Date: Thu, 5 Jan 2006 10:08:22 -0500

From: Jason Neyers

Subject: VL for breach of duty of loyalty

Colleagues:

I suggest that the law firm should start saving the $60 million for the inevitable judgment against them, "policy" demands it! We will of course have to wait until the SCC tells us what the policy is but waiting is half the fun.:)

More seriously, based on the facts as outlined by Lionel the judgment seems about right (in the abstract): according to traditional doctrine there can be no VL for non-good faith wrongs but the firm should be personally liable for representing the trustworthiness of the lawyer.

This wrong leads only, however, to compensatory damages.

Cheers,

lionel.smith wrote:

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).

--
Jason Neyers
January Term Director
Assistant Professor of Law
Faculty of Law
University of Western Ontario
N6A 3K7
(519) 661-2111 x. 88435

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