Rochwerg et al. v. Truster et al. [Indexed as: Rochwerg v. Truster]
58 O.R. (3d) 687
[2002] O.J. No. 1230
Docket No. C33317
Court of Appeal for Ontario
Charron, MacPherson and Cronk JJ.A.
April 8, 2002
Partnership -- Fiduciary duties -- Duty to account -- Partner was director of two companies which were clients of his accountancy partnership -- Partner disclosed his directorship to partners but not his entitlement under companies' Key Employee Stock Plan to certain shares and stock options -- Partnership subsequently dissolved -- Partner's acceptance of directorships and his activities as director did not place him in position of conflict with partnership so as to give rise to obligation to account under s. 30 of Partnerships Act -- Partner had duty to account to his former partners under s. 29(1) of Act -- Partnerships Act, R.S.O. 1990, c. P.5, ss. 29(1), 30.
The individual parties were chartered accountants and practised accountancy together in a partnership, RTZ. The corporate parties were holding companies which provided management and accounting technician services to RTZ. The respondent R was a partner in RTZ and director of two companies, TI Inc. and T Inc., which were clients of RTZ. He disclosed his directorships to his partners but did not tell them prior to the dissolution of RTZ that, as a director of the companies, he was entitled under TI Inc.'s Key Employee Stock Plan to certain shares and stock options in TI Inc. After the dissolution of RTZ, the issue arose as to whether the appellants (R's partners and their holding companies) were entitled to an accounting from R for his shares and stock options of TI Inc. A trial of that issue was ordered and the claim for an accounting was dismissed. The appellants appealed.
Held, the corporate appellants' appeal should be dismissed; the individual appellants' appeal should be allowed in part.
No written partnership agreement existed. Consequently, the mutual rights and duties of the partners were governed by the Partnerships Act.
At all times while he was a partner of RTZ, R owed his partners duties of loyalty, utmost good faith and avoidance of conflict and self-interest. In equity and under the Act, partners are subject to a strict duty of disclosure concerning full information of all things affecting their partnership. Under s. 29(1) of the Act, where undisclosed benefits are derived by a partner from a transaction "concerning the partnership", or from use by a partner of the "partnership property, name or business connection", a duty to account will arise. Liability to account may attach to a partner under either branch of s. 29(1). In addition, under s. 30 of the Act, a partner may be required to account to his/her co-partners for undisclosed profits where the partner carries on a business of the same nature as, and competing with, that of the partnership. This obligation flows from a partner's duty to avoid conflicts of interest. R's acceptance of directorships in the companies and his activities as director did not place him in a position of conflict with RTZ, or in respect of his duties as a partner of RTZ, and did not give rise to a duty to account under s. 30 of the Act.
However, R's entitlement to the TI Inc. shares and stock options derived from his directorships in the companies and formed part of his compensation as a director, although in non- fee income form, paid or made available to him by a client of RTZ. As such, the shares and stock options constituted compensatory benefits in a manner "affecting" and "concerning" the partnership which he was obliged to disclose to his partners under s. 28 of the Act, and for which he was required to account under the first branch of s. 29(1) of the Act. To trigger an obligation to account under the first branch of s. 29(1), transactions "concerning the partnership" need not, although they may, relate to transactions or dealings falling within the scope of the partnership's activities or services. So long as the transaction at issue concerns the partnership, liability to account under the first branch of s. 29(1) can relate to benefits derived from dealings outside the "scope of the partnership".
Moreover, R became a director of the companies only because of his previous role, through RTZ and its predecessor partnerships, as their accountant and valued advisor. When R joined the RTZ partnership and the companies became clients of that firm, his prior connection and association with the companies became a business connection of RTZ with two of its clients. Accordingly, R's benefits under the Key Employee Stock Plan were benefits derived from his use of a "partnership . . . business connection" within the meaning of the second branch of s. 29(1) of the Act. Consequently, R was also liable to account to his former partners for the shares and stock options on this additional ground. The second branch of s. 29(1) is not confined to misuse in situations falling within the "scope of the partnership".
APPEAL from a judgment of Mandel J. (1999), 1999 14935 (ON SC), 1 B.L.R. (3d) 257 (S.C.J.) dismissing an appellants' claim for an accounting.
Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R. 378, [1967] A.C. 134n (H.L.), consd Other cases referred to Aas v. Benham, [1891] 2 Ch. 244, 65 L.T. 25 (C.A.); Advanced Realty Funding Corp. v. Bannink (1979), 1979 1681 (ON CA), 27 O.R. (2d) 193, 106 D.L.R. (3d) 137, 9 B.L.R. 161, 12 R.P.R. 17 (C.A.); Asamera Oil Corp. Ltd. v. Sea Oil & General Corp. and Baud Corp., N.V., 1978 16 (SCC), [1979] 1 S.C.R. 633, 89 D.L.R. (3d) 1, 23 N.R. 181, [1978] 6 W.W.R. 301, 5 B.L.R. 225 (sub nom. Baud Corp., N.V. v. Brook); Boardman v. Phipps, [1967] 2 A.C. 46, [1966] 3 All E.R. 721, [1966] 3 W.L.R. 1009, 110 Sol. Jo. 853 (H.L.); Cameron v. Julien, 1957 367 (ON CA), [1957] O.J. No. 242, 9 D.L.R. (2d) 460, [1957] O.W.N. 430 (C.A.); Canadian Aero Service Ltd. v. O'Malley, 1973 23 (SCC), [1974] S.C.R. 592, 40 D.L.R. (3d) 371, 11 C.P.R. (2d) 206; Canson Enterprises Ltd. v. Boughton & Co., 1991 52 (SCC), [1991] 3 S.C.R. 534, 61 B.C.L.R. (2d) 1, 85 D.L.R. (4th) 129, 131 N.R. 321, [1992] 1 W.W.R. 245, 9 C.C.L.T. (2d) 1, 39 C.P.R. (3d) 449, 43 E.T.R. 201; Davis v. Ouellette (1981), 1981 626 (BC SC), 27 B.C.L.R. 162 (S.C.); Dean v. McDowell (1878), 8 Ch. D. 345, 47 L.J. Ch. 537, 38 L.T. 862, 42 J.P. 580, 26 W.R. 486 (C.A.); Helmore v. Smith (No. 1) (1887), 35 Ch. D. 436, 56 L.T. 535, 36 W.R. 3 (C.A.); Latta v. Kilbourn, 150 U.S. 524 (1893); Metcalfe v. Bradshaw, 145 Ill. 124 (S.C. 1893); Nowegijick v. R., 1983 18 (SCC), [1983] 1 S.C.R. 29, 144 D.L.R. (3d) 193, 46 N.R. 41, 83 D.T.C. 5041; Olson v. Gullo (1994), 1994 1268 (ON CA), 17 O.R. (3d) 790, 113 D.L.R. (4th) 42, 1 L.W.R. 417, 20 B.L.R. (2d) 47, 54 C.P.R. (3d) 497, 2 E.T.R. (2d) 286, 38 R.P.R. (2d) 204 (C.A.) [Leave to appeal to S.C.C. refused (1994), 20 O.R. (3d) xv, 41 R.P.R. (2d) 317, 4 E.T.R. (2d) 280n, 179 N.R. 400n, 20 B.L.R. (2d) 47n]; Parker v. McKenna (1874), 10 Ch. App. 96, 44 L.J. Ch. 425, 31 L.T. 739, 23 W.R. 271 (L.C. & L.J.); Shrader v. Downing, 79 Wash. 476 (S.C. 1914); Slattery (Trustee of) v. Slattery, 1993 73 (SCC), [1993] 3 S.C.R. 430, 139 N.B.R. (2d) 246, 106 D.L.R. (4th) 212, 158 N.R. 341, 357 A.P.R. 246, 21 C.B.R. (3d) 161, 93 D.T.C. 5443; Truman v. Martin, 212 Neb. 52 (S.C. 1982) Statutes referred to Partnership Act, 1890, 53 & 54 Vict., c. 39, ss. 19, 28, 29(1), 30, 46 Partnership Act, S.O. 1920, c. 41, ss. 29, 30(1), 31 Partnerships Act, R.S.O. 1990, c. P.5, ss. 20, 24, 28, 29(1), 30, 32, 33(1), 43, 44, 45 Authorities referred to Banks, R.C.I., Lindley & Banks on Partnership, 17th ed. (London: Sweet & Maxwell, 1995) Drake, C.D., Law of Partnership, 3rd ed. (London: Sweet & Maxwell, 1983) Gower, L.C.B., Pollock on the Law of Partnership, 15th ed. (London: Stevens & Sons Ltd., 1952) Manzer, A.R., and M. Ellis, A Practical Guide to Canadian Partnership Law (Aurora: Canada Law Book Inc., 2001) Morse, G., Partnership Law and Practice in England and Scotland (London: Sweet & Maxwell, 1980) Treitel, G.H., The Law of Contract, 4th ed. (London: Stevens & Sons, 1975)
