Legal Blog

ILA Notes

We, and certainly LawPro, have maintained that if a lawyer gives ILA and takes no notes, it is a recipe for disaster. Although taking good notes does not guarantee that the lawyer will not be sued and, if sued, does not guarantee that the lawyer will not lose, it goes a long way towards those goals. The latest case dealing with notes and ILA is Webb v. Tomlinson, [2006] O.J. No. 212 (SCJ). 

Sad Story 

Husband wanted to buy an auto wrecking business. He went to his ex-wife and asked her to lend him $100,000 to complete the purchase. Since the divorce had been amicable and their children were in favour, ex-wife mortgaged her house and loaned husband the money. The sure-fire gold mine failed and husband and his current wife went bankrupt. After deducting money that ex-wife received on the bankruptcy and some money that husband had paid to her, ex-wife lost $71,000. To whom did she look for compensation? Of course, the lawyer who gave her the ILA. Ex-wife maintained that she would never have agreed to mortgage her only asset if the ILA lawyer had explained the risks and, in particular, explained that if husband’s business failed and he was unable to repay the debt, she could lose her house.

Circumstances 

Husband’s lawyer had sent ex-wife for ILA. Ex-wife met with the ILA lawyer and, at the conclusion of their meeting, she signed the ILA certificate and the mortgage documents.

Ex-wife testified that the meeting lasted for 20 minutes and that the lawyer stated nothing at the meeting about the risks of the business or what would happen if husband could not repay the mortgage.

The lawyer testified that he had photocopied a LawPro checklist for giving ILA (now found at www.practicepro.ca/practice/checklist.asp) and had studiously completed it during the meeting. The checklist stated that the meeting lasted for 40 minutes. In addition, the lawyer took four pages of notes. These notes covered just about every risk under the sun. The only things he did not say was that businesses are inherently risky and husband’s business could fail. Ex-wife’s counsel argued that because the notes did not say this, the ILA was incomplete. We also learned later, from the decision as to costs, that ex-wife’s counsel also alleged that the lawyer had fabricated the notes and the checklist.

Memories 

The judge discounted the ex-wife’s testimony, noting that she had taken no notes of a meeting that had occurred 8 years prior. He implicitly accepted that the lawyer made his notes contemporaneously.

He found that:

1.   Ex-wife knew what she was doing. Her decision to lend was neither rash nor ill-considered. She understood and accepted the risk of non-payment.

2.   The lawyer satisfied the obligation to explain that the business could fail and ex-wife could lose her home, when the lawyer simply explained that if husband did not make the mortgage payments, ex-wife could lose her home. After all, if husband could not make the payment, it was probably because the business was failing.

The judge dismissed the action. Would there have been the same result had there been no notes? Very doubtful. Without notes, the judge looks to the person who has the most cause to remember. That is usually the client. How would a lawyer remember what took place at a meeting 8 years prior? We would be amazed if the lawyer could remember the client or that there was a meeting.

Costs 

The judge only awarded $17,500 for costs. Since costs are a function of what the adverse losing party could reasonably expect to pay in costs, he took into account that ex-wife had offered to settle for $50,000 plus costs of $15,000 just before trial. He also took into account her reduced financial circumstances. He refused to award substantial indemnity costs for the allegations that the lawyer had fabricated his notes. He held that substantial indemnity costs would be awarded only if the ex-wife’s allegations were reprehensible, scandalous, or outrageous and held that the fabrication allegations were not.

We feel that the fabrication allegations, while serious, are not in the same league as allegations of facts (e.g. of fraud) in pleadings that support a cause of action and are carried on throughout the action and trial. These allegations of fact are far more serious than allegations merely relating to credibility. Accordingly, we agree with the trial judge’s refusal to award substantial indemnity costs.

Conversely, we disagree with the judge’s quantum of costs awarded on a partial indemnity scale. We suggest that the partial indemnity costs award for a regular action culminating in a three-day trial was far too low. The lawyer’s counsel had claimed $77,000 and that claim was based on the reduced hourly rates that LPIC pays its counsel.