Tuning the orchestra: BC court won’t strike claim against accountants in “single harmonious production” of professional advisors

Accountants and financial advisors should be aware that courts may consider them more than mere agents for their clients. Like lawyers, they may be liable in contribution and indemnity for the professional advice they provide.

In Interior Equities Corp. v Cadence At The Lake Management Ltd., 2024 BCSC 2012, the BC Supreme Court refused to strike a “third party notice.” By this procedure, lawyers who had been named in litigation wanted to draw in accountants and financial advisors who had also been involved in drafting disputed agreements. 

The court held that the claim as pleaded was that the lawyers and accountants both were providing professional advice, and none were acting as agents.  

Dispute over a partnership agreement and its amendments leads to claims against third parties 

In a limited partnership arrangement, limited partners Interior Equities and KF Capital sued the defendant general partner, CLM. The LP was created to develop real estate north of Kelowna. The plaintiff limited partners claim that amendments made to their LP agreement through an amending agreement had the effect of wrongfully reducing their entitlement to cash distributions.

Here’s how the professionals – i.e. lawyers and accountants – became involved in the dispute:

• After receiving the plaintiffs’ claim, CLM initiated “third party proceedings” against its lawyers, Burnet, Duckworth & Palmer LLP, who had drafted both the LP agreement and the amending agreement. 
• The lawyers then issued their own third party notice to the accounting firm, Grant Thornton LLP, who were CLM’s accountants and financial advisors when both agreements were prepared. The lawyers sought contribution and indemnity from the accountants through section 4 of the Negligence Act. 

The lawyers’ notice alleges it was the accounting firm that advised CLM that the terms of the LP agreement didn’t reflect CLM’s intentions regarding cash distribution and recommended amendments to it. Based on the accountants’ advice, CLM instructed the lawyers to draft the agreements, and the accountants reviewed and approved the draft amendments.

The accountants brought an application to strike the third party notice against them as “unnecessary.” They argued they were acting as CLM’s agents (in their capacity as CLM’s financial advisors and accountants) and that the lawyers can raise the accountants’ actions as a defence to CLM’s claim against them. Because principals are responsible for the acts of their agents, any issues the lawyers have with the accountants can be attributed to and pursued through CLM, the principal here. The claim would be a contributory negligence defence under the Negligence Act.  

Third party notice left undisturbed

The court would not accept Grant Thornton’s framing that it was an agent in the preparation of the partnership agreements as described by the lawyers’ claim. Rather, they were working collectively and could no more be framed as agents than the lawyers.

It was not clear that the accountants were acting in the capacity of CLM’s agents. The court acknowledged that lawyers or accountants will be acting as their clients’ agents in certain instances, such as when they are involved in communications with third parties, and have apparent authority from their client, the principal.

But if a client seeks and obtains advice from a professional for a particular situation or circumstance, the professional may never assume the role of agent for the client. The court held this to be equally true for a client obtaining advice from an accountant as from a lawyer. 

Here, according to the lawyers’ notice, the LP and amending agreements were products of discussions between Grant Thornton and Burnet, Duckworth & Palmer. Both were CLM’s professional advisors. The claim is that the accountants provided input as to the income distribution aspects of the agreements. Contrary to the accountants’ submissions that they were doing a holistic review and just failed to spot the lawyers’ errors, their review was to be limited to certain financial provisions, i.e. their area of expertise.

The court concluded therefore that the professionals were all working collectively, and for a common purpose. It was difficult for the court to see how the accountants could bind CLM in its dealings with the lawyers any more so than the lawyers could bind CLM in its dealings with the accountants. 

In other words, the law of agency and contributory negligence would not save the accountants from the lawyers’ claim. 

Takeaways for professional advisors

The court invoked a poetic turn of phrase to highlight how it saw the accountants in this claim: the professionals, legal and accounting, were “all members of the same orchestra, each contributing their own unique skills or sounds towards a single harmonious production.” (para 38)

While this case is likely to be appealed, as it stands, professional advisors should not expect to be immune from potential third party claims brought under the Negligence Act, even where they are expressly acting as “agents” of their clients.  

In the circumstances, professional advisors may wish to review their template retainer agreements and consider whether changes can be made to guard against such third party claims.  For example, some clients may be willing to indemnify and hold harmless the advisor from and against any third party claims arising from the advisor’s advice and services.  Such an indemnity clause could be extremely helpful in resisting and/or defending against a third party claim seeking contribution and indemnity under the Negligence Act. It could help set the advisor apart from the rest of the “orchestra.”