Legal Blog

Dog eat Dog

A solicitor’s duty is to act in the best interests of the client. However, that duty does not give the solicitor a license to misrepresent, either fraudulently or negligently, to the opposing solicitor in a transaction. In Parker v. White, a 1999 Ontario Court (General Division) decision, Belleghem J. had to decide whether the solicitor crossed the line from good representation into misrepresentation.

I Goofed

Solicitor No. 1 acted for a client who had a chattel mortgage against the assets of a vendor. Unfortunately, the law clerk of solicitor No. 1 reversed the names on the P.P.S.A. registration. Prior to the closing of the sale, the vendor’s solicitor, solicitor No. 2, informed the law clerk that the vendor would repay the chattel mortgage from the proceeds of the sale. As a result of the P.P.S.A. registration error, the purchaser of the assets did not know of the chattel mortgage. It relied on a bulk sales affidavit swearing that there were no creditors, closed the transaction, and paid the full sale proceeds to the vendor. Of course, the vendor did not pay the chattel mortgage. The vendor claimed that he executed the chattel mortgage under duress and that, accordingly, did not have to pay anything.

Solicitor No. 1 was not stupid. He realised that, because of his law clerk’s actions, he had not adequately protected his client. As a result, he made his peace with his client by paying him approximately $30,000 for the shortfall and then sued solicitor No. 2 for misrepresentation.

It is only because solicitor No. 1 paid his client from his own funds that this case ever got to trial. If the client had sued solicitor No. 1 and solicitor No. 1 had called upon his insurance, there would have been no possibility of solicitor No. 1 suing solicitor No. 2. From LPIC’s point of view, it does not matter whether solicitor No. 1 is liable or solicitor No. 2 is liable, it only matters whether a solicitor is liable to a client. LPIC has its own internal procedure whereby it can call on either solicitor No. 1 or solicitor No. 2 for the deductible and determine which solicitor should have the claim added to his record.

Misrepresentation

The trial judge found as a fact that solicitor No. 2 knew of the error in the P.P.S.A. registration. The trial judge also noted that solicitor No. 2 had the sale agreement amended to increase the deposit towards real estate commission to an amount in excess of the commission on the sale of the business. He obviously wanted to ensure that the broker recovered its commission on this and another transaction. The judge stated “this was probably to cover outstanding realty fees from the house sale. This self-serving gesture on the part of (solicitor No. 2), no doubt endeared him to the real estate agent, which would in turn ensure future business from the agent. It also no doubt endeared him to his client whose interest, as he protested before me, he was earnestly intending to champion”.

Sometime during the transaction, solicitor No. 2 realised that the vendor had no intention of repaying the chattel mortgage from the proceeds of the sale. Notwithstanding this knowledge, he said nothing to the law clerk. The trial judge found that solicitor No. 2 had a duty to inform the law clerk that the client of solicitor No. 2 was going to dispute the liability for and the amount of the chattel mortgage and that the law clerk could no longer rely on the previous assertion that the chattel mortgage was going to be paid in full. The trial judge held that the silence of solicitor No. 2 was a misrepresentation relied upon by the law clerk to the detriment of solicitor No. 1. Had the law clerk known that that the vendor was not going to pay his client, solicitor No. 1 could have moved to attempt to intercept the sale monies from the purchaser.

Contributory Negligence

After closing, solicitor No. 1 knew that the vendor was not going to pay the chattel mortgage. Solicitor No. 2 held the sale proceeds for approximately 10 days following closing. Solicitor No. 1 could have commenced an action for an injunction to restrain solicitor No. 2 from disposing the funds. Solicitor No. 1 did nothing. Accordingly, the trial judge held that solicitor No. 1 was liable for 50 percent of the loss to his client.

Moral

You can fight hard for your client’s rights but you cannot lie to or fool opposing counsel. Aside from an obvious breach of ethics, a solicitor can be held personally liable when the solicitor crosses the line.