Friday, 29 March 2019

SCC Affirms Lawyer’s Liability for Referral

     Clients ask lawyers from time to time for referrals to other professionals or advisors.  In the case of international law lawyers, the referrals sought are often for lawyers (or other professionals) in far away places.    Lawyers must consider the risks in providing such referrals.  The most obvious risk is that you do not know the lawyer you are referring very well, because he/she does not work near you and you do not talk with him/her often.  If he or she committed some misdeed, you are not likely to read about in your local lawyers’ newspapers.      Another risk is that in some foreign jurisdictions, including some Caribbean jurisdictions, many, or even most, lawyers, do not carry errors and omissions insurance.   If the lawyer you referred makes an error or omission but has no insurance, the client may incur a loss for which he/she may blame you.    

     Now the risk of consequences for the referring lawyer is substantial. The Supreme Court of Canada, in Salomon v. Matte-Thompson 2019 SCC 14, has affirmed that a lawyer may be held liable to his/her client for losses arising from a referral the lawyer made.  The Court stated that although the lawyer does not guarantee the services of the people the lawyer refers, the lawyer must “act competently, prudently and diligently in making such referrals, which must be based on reasonable knowledge of the professionals or advisors in question.  Referring lawyers must be convinced that the professionals or advisors to whom they refer clients are sufficiently competent to fulfill the contemplated mandates” (para. 45).

     In Salomon, the lawyer had referred his client to an investment advisor.  Salomon also endorsed the advisor’s investment products, repeatedly over several years.    He did so without adequate due diligence on the advisor.  As well, the lawyer’s personal and financial relationship with the advisor put him in a conflict of interest.  The client invested several million dollars in those products, which she lost after the investment product turned out to be a Ponzi scheme and the advisor absconded.    

     These facts are unusual but the court’s ruling makes plain that even absent a conflict of interest and repeated endorsements, a lawyer can be liable for carelessness in making a referral.  
The case originated in Quebec, and it says the lawyer’s duty arises from the lawyer’s relationship to his client as a mandatary, defined as one to whom a mandate is given, (“mandataire”), a term of Quebec law.  Another example of a mandatary is person who hold a power of attorney.   The concept is similar to fiduciary.   As such, lawyers elsewhere in Canada would be prudent to regard Salomon v Matte-Thompson as applicable to them also.