The perils of being everybody’s lawyer

Once in awhile, lawyers whose practices involve business transactions are asked to represent both sides to a transaction.

On the surface, this seems like a reasonable plan:  why waste money on separate representation when no one is at odds with anyone else?

Everybody’s happy - they are all about to embark on a journey that will net them lots of money, and they don’t need a lawyer to rain on their parade.

These adventures rarely end well.

Take the unfortunate case of Gallop v. Mulatz, 2008 SKCA 29.  Mark Mulatz was a Regina, Saskatchewan lawyer who assisted Joy Gallop in acquiring a commercial piece of real estate in a transaction that can only be described as Byzantine.

Joy’s father, Al Abdoulah, loaned his brother, Oscar, $90,000.  As security for the loan, Oscar was to transfer the commercial property, then the subject of a mortgage in the amount of $263,600, to Al with an agreement that he would “re-purchase” the property once the loan had been repaid.

The rent at that time substantially exceeded the mortgage payments, and so the property was turning a tidy profit each month.  Al decided his daughter should benefit from the transaction by collecting the rents while Oscar was repaying the loan.

 Mark Mulatz cobbled together a loan agreement between Al and Oscar, and side agreement with Joy.  He represented all parties, and apparently sent no one for independent legal advice.

Mr. Mulatz never told Joy that one of the tenants was operating under bankruptcy protection.  He also never told her that Oscar’s promise to re-purchase the property was unenforceable under Saskatchewan law.

Eventually, Joy was subsidizing the property, and Oscar defaulted on the loan agreement and the agreement to re-purchase the property.  Joy eventually re-sold the commercial property at a loss.

Not surprisingly, she sued Mark Mulatz for negligence claiming she would never have embarked upon this transaction had he carried out his duty to advise her of the legal and financial risks involved.

The trial judge awarded Joy over $116,000 in damages.  Both she and Mulatz appealed the decision, and the award was reduced to approximately $84,000.

The most troubling aspect of this case is that it is all too common.  On the surface, Mark Mulatz was acting for a family business.  Presumably, they would all cooperate, and everything would turn out for the best.

Lawyers, however, cannot afford that kind of optimism.  We are paid to worry, and we are paid well to do it.

The profession’s greatest value is in the ability to see the pitfalls and worst case scenarios.

Mark Mulatz had historically taken instructions from Al Abdoulah.  That arrangement should have continued, and both Oscar and Joy ought to have been referred out for independent legal advice.

While that might have appeared to the family to be unnecessary at the time, their view certainly changed when the transaction collapsed.

In the end, it was the lawyer who shouldered the blame.  The lesson is clear:  for your own protection, and for the protection of your clients, don’t try to be everybody’s lawyer.