Engagement letters

November 3, 2011 Insert any additional information here. Helping to create windows of opportunity

ENGAGEMENT LETTERS THAT WORK November 3, 2011

Today’s Discussion
Law 101 for Chartered Accountants
Written Contracts and Limitations of Liability
How to do it wrong – Salgado v. Toth
The Elements of any Engagement Letter
How to limit liability and make it stick!
November 3, 2011

Contract
Implied term of “adherence to professional standards” (no negligence)
Establish the mutual obligations between parties
Opportunities to define and limit liability
Cannot govern your obligations to third parties
November 3, 2011

Standard of Care
Negligence :
The failure to adhere to the standard of care expected of a reasonable and prudent Professional in the provision of services to one to whom you owe a duty of care.
November 3, 2011

There must be a duty of care based on a “special relationship” between the CA and the representee.
The representation must be untrue, inaccurate or misleading.
The CA must have acted negligently in making the misrepresentation.
Negligent Misrepresentation November 3, 2011

The representee must have relied, in a reasonable manner , on the negligent misrepresentation.
The reliance must have been detrimental to the representee, i.e., damages resulted.
The representation must have been made for the purpose that the representee would rely upon it in the way that he did .
Negligent Misrepresentation November 3, 2011

Protection?
No written contract to protect you from third party liability
Define in your contract and your work product the limited scope and purpose of your work product
Clearly set out that it can only be relied upon by the client
November 3, 2011

Restriction on Use
“ This ________ was prepared for the exclusive use of [ Client ] and may not be used or otherwise relied upon by any third person without our written consent. We accept no liability to any third person whatsoever.”
November 3, 2011

B.C. Limitation Periods
Six years for economic loss;
Section 6(3) postpones starting time of the limitation period until “ a reasonable man would have had within his possession sufficient facts that he should have recognized he had a right to sue with a reasonable prospect of success .”
November 3, 2011

Limitation Periods
June 2011 – Complete December 31, 2010 Review and T2
October 2013 – Discover substantial employee fraud
February 2014 – Opinion from lawyer to sue CA
November 3, 2011

Limitation Periods
Time to Sue Would Not Run Out Until February 2020 in British Columbia
Unless you contract out of the Limitation Act time frame
November 3, 2011

B.C. Limitation Periods
No prohibition against any term in an engagement letter reducing the limitation period!
November 3, 2011

CFO Engagement
Highly adaptable for a multitude of purposes if you are “working” for one or just a few entities
Let’s review what is in it
November 3, 2011

The Essential Elements
Introduction
Tell the client
We’ll be setting out our respective obligations
We will be limiting my liability
I need you to sign before I start work
November 3, 2011

Purpose, Objective and Scope
What is it you will be doing
Client’s Responsibilities
What is it that the client has to do to make this relationship work?
November 3, 2011

Indemnity ?
Why should you have to pay if the Client’s actions get you sued
Termination
Are you paying me?
Are you putting me in breach of the Rules of Professional Conduct
November 3, 2011

Confidentiality
File Inspections
Privacy Act
Fees
Essential Terms
What if I have to respond to litigation or government bodies, I.e BC Securities?
November 3, 2011

Limitations Clauses That Work
Howe Sound School District No. 48 v. Killick Metz Bowen Rose Architects and Planners Inc., (2008 BCCA 195)
Where there are no issues of unconscionability , parties are entitled to arrange their affairs and assume risks at variance with the duties otherwise imposed by the law of tort .
November 3, 2011

Key Limitation Terms
Limit Liability to a specific amount that will be substantially greater than your fees
Permit the Client to increase the limit of liability
November 3, 2011

Require agreement that client cannot sue you or employees individually - will work if you have insurance
Not vicariously liable for other consultants
November 3, 2011

Limit time in which to sue to two (2) or more years from:
Last invoice
Substantial Completion
Suspension or Termination
November 3, 2011

Salgado v. Toth 2009 BCSC 1515
A study in how to NOT limit your liability:
Do not draw the limitation of liability language to the attention of the client
Present the contract for signature after the services have been largely performed
Do not give the client time to read the contract
November 3, 2011

Salgado v. Toth
Don’t have all the clients sign the contract
Have the limitation of liability language unclear and ambiguous
Limit liability to your fees
November 3, 2011

ICABC Permitted Limitations
June 2007, ICABC placed on the Members Only portion of their website sample engagement letters
Not an “official” position
Limitations of liability in engagement letters now used by all national and larger BC firms
November 3, 2011

Limitations that Work
Let’s review 3 key elements:
The limitation language must be clear and unambiguous to avoid the argument of “contra proferentum”
Limiting liability should still provide some compensation for loss
Limiting the time in which to sue must be reasonable
November 3, 2011

Limitations that Work
Establish a clear intent of the client to be bound
Promote the client’s freedom to contract
Evidence a willingness to negotiate specific terms
November 3, 2011

Limitation Amounts
Establish a published policy within your Practice based upon risk factors and amount of fees
Examples:
$50,000 for a Review
$10,000 for a compilation
$25,000 for a T-1
A multiple of your fees, say 10 X to a maximum of $100,000
November 3, 2011

The Right Way
Use email and fax to deliver written contract and terms to client when contacted, and before you do the work
Draw to the potential client’s attention that there are limitations of liability clauses in the contract and ask them to review the clauses before signing
November 3, 2011

The Right Way
Do not begin work until the client has indicated in writing, either by fax or by an email, that he/she/it will accept the terms
Preference: Get them to sign the contract and either scan and return, or fax it back to you
Make sure the client hasn’t deleted, crossed out or made any changes
November 3, 2011

The Right Way
Obtain a new engagement letter every year, before you start the next year’s work
Charge more
Do it right the first time
November 3, 2011

T1 Engagement
Introduction
Note that the special warning about limiting liability
Rule 205 warning
Warning of consequences for false return
November 3, 2011

T1 Engagement
Client’s Responsibilities
We don’t review or audit, so you have to get the numbers right
If you have a doubt, put it in writing
S. 163.2 Indemnity
Working Papers
November 3, 2011

Compilation Engagement
Sets out the Notice to Reader text
Note the Restriction on Use
Management’s Responsibilities
Minimal liability - $10,000, but you will negotiate for a higher limit
A Chartered Accountant’s Lien
November 3, 2011

Review Engagement
Adds to the Compilation and T1 letters
Scope: Agrees no liability for failing to direct employee fraud
Management’s responsibilities are spelled out in a huge appendix
Independence section
November 3, 2011

Review Engagement
Alert client to Practice Review obligations
Restriction on Use section
Note higher limit on liability $50,000
November 3, 2011

Engagement letters

by FVCAA on Nov 08, 2011

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Engagement letters — Presentation Transcript