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Lawyers could have duty of care to non-clients

|Written By Alex Robinson

An Ontario judge has left the door open for a lawyer to owe a duty of care to a non-client in a real estate transaction.

Mark Ross says lawyers need to be vigilant about confirming identification when providing independent legal advice in real estate transactions.
In Chegancas v. Godo, Ontario Superior Court Justice Sidney Lederman dismissed a summary judgment motion brought by a real estate lawyer, Christian Piersanti, asking the judge to throw out a claim initiated by a non-client. The lawsuit concerned a $300,000 mortgage transaction on a Brampton, Ont. property that would later turn out to be fraudulent. 

The lender on the transaction, Arcanjo Chegancas, brought the negligence claim against Piersanti, as he had been retained to provide independent legal advice to the borrower. In the summary judgment motion, Piersanti and, by extension, LawPRO, argued that lawyers do not owe a duty of care to non-clients, except for limited circumstances. 

But Lederman found that the matter should proceed to trial, as it was arguable that there was a “sufficient proximity” in the relationship between Piersanti and the plaintiff that gave rise to a potential duty of care. 

“Knowing that the representations were being made directly to the lender at the lender’s request, and that the lender would be relying on such representations before advancing the funds and given the Law Society requirements to guard against identity fraud in part to protect a lender, it is arguable that a special relationship existed between Piersanti and Chegancas,” Lederman wrote in the decision.

Mark Ross, the lawyer representing the plaintiff, says lawyers need to be very careful to check a client’s identification when providing independent legal advice on real estate transactions.

“Lawyers should be vigilant generally when taking IDs for something even as small as [giving independent legal advice] and doing the proper client identification and verification requirements,” he says.

Ross says lawyers should make sure they know what the Law Society of Upper Canada’s requirements are when it comes to client identification, especially when it comes to mortgages.

While Chegancas had not received the certificate that showed the borrower had received independent legal advice until after the transaction was complete, lawyers say this did not affect his reliance on it. 

Piersanti argued that the acknowledgement of independent legal advice by itself does not create a situation of proximity between the lawyer and the third party. 

However, in the summary judgment proceedings, Reuben Rosenblatt, of Minden Gross LLP, provided expert opinion that while the primary purpose of independent legal advice is to ensure that the borrower understands the risks of entering a transaction, lenders can also require a borrower to obtain it to minimize risk on their end.

Gavin MacKenzie, of MacKenzie Barristers, says that cases brought by parties against a lawyer retained by the other side are always problematic, as generally a lawyer has a duty to his client. 

In this case, however, the expert evidence pointed to the fact that it was reasonable to expect that the lender would rely on the fact that the borrower receives independent legal advice, he says. 

“It already brings home to lawyers the risk if you provide independent legal advice to a borrower, that you may well be liable to the lender who relies on your certificate of independent legal advice,” says MacKenzie, who was not involved in the case.

“But I do think it’s confined to that situation. I don’t think it opens up liability on the part of lawyers generally to non-clients.”

In his decision, Lederman relied on a 2002 ruling in Gerling Global Insurance Co. v. Siskind, Cromarty, in which Justice Ian Nordheimer found that a duty of care arose between a third party and a lawyer who commissioned a document, as the lawyer could reasonably foresee that the non-client would rely on it.

Nadia Campion, a partner with Polley Faith LLP, who was not involved in the case, says the decision does not expand liability for lawyers, but it is a reminder to lawyers that provide independent legal advice that they may have a duty to non-clients in real estate transactions. She says lawyers who provide independent legal advice have to be cognizant of whether those representations are going to be relied on by a third party. 

“I think they need to think beyond just who are they providing the independent legal advice to,” she says. “[T]hey have to be really careful about ensuring that they are executing their duties to their fullest extent.”

Gavin Tighe, the lawyer representing Piersanti, declined to comment on the decision as the issues are still before the court.

“We look forward to having the matter dealt with on its merits,” says Tighe, a senior partner with Gardiner Roberts LLP. 

Heather Gray, the lawyer representing other defendants in the lawsuit, did not provide comment.

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