Action  Professional may be liable for breach of fiduciary duty without having been negligent  If professional is liable on contract, tort, and for fiduciary, court will not award 3x the damages  plaintiff must choose  choice may be important  Rules governing the time limits for bringing an action might make it advantageous to sue in tort  however, client’s own contributory negligence may be raised as a defence in tort action.  Choice of cause of action may also affect the amount of damages awarded in some cases  measurements of damages not exactly the same in contract as in tort  Duty to account: duty of a person who commits a breach of trust to hand over any profits derived from the breach  but the Supreme Court of Canada says it should place the plaintiff in the position he would have been in if the breach had not occurred higher damage awards should not be allowed merely because a claim is characterized as breach of fiduciary duty (vs. contract or tort) Tort Liability for Inaccurate Statements *Misrepresentation*  Deceit: intentional tort imposing liability when damage is caused by a false statement made with the intention of misleading another person (includes concealing information)  Victim who relies on the statement and suffers a loss from tort of deceit may recover from it  Fraudulent misrepresentation: intentional tort imposing liability for an incorrect statement made knowingly with the intention of causing injury to another  requires at least some guilty knowledge  Negligent misrepresentation: unintentional tort imposing liability when an incorrect statement is made without due care for its accuracy, and injury is caused  Extension of liability to compensate for purely economic loss (vs. physical) is important in negligent misrepresentation  the tort covers inaccurate advice given carelessly by professionals o Courts didn’t want to recognize this tort because the extension of liability to third persons would make the legal risk of practising a profession too great (ex: accounting) o Lord Justice Denning said the duty of care should be confined to particular users  Hedley Byrne Case: Lord Denning’s position was accepted as this case o Disclaimer: an express statement to the effect that the person making it takes no responsibility for a particular action or statement how wide is the group whose losses can be compensated  Duty of care: two step test 1. Test: is there a sufficiently close relationship between the parties so that the defendant’s carelessness may cause damage to that person (from defendant’s perspective) 2. Test2: are there any considerations which ought to negative/limit the scope of the duty, class of persons to whom it is owed, or the damage to which a breach of it may give rise  For test 2, the extent of liability must be predictable ; otherwise, the duty owed may be restricted  Eligible plaintiffs must be reasonably foreseeable and be using the info for the purpose actually foreseen by the defendant  Ex: Duty of care may be held by accountants to the shareholder if they knew shareholders would receive their information. However, the only purpose for which shareholders receive an auditor’s report is for info to oversee management, and not to guide personal investment decisions. Thus, no duty of care was owed to shareholders in that regard.  Eligible plaintiffs = anyone completing a trade while the misrepresentation remains uncorrected  Indeterminate liability: inability to be determined so that the magnitude of liability cannot be reasonably predicted, anticipated, or planned for  not a component of statutory duty of care 2 BU 231 Lecture 2 Wednesday, May 15, 2013 Proving Negligent Misrepresentation  plaintiff must prove more than just a duty of care is owed  Supreme Court of Canada expanded the traditional 3 elements of negligence to 5 requirements: 1) There must be a duty of care based on a special relationship 2) The representation in question must be untrue, inaccurate, or misleading 3) Representor must have acted negligently in making the misrepresentation – he must have fallen below the requisite standard of care required of a professional making such representations 4) The representee mus
More Less

Related notes for BU231

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.