Executive Summary: Key Legal and Evidentiary Issues

• Appeal focused on whether a third-party notice against auditors should be struck as unnecessary.

• Central issue involved distinguishing obligations under the Negligence Act for contribution versus direct defences.

• Question of whether accountants acted in an agency relationship with their client was pivotal.

• The court assessed whether professional advisors’ roles can create overlapping or separate liabilities.

• Pleadings were interpreted generously to determine if claims could reasonably stand.

• Outcome confirmed that striking the third-party notice was not justified.

Facts and outcome of the case

Background of the dispute
The case arose from a real estate development project in Lake Country, British Columbia. Interior Equities Corp. and KF Capital Ltd., both limited partners, claimed that Cadence At The Lake Management Ltd. (CLM), the general partner, amended the limited partnership agreement in 2019 in a way that reduced their entitlement to certain cash distributions. The limited partnership agreement had originally been drafted in 2007, and both the agreement and the later amendment were prepared by legal counsel from Burnet, Duckworth & Palmer LLP. The limited partners argued that the amendment was detrimental to their rights and brought an action against CLM.

Third-party proceedings
In response, CLM filed third-party proceedings against its lawyers, contending that if the limited partners’ claims were successful, then the lawyers bore responsibility for not properly drafting the agreement and the amendment in line with instructions. The lawyers, in turn, filed their own third-party notice against Grant Thornton LLP, CLM’s accountants and financial advisors. They alleged that Grant Thornton had advised on the financial structuring of the partnership, reviewed both the original agreement and the 2019 amendment, and recommended certain revisions. Relying on the Negligence Act, the lawyers sought contribution and indemnity from Grant Thornton if liability were found.

Application at trial level
Grant Thornton applied to strike the third-party notice, arguing it was unnecessary because any alleged errors by the accountants could be raised by the lawyers directly as part of their defence against CLM. They relied on prior authority suggesting that where a plaintiff is responsible for the acts of a professional advisor, there is no need for separate third-party proceedings. The Supreme Court of British Columbia dismissed the application, finding it was not plain and obvious that the notice was unnecessary and that issues of agency and professional responsibility required full consideration at trial.

Appeal to the Court of Appeal
Grant Thornton appealed, maintaining that the notice was redundant and legally unsustainable. The core issue before the appellate court was whether the lawyers’ third-party notice should have been struck out under the procedural rules. The court considered whether Grant Thornton’s role as financial advisor could amount to an agency relationship with CLM, and whether the claims against them could be subsumed under CLM’s obligations. It concluded that professionals advising a client are not necessarily in an agency relationship that binds the client, and the allegations of collaborative work between the lawyers and accountants raised a reasonable claim.

Outcome of the appeal
The court dismissed Grant Thornton’s appeal and upheld the decision allowing the third-party notice to remain. The ruling confirmed that it was not plain and obvious that the claims against Grant Thornton were unnecessary or incapable of success. No damages were awarded in this appellate decision, as the case concerned only the procedural validity of the third-party notice. The limited partners’ substantive claims and any assessment of liability remain to be determined in the ongoing litigation.

Implications of the decision
The case underscores the nuanced interplay between lawyers and accountants in complex commercial transactions. It highlights the court’s willingness to permit third-party claims to proceed where professionals collaborate and potentially share responsibility. Importantly, the ruling clarifies that the existence of professional advice does not automatically establish an agency relationship sufficient to eliminate the need for third-party proceedings.