Suing For Bad Advice

By Rabbi Jay Kelman

Can one sue for bad advice? In the specialized marketplace in which we operate we are all dependant on advice of other, be they accountants, lawyers, real estate agents or doctors and Rabbis. What if their advice turns out to be wrong, causing one a financial loss?

Offering well intentioned advice is a wonderful mitzvah; yet unless one is eminently qualified to do so and one can do in an impartial way, looking out for the best interests of the ‘client,’ it is best to remain quiet. Jewish teachings have long recognized that there is an inherent conflict of interest in the advisory role. The advisor is interested in enriching themselves, whether financially or otherwise, while the client is interested in getting solid unbiased advice. This in of itself does not present a moral issue, provided the advisor has “fear of G-d” engendering an ethical sensitivity that will ensure that he or she keeps the clients’ interests uppermost and tries to eliminate all known biases. While no one likes to pay for poor service, there are times when one must do just that.

Jewish law looks at two main criteria in assessing liability: the professional credentials of the advisor and whether services were rendered free of charge. Additionally, as a general rule, liability is only imposed if the loss is due to an error of competence that should and could have been foreseen by a professional advisor. Errors of judgement or analysis in which there was no clear incompetence would not be actionable. Thus an accountant dispensing tax advice which, unknown to him, was against the law would be liable for any penalties incurred. However that same accountant who suggests an investment that goes awry would not be liable for losses incurred.

Interestingly Jewish law posits that an expert, i.e. licensed professional, is to be held less accountable than a layperson for any errors caused. While such a professional is liable if he is being paid for his services, services offered on a pro bono basis are free from potential lawsuits. You get what you pay for. However that exact same advice offered by a non-licensed professional would incur a legal obligation to compensate for direct financial losses. Only if the non professional makes it perfectly clear that their advice should not be relied on will they be absolved of payment.

This article originally appeared in the January 5, 2005 Money Matters column of the Canadian Jewish News.

Rabbi Jay Kelman is a founding director of Torah in Motion, an educational institute dedicated to inspire Jews to engage with the challenges and opportunities of the modern world through the prism of Jewish law, values and traditions. Rabbi Jay teaches ethics and Rabbinics at the Community Hebrew Academy of Toronto. Rabbi Kelman served for nine years as Rabbi at Beth Jacob V’Anshei Drildz and was a practicing accountant, earning both his Chartered Accountancy (Canada) and CPA (USA) designations; working in the International tax Department of a large international firm.