6.0 Should New Brunswick Enact LLP Legislation?
For some stakeholder groups, in particular accountants and lawyers, real or perceived benefits exist to be able to practice as a LLP. This is tied into the historical reasons for the development of LLPs including concern over their liability exposure to clients and third parties, the escalation in the dollar amount of judgments, the imposition of joint and several liability on co-defendants and a perceived insurance crisis in insuring their professional risks. In today's insurance environment, some risk may not be insurable or costs to insure are considered prohibitive. These concerns will not all be eliminated by the enactment of LLP legislation. Nevertheless, the Senate Committee viewed such legislation as one means to mitigate these concerns.
LLP legislation has the affect of changing the risk allocation from the status quo situation. With a partial shield LLP model, the plaintiff will no longer be able to go after the personal assets of the non-negligent partner, but will have only the partnership assets and the personal assets of the negligent partner to go after. One may ask whether the assets of a partnership will be sufficient to cover a judgment? What happens if the judgment is not covered by any insurance policy that the firm may have or is required to have or if the judgment exceeds such insurance amount? With a full shield LLP model, the liability shield for partners is broadened so that the partner's personal assets will not be available to satisfy any debts and liabilities of the partnership.
One may conclude that if benefits exist for professionals to practice as LLPs, then a corresponding disadvantage must exist for clients of the LLPs. Certainly, there is a change in the risk allocation between the parties. But aside from the effect on individual cases, one may very well debate the true macroeconomic impact of having or not having LLP legislation. Does the current legal situation create impediments to the efficient and effective delivery of professional services to the business community and the public? Will LLP legislation improve the situation so that not only is there a benefit to the professional but a global benefit to the public?
We are not aware of any relevant empirical studies that have analysed the risk allocation impact of LLPs nor the economic consequences of LLP legislation. For example, are all plaintiffs really disadvantaged or are only "large judgment" plaintiffs disadvantaged by not being able to go after the personal assets of the non-negligent partner. Are large judgment plaintiffs always "sophisticated" in knowledge of the risk and in ability to absorb financial losses themselves? Will the reduction of a partner's personal liability exposure impact the costing structure of professional fees?
In any LLP model, the plaintiff against a negligent partner is no worse off than if the partner was practising alone as a sole proprietor or as a corporation. Likewise, ordinary trade creditors of the LLP are no worse off than they would be if they were dealing with a corporation. In New Brunswick, many professionals are able to practice within a corporation, thus taking advantage of the limited liability characteristics of a corporation. Many professionals who have this option still continue to operate in a partnership due to other beneficial attributes of a partnership (management structure, taxation structure, etc.). Many jurisdictions have imposed mandatory insurance requirements on LLPs that practice a profession to counterbalance risk allocation concerns.
Proponents for LLPs raise what they believe is a basic question of fairness. As mentioned in the Alberta Law Reform Institute Report:
It is argued that it is unfair and contrary to the public
interest that professionals are required to practise in firms in which
the personal assets of every owner are answerable for all claims against
the firm. It is particularly unfair and counterproductive, it is argued,
that the personal assets of a member of a professional firm should be
answerable for malpractice claims that arose out of an engagement in
which that particular individual has no personal involvement. Professionals,
the argument continues, should be able to practise in firms whose members
would be shielded from personal liability of other members, employees
or representatives of the firm. Only those members of the firm who are
personally implicated in the wrongful acts or omissions should be subject
to personal liability for the firm's malpractice liability. 8
Aside from the direct benefits to certain stakeholders and the change to risk allocation, it is difficult to forecast with certainty the economic impact of having or not having LLP legislation in New Brunswick. Is it useful to be in sync with the trend towards LLPs? Will it result a better business environment for New Brunswick? Will it attract businesses to create New Brunswick LLPs instead of LLPs in their home jurisdiction?
Presently, Alberta, Ontario, and Saskatchewan are the only Canadian jurisdictions that have enacted LLP legislation. It is foreseeable some other provinces will follow, but we can only speculate as to when.
At this point in time, we wish to obtain feedback on whether New Brunswick should enact LLP legislation. Certain stakeholders may wish to review the entire Report prior to giving feedback in this section.