Professional Negligence Claim Dismissed Against Lawyer Despite Conflict of Interest and Standard of Care Breach – Litigation, Mediation and Arbitration

“Neglect does not exist in the abstract,” notes Regional Senior Judge Calum MacLeod in Maisonneuve v. Langlois, 2021 ONSC 3587 (CanLII). Plaintiffs pursuing malpractice claims would do well to remember these words.

The plaintiffs, husband and wife, sued their former lawyer, who had been struck off at the time of the hearing. Their claim had nothing to do with allegations of missing trust funds or dishonesty which led to the attorney’s deregistration. Rather, it was a claim for professional negligence and breach of mandate.

The plaintiff was a shareholder, director and chief financial officer of a company known as Maplesoft Group. By 2011, he and his wife loaned Maplesoft approximately $ 3.7 million in the form of shareholder loans. The defendant’s lawyer was not involved in these loans.

In mid-2011, the lawyer was asked to prepare documents in order to guarantee the outstanding loans of the plaintiffs. The lawyer prepared a General Guarantee Agreement (GSA) on the assets of Maplesoft and registered the guarantee under the Ontario regime. Personal Property Security Act (PPSA). The plaintiffs were not required to seek legal advice and the lawyer did not obtain written consent to the joint retainer or otherwise comply with the conflict of interest rules as required by the rule. 3.4 of the Law Society of Ontario Rules of ethics.

During 2011 to 2014, further transactions between the complainants and Maplesoft took place. Some amounts were paid to the plaintiffs in respect of the initial loans. By the end of 2014, the plaintiffs had been reimbursed more than $ 1 million.

In the fall of 2013, Maplesoft asked the plaintiffs to surrender their actions. Two other attorneys were consulted by the plaintiffs at the time, and they informed the plaintiffs that their guarantee under the GSA could be deficient because they should have obtained a promissory note from Maplesoft confirming the debt.

Notwithstanding this potential problem, the plaintiffs continued to negotiate with Maplesoft and, in December 2014, they entered into an agreement to deliver their shares in exchange for a promissory note of $ 2.7 million. This promissory note was guaranteed by the GSA.

The claimants’ debt was then repaid in excess of $ 1.4 million. In April 2017, a new promissory note of $ 1.3 million was provided by the successor company to Maplesoft. The applicants received interest on the promissory note subsequently, but was not repaid the principal when the note matured in April 2019.

The plaintiffs then sued their lawyer for failing to protect their interests in 2011. They alleged that his inability to prepare a promissory note at the time had prejudiced them in their subsequent negotiations with Maplesoft.

At first glance, it might have appeared that the plaintiffs had a strong claim. There was no doubt that their lawyer had acted in a conflict of interest and had failed to document the consent and instructions of his various clients. The lawyer admitted that he should have prepared a promissory note in 2011 in order to “paper the loan”. There was little doubt that the actions and omissions of the lawyer were reckless and did not meet the standard of care required of a reasonable and prudent lawyer in the circumstances of the engagement.

However, none of this was sufficient to establish liability for negligence.

In this regard, the complainants have not shown how the lawyer caused their alleged damages. Proof of loss is an essential part of a malpractice claim. As declared per MacLeod J., “there can be no liability for negligence unless consequential damages have been suffered by the plaintiff”.

Likewise, conflict of interest is not an independent cause of action without proof of the resulting damages: Lacroix v. CMHC and McCann v. CMHC, 2016 ONSC 2641 (Div. Ct.).

Based on the evidence filed on a motion for summary judgment brought by the plaintiffs, MacLeod J. found that the plaintiffs had failed to prove that they had suffered a loss as a result of the acts or omissions of the lawyer.

First, the accounting evidence filed by the plaintiffs was vague and MacLeod J. found himself in “considerable uncertainty” as to the amount actually lent by whom and to whom, and what amounts were repaid and when.

Second, it was not clear how the lawyer’s conflict of interest resulted in losses. The male complainant negotiated directly with the CEO of Maplesoft and there was no evidence that the complainants had relied on the lawyer for business or financial advice. The male plaintiff had signed a release and subordination of security interests at Maplesoft’s request without seeking legal advice before doing so.

In addition, Maplesoft had never renounced the original loans granted by the plaintiffs before the intervention of the lawyer in 2011. These loans had been partially repaid in 2014 and were replaced by a new promissory note of 2.7 million. of duly guaranteed dollars. Payments were made on this note until 2017 when the debt was assigned and a new promissory note was provided for the outstanding balance of $ 1.3 million.

While the plaintiffs claimed to have suffered “diminished bargaining power” with Maplesoft due to the lack of a promissory note securing their loans in 2011, there was no indication that Maplesoft had ever denied the existence of the debts or argued with the amounts indicated. be liable. At least one other provincial court has found that a “loss of bargaining power” claim is too hypothetical to be quantified: Saskatchewan Federation of Labor v. Saskatchewan, 2016 SKQB 365 in par. 51.

In the present case, there was no evidence that the potential lack of collateral had given rise to a competing priority claim or other debt challenge that affected the plaintiffs. Instead, the plaintiffs renegotiated the amount owed, sold their shares, deferred the debt and signed releases. There was no evidence that the lawyer was involved in the Maplesoft business to the detriment of the plaintiffs.

Moreover, in law, MacLeod J. was also not convinced that the GSA or the registration of the guarantee was invalid by reason of the absence of a promissory note. The lawyer’s failure to prepare a promissory note did not render the plaintiffs’ debt unenforceable or invalidate their rights as a secured creditor.

And again, the plaintiffs failed to show how a direct loss arose from the attorney’s omission – Maplesoft had provided a new GSA-guaranteed promissory note, thereby remedying any previous deficiencies. There was no evidence that Maplesoft was aware of the potential warranty deficiency or took advantage of it during negotiations with the claimants.

As a result of the foregoing, MacLeod J. not only dismissed the plaintiffs ‘motion for summary judgment, but granted “boomerang” summary judgment in favor of counsel dismissing the plaintiffs’ action in its entirety. There was no real issue requiring a trial notwithstanding the attorney’s conflict of interest and breach of the standard of care in failing to carry out the instructions for preparing a promissory note. These breaches were not fatal to the warranty and the claimants did not prove that they had suffered a compensable loss.

The decision confirms the principle that the finding of a breach of a duty of care or of a conflict of interest by a professional does not put an end to the question of whether the professional was negligent or caused harm. losses to the plaintiffs. Negligence requires proof of foreseeable damage resulting from the alleged error or omission. Claimants who focus on the alleged error or omission without taking steps to quantify and prove the resulting damage may be summarily dismissed.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.

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