4.0 Canadian Initiatives
With the flurry of legislative enactment in the United States, stakeholder groups in Canada became interested in the potential benefits of LLP legislation. This section delineates the major Canadian initiatives to date on this subject.
4.1 Standing Senate Committee on Banking, Trade and Commerce
On March 1998, the Senate Committee released a report entitled
"Joint and Several Liability and Professional Defendants".
Alongside other recommendations, the Committee urged "the provincial
and territorial governments to take the necessary steps to provide for
the creation of limited liability partnerships and/or corporations by
professionals who wish to practice within such structures".3
The Committee very much focussed on auditor's liability. The accounting profession maintained before the Committee that auditors were facing a liability crisis brought on, for the most part, by the application of the rule of joint and several liability (as co-defendants in a legal suit). Along with responding to these concerns in its recommendations, the Committee stated as follows:
In Canada, professionals such as lawyers and accountants must practise largely in a partnership structure. As a result, such professionals are faced with liability at two levels - as co-defendants and as partners. Liability at the partnership level is joint and several amongst the partners and exposes the assets of the partnership and those of the individual partners to the liability of the firm. Each partner in a firm is jointly and severally liable with the other partners if a claim for damages based on negligence is made against any of the firm's partners. The personal assets of a partner can be used to satisfy a judgment against a firm even if the partner is not actually responsible for the loss…
Many jurisdictions have concluded that it is appropriate for professional firms to limit their liability. In the United States, in particular, the move to professional corporations, limited liability companies and limited liability partnerships is well advanced, with most states having enacted legislation to permit professionals to operate within these frameworks. …
One of the most popular structures for limiting liability is the limited liability partnership (LLP). Limited liability partnerships allow firms to retain their partnership structure while protecting the personal assets of partners who have no involvement in a negligence action. The firm is liable for the acts committed by its members in the ordinary course of the firm's business, but individual members, while continuing to maintain responsibility for their own acts and for those over which they have a direct supervisory role or knowledge, will not be liable for each other's acts. …
Although limiting liability at the partnership level is not within the jurisdiction of Parliament, the Committee believes it is an issue worthy of comment in this report. The Committee has benefited from the testimony of Ms. Alison Manzer, who first appeared before the Committee in October 1996 with the delegation from the Canadian Bar Association. At that time, Ms. Manzer described the evolution of liability amongst professional partners as follows:
The traditional professions of law, medicine and accounting have
historically attached responsibility and care beyond that of the provider
of other services and consequently face liability for the results of
their professional advice and business activities beyond that generally
imposed on the businessperson. These consequences were based on a client
relationship, and the importance of the services to the client who often
required special protection.
Joint and several liability for members of professional firms emerged at the time when professionals had responsibility only to their clients. Professional responsibility has evolved by the imposition of tort liability, elimination of contributory negligence bars to a plaintiff's action and expanded recognition of responsibility to persons other than clients. Professionals now face potential liability from a variety of sources, including third parties, knowingly or unknowingly relying on the professional work. In addition, the size of awards has increased dramatically.
The issue is whether liability of this nature, based
on a unique relationship with a learned professional, remains valid.
Most occupational groups now recognized as professional do not face
the liability issues of the traditional professions. They are often
permitted to practice in an incorporated or other limited liability
business structure, thus restricting individual liability to their
direct professional activity. They are not exposed to liability for
the activities of their partners...4
The Committee concluded that professionals should be able to practice in LLPs and urged provincial and territorial governments to enact legislation. The Committee stated the following:
The Committee questions whether there remain good and sufficient reasons for requiring certain professionals to practise within a traditional partnership structure. Why should partners who are not involved in a negligent act be personally exposed to liability arising from the activities of their negligent partners? Why must the traditional professions such as law, accounting and medicine continue to face exposure to personal liability for the activities of their negligent partners while other professionals can limit their exposure through incorporation or some other limited liability structure? To avoid facing the possibility of losing their personal assets to satisfy a judgment against their firm or a negligent partner, professionals will often take steps to limit their personal liability by making themselves judgment-proof. Why should some professionals feel compelled to take these steps to protect their personal assets?
The CICA expressed its enthusiasm for limited liability partnerships as a means of protecting the personal assets of partners who are not involved in a claim before the courts. It pointed out that
[T]he one area that will help somewhat in the joint and several issue is that lawyers for plaintiffs use the threat of going to a partner's personal assets as one of the bargaining chips in getting settlements. … There is no question that lawyers for plaintiffs have threatened that they will go right through the partnership into a partner's personal assets…
The Committee believes that structures such as limited
liability partnerships should be available to professionals who wish
to limit their personal liability. It wishes to stress that within the
confines of these structures, professionals should continue to maintain
responsibility for their own actions and for the actions of others over
which they have a direct supervisory role or knowledge.5
4.2 Ontario, Alberta and Saskatchewan
Ontario was the first Canadian jurisdiction to enact LLP legislation in 1998. Alberta and Saskatchewan have enacted LLP legislation in 1999 and 2001 respectively.
4.3 Alberta Law Reform Institute
The Alberta Law Reform Institute issued a Final Report on Limited Liability
Partnerships in April 1999. It was preceded by an Issues Paper (March 1998) as
well as a Summary Report (December 1998).
The Final Report is perhaps the definitive Canadian discussion
document on limited liability partnerships. It is an invaluable resource
in understanding LLPs and related policy issues/options for consideration.
The Final Report is available on the Internet.6
4.4 Uniform Law Conference of Canada
The Uniform Law Conference of Canada is devoted to harmonizing the Canadian statute law where harmony is beneficial. It prepares uniform or model statutes that it recommends be considered for enactment.
In August 1999, the Conference produced a LLP Model Act.
This does not necessarily mean the Conference "endorsed" all
provisions in the Model Act. The Conference has made it available as a
model that could be followed. The Model Act and discussion report are
available on the Internet.7
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