Beware the non-client - Banzon v. Madsen et al, [2001] O.J. No. 2216 (Ont.S.C.J.)

The Case

A solicitor received a surprise visit to his office. One visitor, Mr. M, was a client. The other two -- Mr. and Mrs. B -- he had never dealt with before. The lawyer was shown an agreement which the parties had drawn up and executed without his advice. The Mr. and Mrs. B had agreed to buy a 50% interest in a company owned by Mr. M for $200,000. Of that sum, Mr. and Mrs. B were to pay $100,000 cash. They were also to assume responsibility for $100,000 worth of mortgages on the subject property. The company owned a property on which a flea market business was conducted.

The following day, the lawyer received a certified cheque from the Bs in the amount of $100,000. He paid this into his trust account, and then disbursed the money in accordance with his client Mr. M's instructions.

The Bs quickly became disenchanted with the flea market business. They wanted their capital back. The property was put up for sale in early 1991. Because of the recession, the new purchaser paid only $20,000 in cash; the balance was funded by a vendor take-back mortgage, which was behind several other mortgages. The Bs did not receive their money back. They sued the lawyer. The Bs' claim against the lawyer was based in negligence arising out of the alleged relationship of solicitor and client, and out of breach of a fiduciary duty or obligation by accepting money from them and disbursing such money to his acknowledged client Mr. M.

The Judgment

The Bs' action against the lawyer was dismissed. They failed to establish any solicitor-client relationship between themselves and the lawyer. There was no evidence of any retainer letter. They did not ask for, nor receive, the lawyer's advice. Since the $100,000 belonged to Mr. M, the lawyer was entitled to disburse it on Mr. M's instructions. In the circumstances, the lawyer could not be faulted for failing to recommend independent legal advice. The Court also dismissed the plaintiffs' contention that the lawyer owed them a fiduciary duty. There was no credible evidence that the plaintiffs reasonably relied on the lawyer, and that the lawyer was aware of this reliance.

The Lesson

The lawyer did nothing wrong, yet he was sucked into protracted litigation. How do you protect yourself in situations such as this?

Take a lesson from the litigation bar. Litigators avoid direct dealings with parties to litigation other than their own clients. When they are obliged to deal with unrepresented non-clients, they leave the non-client in no doubt but that they represent their own clients, and no one else. You may think that unrepresented participants in your client's transaction are not "hostile." Once they lose money, they may look for a scapegoat, and you could be an appealing target.

The fewer direct dealings you have with non-clients, the more difficult it is for them to allege a solicitor- client relationship with you, or that they reasonably relied upon you to protect their interests. The fewer office visits and telephone calls, the better. If direct dealings cannot be avoided, advise them clearly, preferably in writing, they you do not represent them. Like chicken soup, a recommendation of independent legal advice can never hurt.

"Duty of Good Faith" wins again - Djurickovic v. Lo; Djurickovic v. Lyons [1992] O.J. No. 2190 (Ont. Ct. Gen. Div.); affirmed [1997] O.J. No. 1284 (C.A.)

The case:

A solicitor acted on the purchase of a house. He forgot to note encroachments on side yard setbacks of two inches and five inches. When the purchasers resold their house some years later, the prospective purchaser used these encroachments as a pretext for refusing to close. The clients sued their solicitor and the prospective purchaser for extensive damages.

The judgment:

At trial, the solicitor was held liable for $393.01, which was the cost of obtaining and registering a variance, which the judge accepted was readily available. The purchaser was held liable for $5,042.99. The judge held that the vendor was able to convey substantially what the purchaser had contracted to purchase, as contemplated by LeMesurier v. Andrus (1986) 54 O.R. (2d) 1 (C.A.).

The Court of Appeal dismissed the purchaser's appeal on liability, agreeing that he acted arbitrarily, capriciously or in bad faith. The Court did reduce the damage award slightly.