BU231 Chapter Notes - Chapter 5: Fiduciary, Intentional Tort, Liability Insurance
Professional Liability: The Legal Challenges
• "Professional"—someone who has specialized knowledge and skills that are relied upon by
clients and others
• Should the professional be liable for the loss or harm suffered by the client or even by someone
else who relies on and acts upon incorrect advice?
• Professional may be liable under tort law, for breach of contract, and fiduciary duty
• Almost all professionals carry liability insurance
Liability of Professionals
• Liability may arise from three relationships, generating three different causes of action:
o The contractual relationship generates a breach of contract cause of action;
o The fiduciary relationship generates a breach of fiduciary duty;
o The tort of negligent misrepresentation when a tort duty of care is owed
Contractual Obligations
• An agreement to provide professional services to a client contains a promise to perform services
competently
• Breach of promise = breach of contract
• Sometimes there is no contract; then, fiduciary and tort liabilities are alternatives
Fiduciary Duty
• Fiduciary duty: a duty imposed on a person who stands in a special relationship of trust and
loyalty to another
• Can arise even when the professional donates services free of charge so that no contract exists
• Must first identify relationship as fiduciary
• Three characteristics:
o The fiduciary (often a professional) has undertaken to act in the best interests of the
beneficiary (often the client)
o The beneficiary is vulnerable to or at the mercy of the fiduciary's control or discretion
o A legal or practical interest could be harmed by the fiduciary's exercise of discretion or
control
• e.g. Lawyer-client, doctor-client
• Second step to imposing this liability incolces determining if the professional's behaviour
breaches the fiduciary obligations
o e.g. A lawyer who enters a business arrangement with a long-standing client, without
disclosing his own precarious financial situation
• Liability can arise without negligence
Tort Liability
• Occurs when a professional deliberately or carelessly causes damage to a client
• Contract may also have been breached
• Client can sue in contract or in tort
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• Extends the range of possible plaintiffs beyond clients who have paid for the advice
o Third-party liability: liability to some other person who stands outside a contractual
relationship
▪ Common for accountants, real estate agents, insurance agents
Choosing a Cause of Action
• A professional may be liable in both contract and in tort, and also for breach of fiduciary duty
o Court will not award triple the damages; plaintiff must choose
• Choice of cause of action might affect the amount of damages awarded
• Measure of damages not the same between contract and tort
• In the breach of fiduciary duty, defendant may be under a duty to account—the duty of a
person who commits a breach of trust to hand over any profits derived from the breach
o Should place plaintiff in the position he would've been in if breach had not occurred
Tort Liability for Inaccurate Statements
Misrepresentation
• Un untrue statement
• If made knowing it to be untrue or without honest belief in its truth, and with the intention to
mislead some other person, the misrepresentation is fraudulent and amounts to the intentional
tort of deceit
• Elements of deceit:
1. A false representation made by the defendant
2. Some level of knowledge of the falsehood of the representation on the part of the
defendant (whether through knowledge or recklessness)
3. The false representation caused the plaintiff to act
4. Plaintiff's actions resulted in a loss
• Fraudulent misrepresentation: deceit
• Negligent misrepresentation: an unintentional tort imposing liability when an incorrect
statement is made without due care for its accuracy, and injury is caused
o Does not require knowledge of falsehood, only carelessness in its creation
The Hedley Byrne Case
• The first to recognize negligent misrepresentation
• Provides good example of importance of putting disclaimers on opinions
• Disclaimer: an express statement to the effect that the person making it takes no responsibility
for its accuracy
Proving Negligent Misrepresentation
• Plaintiff must prove more that just the four elements of negligence
• Five elements:
1. Duty of care based on a "special relationship" between the representor and the
representee
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