T. Kerzner, for appellants. A.M. Robinson and B.D. Moldaver, for respondents.
The judgment of the court was delivered by
CRONK J.A.: --
I. INTRODUCTION
1This appeal involves the obligation of a partner in a now-dissolved chartered accountancy firm to account to his former partners for shares and stock options acquired by him from a corporate client of the firm, when he was both a partner of the firm and a director of the client. If he is obliged to account, secondary issues are the proper extent of the accounting and whether the other partners had a duty to mitigate their losses.
2The individual parties are chartered accountants. They practised accountancy together in a partnership known as Rochwerg Truster Zweig ("RTZ") from January 1, 1993 to July 31, 1996, when Cecil Rochwerg ("Rochwerg") left the firm and the partnership was dissolved. The corporate parties, family holding corporations of the individual parties, provided management and accounting technician services to RTZ, through a partnership known as Coldstream Consultants.
3Teklogix International Inc. ("Teklogix") and its wholly- owned subsidiary Teklogix Inc. were clients of the RTZ partnership. In July 1995, Rochwerg became a director of both companies. He made timely disclosure to his partners of his directorships, and remitted his first year's directors' fees to the firm. However, he did not tell his partners prior to the dissolution of RTZ that, as a director of Teklogix and Teklogix Inc., he was entitled to certain shares and stock options in Teklogix.
4After the dissolution of RTZ, various issues arose concerning its winding-up, including whether the appellants were entitled to an accounting from the respondents for Rochwerg's shares and stock options in Teklogix. On May 23, 1997, Matlow J. directed the trial of various issues, including:
Whether [Rochwerg] is required to account to the partnership for any interest he or Julie Rochwerg [his wife], or any other family member or any other non-arms length party may have in certain shares and/or options to purchase the shares of Teklogix.
5By judgment dated November 18, 1999, Mandel J. dismissed the appellants' claims for an accounting in relation to the Teklogix shares and stock options, amongst other matters. The appellants appeal that decision and the award of party and party costs against them in respect of the action and their counterclaim. For the reasons that follow, I would dismiss the appeal of the corporate appellants and allow, in part, the appeal of the individual appellants against Rochwerg.
II. THE ISSUES
6Three main issues arise on this appeal:
(a) Was Rochwerg obliged to disclose his shares and stock options in Teklogix to his partners in RTZ?
(b) Is Rochwerg obliged to account to his former partners for any benefits or profits derived by him in connection with his directorships in the Teklogix companies including, in particular, for the Teklogix shares and stock options?
(c) If an obligation to account arises, what is the extent of the required accounting?
III. CONTEXT AND OVERVIEW OF CONCLUSIONS
(1) The Legal Context
7No written partnership agreement existed among the partners of RTZ. Accordingly, the mutual rights and duties of the partners are governed by the Partnerships Act, R.S.O. 1990, c. P.5 (the "Act").
8Sections 20, 28, 29(1), 30 and 45 of the Act are of particular relevance to the issues raised on this appeal. As discussed later in these reasons, they derive from the 19th- century law of partnership as developed in England. They state:
The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either expressed or inferred from a course of dealing.
Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or the partner's legal representatives.
29(1) Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership or from any use by the partner of the partnership property, name or business connection.
If a partner, without the consent of the other partners, carries on a business of the same nature as and competing with that of the firm, the partner must account for and pay over to the firm all profits made by the partner in that business.
The rules of equity and of common law applicable to partnership continue in force, except so far as they are inconsistent with the express provisions of this Act.
