COURT OF APPEAL FOR ONTARIO
ABELLA, BORINS AND SHARPE JJ.A.
BETWEEN:
STEGOR CONSULTANTS (1998) LIMITED, DONALD J. STELLIGA, GARY R. HEDGES, HILLAR KASSFELDT and PETER FORDHAM
Ross Earnshaw and Sherry Currie for the Respondents
Respondents (Plaintiffs)
- and -
STEPHEN MADER, JEFF SPROAT and PEAT MARWICK THORNE
William D. Black and Darryl R. Ferguson for the Appellants
Appellants (Defendants)
HEARD: February 7, 2001
Released Orally: February 7, 2001
On appeal from the judgment of Justice Ronald C. Sills dated January 17, 2000.
1Following a lengthy trial, Sills J. awarded the estate of Donald J. Stelliga, Gary R. Hedges, Hillar Kassfeldt and Peter Fordham (“the respondent purchasers”) damages and prejudgment interest totalling approximately $692,000.00 against Stephen Mader, and Jeff Sproat and his employer, the accounting firm of Peat Marwick Thorne. Mr. Sproat and Peat Marwick Thorne appeal from this judgment.
2The action arose out of the sale in November, 1988, by Mr. Mader to the respondent purchasers of his shares in Stegor Consultants Limited (“the company”). The respondent purchasers’ claim against Mr. Mader was based on breach of contract and fraudulent or negligent misrepresentation respecting the financial status of the company, and their claim against the appellants was based on negligent misstatement and breach of fiduciary duty.
3Although it is not entirely clear from the trial judge’s reasons, it appears that he based the liability of Mr. Mader on the finding that Mr. Mader had “deliberately misled the plaintiffs and misrepresented the financial health” of the company. Mr. Mader, who served a notice of appeal, apparently elected not to pursue the appeal.
4The trial judge found that there was a fiduciary relationship between the respondent purchasers and the appellants Jeff Sproat and Peat Marwick Thorne, which the appellants breached by Mr. Sproat’s “failure to ensure full and complete disclosure” of the financial status of the company to the respondent purchasers. This finding was made without any reference to the circumstances in which a fiduciary relationship can arise as explained by such authorities as Hodgkinson v. Simms, [1994] 3 S.C.R. 377, and, necessarily, without an analysis of the evidence relevant to the determination of whether a fiduciary relationship had arisen.
5In our view, in light of the evidence it was not reasonable for the trial judge to find that there was a fiduciary relationship between the appellants and the respondent purchasers and, even if it had been possible to find such a fiduciary relationship, there was no evidence that the respondent purchasers placed any reliance on Mr. Sproat or Peat Marwick Thorne.
6The substantial factual issue at trial was whether the respondent purchasers were aware of the true financial health of the company at the time they agreed to purchase its shares. While it is true that at the time they entered into negotiations with Mr. Mader to purchase the shares, the company’s Notice to Reader financial statement for July 31, 1988, prepared by its accountant Peat Marwick Thorne, indicated that the company was profitable, a subsequent Review Engagement Statement prepared by Peat Marwick Thorne for the year ending July 31, 1988, disclosed that the company was operating at a loss. Subsequent Notice to Reader financial statements dated August 31, 1988, and September 30, 1988, which Peat Marwick Thorne prepared, clearly reflected that the company was unprofitable and had significant doubtful accounts receivable the collection of which was problematic.
7Although there was some conflict in the evidence as to whether the respondent purchasers were in possession of the July 31, 1988 Review Engagement Statement on November 18, 1988 when they signed and completed the agreement of purchase and sale of the company’s shares, the evidence was clear that they were in possession of the Notice to Reader financial statements of August 31, 1988, and September 30, 1988, at that time. In other words, when they closed the transaction, the respondent purchasers had all the relevant financial information about the company, which they had received from Mr. Mader. In addition, there was evidence that the respondent purchasers had been assured by Mr. Mader that the doubtful accounts were in fact collectible and that they preferred to rely on this assurance rather than the information that was reflected in the Notice to Reader financial statements.
8In our view, this is an appropriate case for this court to interfere with the findings of the trial judge who, in our view, made manifest errors by making findings of fact that were not reasonably supported by the evidence and by failing to appreciate the evidence relevant to certain critical factual and legal issues.
9In view of, the limited purpose for which the respondent purchasers consulted Mr. Sproat and Peat Marwick Thorne, which was to obtain advice with respect to the structuring of the share purchase transaction after the decision to purchase had already been made, the trial judge erred in finding a fiduciary duty was owed by the appellants to the respondent purchasers to ensure full and complete disclosure of the company’s financial health was made to them.
10Reliance is a necessary element of a claim based on a breach of fiduciary duty. Even if the trial judge was correct in finding that there was a fiduciary duty, there is no evidence that the respondent purchasers relied on, detrimentally or otherwise, any information provided, or not provided, to them by Mr. Sproat or Peat Marwick Thorne regarding the financial status of the company. To the contrary, the respondent purchasers were not looking to the appellants for any information or advice regarding the financial status of the company, or about whether they were making a sound business decision in acquiring its shares. Moreover, the evidence was clear that well prior to closing, the respondent purchasers had in hand up-to-date financial information and statements regarding the company, and, as such, were in possession of full and complete disclosure of its financial status.
11Thus, the evidence established that the respondent purchasers did not rely on any information from Mr. Sproat or Peat Marwick Thorne in purchasing the shares. To the contrary, the evidence disclosed that they specifically disregarded information contained in the Notice to Reader financial statements prepared by the appellants concerning the company’s financial circumstances, preferring to rely on the assurance of Mr. Mader that the doubtful accounts receivable were collectible.
12There were other grounds of appeal advanced by the appellants which, in view of the above analysis, it is unnecessary for the court to consider.
13For all the above reasons, we would allow the appeal, set aside the judgment against the appellants, and order that the action against the appellants be dismissed with the costs of the trial and the appeal.
Released: February 9, 2001
(signed) “S. Borins J.A.”
(signed) “I agree R. S. Abella J.A.”
(signed) “I agree Robert J. Sharpe J.A.”