Personal Liability of Professionals Operating Through Professional Corporations
Our firm acted for the Respondent Dahlem P.C. in the case of Dahlem P.C. v. Schneider P.C (“Dahlem”) before the Alberta Court of Appeal. Today the Court released its decision, which has implications for professionals—doctors, dentists, accountants, lawyers, and other eligible professionals—operating through their professional corporations.
In Dahlem, our client (a lawyer acting through his P.C.) sued the law firm (Schneider P.C. operating as Canmore Legal Services) and its principal/shareholder lawyer (Schneider) seeking payment for debt in the form of unpaid wages. Our client was successful at trial, but the law firm and its principal lawyer appealed to the province’s highest court. The Appellants argued (among other things not relevant here) that the principal lawyer was not personally liable for the debt under the Legal Profession Act because the debt did not involve the “practice of law”. The “practice of law”, they contended, only pertained to client service (and therefore not to debt or liability to a non-client). We argued that the lawyer is personally liable because the “practice of law” involved all facets of practice, not just client service.
The Court of Appeal, addressing this matter for the first time, affirmed the trial judge’s finding that Schneider was personally liable for the debt of his P.C. The Court held that its prior decisions involving personal liability (Bourbonnais, 1996; and Sandilands, 2003) “delineate[d] the outer boundary of that personal liability”.
In Bourbonnais, the Court held that a lawyer was not personally liable for income tax owed by his P.C. because an individual and a P.C. are taxed differently. The P.C. vehicle was created largely for tax purposes in the first place. Sandilands involved a dentist selling his practice to another corporation. The transaction did not close, and the purchaser sued the vendor and its principal dentist for damages. The Court held that the dentist cannot be held personally liable because the sale of the practice did not involve the actual practice of dentistry but instead a sale of the entire practice itself. (The language in legislation governing other professions like dentistry is largely the same as that in the Legal Profession Act.)
The facts in Dahlem were different from the “outer boundary” cases of Bourbonnais and Sandilands, neither of which involved an ongoing P.C. Dahlem involved the functioning of a law firm and therefore the practice of law.
In light of Dahlem, professionals should note that they are liable for debts and liabilities incurred by their professional corporations in the course of practice broadly construed.
Invitation for Discussion:
Our litigation lawyers are skilled at business litigation. If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact one of the lawyers in the Business Litigation Group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.