Date: Wed, 4 Jan 2006 20:36:51 -0500

From: Lionel Smith

Subject: VL for breach of duty of loyalty

3464920 Canada Inc. v. Strother, 2005 BCCA 385 was released in July 2005.

It involved a breach of fiduciary duty by a lawyer (Strother) at one of Vancouver's leading firms. There was a conflict inasmuch as he advised his client that a change in tax law made the client's business no longer sustainable; he then took a financial interest in an undertaking in the same area. The client, who had suffered no loss, sued for the profits (said to exceed $60 million) and won against the lawyer (2005 BCCA 35). In the later holding, the client argued that the firm was liable as well.

The careful judgment holds that the firm was not directly liable as a knowing assistant. Was it vicariously liable for the profits acquired by Strother? In general, no, since the profits were not acquired in the ordinary course of the partnership's business and such an order would go beyond disgorgement. But the firm had to return to the client all fees (not disbursements) it had paid to the firm after the breach, and it had to disgorge to the client all of the fees it had received from the newly formed entities.

Leave to appeal to the SCC was granted in December 2005 from both CA holdings (against the lawyer & entities, and against the firm).

Lionel

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