January 4, 2012

The duty to self-report potential liability

Administrative Law
Inquiry and Investigations
Professional Regulation

All professionals are required to exercise discretion and professional judgment in their practice. These activities inevitably lead to a potential for liability. Many regulatory bodies for self-regulating professions impose a duty on members to self-report mistakes or other facts giving rise to liability as soon as they come to light. This entry deals with a decision of Manitoba’s Court of Appeal upholding a finding that a lawyer’s failure to self-report constituted professional misconduct, with the Court also having opportunity to reject an argument that professional misconduct must involve conduct putting the member’s moral turpitude in issue.

Earlier this fall, the Manitoba Court of Appeal upheld two findings of professional misconduct by a lawyer rendered by the Discipline Committee of the Law Society of Manitoba: Luk v. Law Society of Manitoba, 2011 MBCA 78.

Based on one incident, the committee found the professional guilty of both failing to serve her clients in a conscientious, diligent and efficient manner, and failing to give notice of a potential claim to the Law Society’s Director of Insurance, as soon as practicable after becoming aware of the facts giving rise to a potential claim. Her appeal addressed only the conviction and penalty pursuant to the second count concerning her failure to notify her insurer of any potential claim [2].

Facts giving rise to a potential claim

Ms. Luk mistakenly registered ownership of land in the name of a company which her clients co-owned with a third party, rather than in the name of a different company that her clients owned solely. Her clients brought this mistake to Ms. Luk’s attention in February of 2007, but she took no action at that time. Her clients subsequently met with her in April of 2007, at which time she promised to resolve the situation. Although she prepared a transfer for the property, she did not register this transfer until receiving notice in January of 2008 that her clients had lodged a complaint against her with the Law Society of Manitoba [3].

The duty to report

Under the Rules of the Law Society of Manitoba, a member of the profession must notify the Law Society of any potential professional liability claims “as soon as practicable after becoming aware of the relevant acts or omissions”, and a failure to comply with this rule “without reasonable excuse” may constitute professional misconduct [4].

An unreasonable excuse

The Manitoba Court of Appeal noted that the Panel had considered Ms. Luk’s reasons for not notifying the Law Society of the potential claim in these circumstances. The appellant had given testimony that in her view, the amount of the potential claim was less than her deductible and she felt she would be able to correct the mistake. Ms. Luk’s explanation for the delay involved was that she did not have sufficient funds to cover the filing fees for the land transfer when the error was brought to her attention [5].

The Court accepted the Panel’s reasons for finding that Ms. Luk failed to notify the Law Society of the potential professional liability claim, and in this way breached the Society’s rules, stating that “in [their] view, there can be no argument against this finding” [6]. The Court also found that the Panel’s reasons made clear they had considered the appellant’s arguments that she had ‘reasonable excuses’ for her breach of the Rules, and had rejected those excuses as being unreasonable. As the Panel’s decision was clearly articulated in this respect, the court upheld the Panel’s decision as reasonable [10].

All rules require compliance

The court cites excerpts of the Panel’s reasons verbatim. Even though the only liability Ms. Luk incurred was for the Land Transfer Tax payable for the transaction, the Panel rejected Ms. Luk’s rationale that because this liability was less than the deductible, there was no point in self-reporting to the Law Society. The Panel gave examples of circumstances in which the same mistake may have resulted in greater liability, such as a scenario where Ms. Luk’s clients sold their shares in the company mistakenly registered as owner of the property, or a judgment was obtained against this company and registered on its title. The Panel then went further in stating that regardless of the potential for damages and liability, Ms. Luk did not have the right to “pick and choose” which Rules she would follow, and no argument that a Rule was simply a “technicality” could justify a member’s failure to comply [7].

Professional misconduct need not be ‘dishonourable’ or ‘disgraceful’

The Court of Appeal rejected Ms. Luk’s argument that a finding of professional misconduct requires the conduct to be dishonourable or disgraceful, and that her conduct fell short of this benchmark. In support of this contention, Ms. Luk cited Dunne v. Law Society of Newfoundland (2000), 191 Nfld. & P.E.I. R. 129 (S.C.(T.D.)) (“Dunne”) [15]. The Court of Appeal found, however, that while Dunne supported the conclusion that such a requirement may have existed historically, it was no longer applicable, relying on the following passage from Dunne [46]:

Thus, the cases referred to by counsel for Ms. Dunne and by counsel for the Law Society make clear that traditionally disgrace or dishonour is needed for a finding of professional misconduct, but that it is open to Benchers to find that actions without these elements also can constitute professional misconduct. (emphasis added)

The Court of Appeal supported the Panel’s finding that the benchers of the Law Society were authorized to make rules and prescribe which contraventions of these rules may constitute professional misconduct, irrespective of whether they constitute dishonourable or disgraceful conduct [23].

Luk v. Law Society of Manitoba, 2011 MBCA 78