Lawyers take a risk advising clients in non-legal matters
Lawyers should be wary of what they say to clients — even in seemingly casual conversations, says Toronto business lawyer Anton Katz.
“After years of working with a client, he may come to trust you and value your experience,” says Katz, principal of Anton M. Katz Barrister and Solicitor. “He may ask your opinion about a potential business opportunity, but lawyers must be mindful of how they handle such situations.”
Katz says the case of an Ontario lawyer provides a cautionary tale about offering advice that goes beyond legal expertise. That lawyer offered what amounted to financial advice to one of his clients. The client then invested in a company, ended up losing a significant amount of money and blamed the lawyer for it.
“This case resonates with me because, as a lawyer, your clients will often reward you by bringing you new business and sometimes by using you as a sounding board. They think of you as a rational person and they want to bounce ideas off you,” Katz tells AdvocateDaily.com.
“It’s part of the trust that’s developed over the years and sometimes the solicitor-client relationship morphs into more of a trusted adviser-client relationship.”
Or, says Katz, you may run into a client at a social gathering and she mentions a potential business opportunity that she’s considering.
“There are two sides to that. As a lawyer, it’s very flattering because it allows you to sit back in your armchair and postulate and give big-picture thoughts and draw on your wealth of experience,” he says.
While it may be good for the ego, Katz cautions that there’s a danger of overstepping one’s legal boundaries.
“Lawyers have to remember that their insurance only covers legal advice and not business advice,” he says.
That was the central theme in the case Katz noted. When the client claimed damages of $1.2-million, the lawyer reported the complaint to his insurance company, which denied coverage on the basis of the exclusion for investment advice.
The lawyer then sued the insurance company. As the Ontario Superior Court of Justice noted, the liability insurance that covers lawyers says the policy does not apply “to any CLAIM in any way relating to or arising out of an INSURED providing investment advice and/or services, including without limitation, investment advice and/or services relating to or arising out of a business, commercial, or real property investment, unless as a direct consequence of the performance of PROFESSIONAL SERVICES.”
Katz says “no insurance coverage was provided and the lawyer had to pay out of pocket for the claim.”