Chapter 5 Revised

Question 1

What is the challenge surrounding professional liability? What are the arguments in favor of imposing a wide liability on professionals?

Answer 1

Professional services are one of the fastest growing and most important sectors of the economy, but there is significant risk of economic harm from negligent or fraudulent conduct by professionals.

Some favor wide liability of professionals to encourage careful behavior and because they can cover any damages by increasing fees and purchasing insurance protection

Question 2

In what ways does professional liability arise?

Answer 2

1. There is a contractual relationship
2. There is a fiduciary relationship
3. The tort of negligence is relevant

Question 3

What is the nature of a contractual relationship with a professional service provider?

Answer 3

There is an agreement to provide professional services for a client. This contract contains a promise to perform those services competently. A breach of that promise a breach of the contract and a client may sue for damages.

Question 4

What is the nature of a fiduciary relationship with a professional service provider?

Answer 4

When a person is in a special vulnerable relationship with a professional, the law imposes a fiduciary duty to that professional when no contract exists.

The three components of fiduciary relationships

1. The fiduciary undertakes to act in the best interest of the beneficiary
2. The beneficiary is vulnerable to or at the mercy of the fiduciary’s control or discretion
3. A legal or practical interest of the beneficiary could be harmed by the fiduciary’s exercise of discretion or control

If the relationship is such, the professional must

> act honestly, in good faith, and only in the best interest of the client.

Question 5

Can a client choose to sue a professional adviser in either contract or tort? What factors will influence the decision?

Answer 5

When a professional deliberately or carelessly causes damage to a client, the client may sue in contract or in tort.

A contractual relationship does not exclude a negligence duty of care. it coexists with and independently of the promises in the contract

Question 6

What is statutory liability? What are examples?

Answer 6

Provincial legislation sometimes creates a statutory cause of action for damages arising from misrepresentation.

Examples are: real estate agents, directors, lawyers, actuaries and other advisers of publicly traded companies.

Question 7

What is fraudulent misrepresentation? What are the elements?

Answer 7

deceit, the elements of which are:

1. A false representation is made by the defendant
2. The defendant has some level of knowledge of the falseness
3. the false representation causes the plaintiff to act
4. the plaintiffs actions result in a loss.

Question 8

What is negligent misrepresentation? What is the test?

Answer 8

An unintentional tort imposing liability when:

1. There must be a duty of care based on a “special relationship” between represent-or and the represent-ee
2. The representation in question must be untrue, inaccurate, or misleading
3. The represent-or must have acted negligently in making the misrepresentation - that is, he or she must have fallen below the standard of care required of a professional making such a representation,
4. The represent-ee must have reasonably relied on the negligent misrepresentation, and
5. The reliance must have been detrimental to the represent-ee, that is, damages resulted

Question 9

What is the nature of a “special relationship” that is owed a duty of care?

Answer 9

The relationship must have:

proximity: closeness and directness
forseeability: that the plaintiff injury was foreseeable

Question 10

How is accuracy of the misrepresented statement determined?

Answer 10

Facts stated incorrectly,

> wrong opinions or other inaccuracy alone is not enough > the why was the advice wrong is the crucial link.

> the advice is wrong because the standard of care was not met.

Question 11

What is understood to be the standard of care for professionals?

Answer 11

Much like any other standard of care: professionals must exercise such reasonable care as the circumstances require to ensure that the representations made are accurate and not misleading.

This includes not omitting essential information

Question 12

Why were the courts initially reluctant to recognize liability for negligent misstatement to persons who are not clients?

Answer 12

The usual negligence components of duty of care, breach of the standard of care, injury to the plaintiff, and causation of damage apply. However, these components are not an easy fit for the typical negligent misrepresentation scenario of inaccurate advice because information passes so quickly from one person to another, and it is the listeners actions after hearing the advice that give rise to the economic loss.

Question 13

How did the decision in Hedley Byrne v Heller & partners address the issue of reliance and causation?

Answer 13

The case extended liability to a wider group than those with direct contact to the advice giver and introduced the key concept of reliance in addition to causation.

Question 14

What are the primary roles of a professional organization?

Answer 14

1. To set educational and entrance standards for candidates wishing to become members
2. to examine and accredit educational institutions.
3. to adjust and set standards of ethical conduct and professional competencies
4. to hear complaints and administer discipline
5. to defend the profession against attacks that is considers unfair

Question 15

What is the main effect of increased use of liability insurance?

Answer 15

Increased costs

Insurance premiums rise when there is uncertainty concerning liability or high damage awards. Professional fees, in turn, increase to cover insurance costs. As fees rise, clients expect more for their money and, if disappointed, are more likely to sue. This is the vicious circle that presents a challenge for the courts.