9As appears from these sections, the Act permits partners to vary by consent their mutual rights and duties as otherwise established by agreement between them or by the statute (s. 20). That did not occur in this case. The Act also imposes certain specific duties on partners, including disclosure obligations (s. 28) and an obligation to account in certain circumstances (ss. 29(1) and 30). Section 45 of the Act is of particular importance. It recognizes that the statute is not a complete codification of the law of partnership in Ontario, and it adopts and continues the rules of equity and of common law, save as they are inconsistent with the express provisions of the statute, as part of Ontario's law of partnership. As a result, the caselaw concerning partnerships developed over the last century continues to inform and, in some instances, to govern, the relations among partners.
(2) The Facts
10Rochwerg was a partner of various accounting firms for approximately 25 years prior to the creation of the RTZ partnership. From its inception in 1967, Teklogix Inc., a high technology company, was a client of the various firms in which Rochwerg was a partner, as was Teklogix, the holding company for various subsidiaries in the Teklogix group of companies, following its formation in 1983. For most of those years, Rochwerg was the main partner contact with the Teklogix companies. Both companies became clients of RTZ following its creation in 1993.
11The RTZ partnership had no established securities investment policy. To the extent that there were any precedents for investments in securities by the partners of the firm, they were confined to two situations described by the trial judge. Neither situation established any course of dealing from which the mutual rights and duties of the partners could be inferred, within the meaning of s. 20 of the Act.
12In addition, directorships were not normal incidents of the RTZ accountancy practice. The record discloses no directorships held by any RTZ partner other than Rochwerg's directorships in the Teklogix companies, which were his first directorships.
13RTZ provided a variety of normal accounting and auditing services to Teklogix. In addition, it advised on tax issues and an estate freeze plan involving the shares of some of the company's principals, prepared valuation reports, and provided financial data concerning the raising of capital from various banking institutions, offers to purchase by other companies, budgeting, and valuations by other firms. During the years that RTZ served as auditor to the Teklogix companies, neither RTZ nor Rochwerg played any role in their management.
14In the fall of 1993 and throughout part of 1994, Teklogix contemplated an initial public offering ("IPO") of its shares and changed auditors from RTZ to a national accounting firm. However, RTZ remained the auditor of Teklogix Inc. An IPO did not proceed at that time but, by May and June of 1995, it was again under consideration. To that end, the assembly of information for the preparation of a prospectus commenced, and RTZ's retainer as auditor to Teklogix Inc. was terminated.
15On July 8, 1995, Rochwerg became a director of both Teklogix and Teklogix Inc. As a director, he was eligible to participate in Teklogix's key employee stock plan (the "KESP"), which entitled him to subscribe for 8,000 common shares in Teklogix and, upon subscription, to acquire the Escrow Shares and the IPO Stock Option, as described later in these reasons.
16Rochwerg informed the appellant, Perry Truster ("Truster"), of his appointments as a director and further told him that, as he would be attending directors' meetings during firm time, his directors' fees would be paid to the firm. However, Rochwerg did not inform his RTZ partners, including Truster, of his investment rights under the KESP. They learned of his shares and stock options in Teklogix in the fall of 1996, after dissolution of RTZ and following an inquiry by Truster of Rochwerg's solicitors.
17John Coutts ("Coutts"), one of the founders of Teklogix Inc., testified that after Rochwerg became a director of the Teklogix companies, RTZ continued to perform some professional services for them, although at a reduced level due to RTZ's loss of the Teklogix audits. The record before this court does not establish the nature and scope of the services provided by the firm to the Teklogix companies after July 8, 1995.
18Similarly, few details regarding the nature of the services furnished by Rochwerg as a director of Teklogix and Teklogix Inc. are evident from the record save that, effective with his appointment as a director, Rochwerg became a member and, subsequently, the Chair of Teklogix's Audit Committee. In addition, in August or September of 1996, after dissolution of the RTZ partnership, he assisted Teklogix with a research matter involving Revenue Canada. Truster was involved in one meeting regarding that project but had no further involvement with it or Teklogix.
19Despite the lack of detail on the nature of Rochwerg's services as a director, it is clear that retention of Rochwerg's advice and counsel after full severance of the Teklogix group's audit relationship with RTZ was the purpose of Rochwerg's appointments as a director of the Teklogix companies. Coutts testified that Rochwerg was offered the directorships because of the desire of the Teklogix principals to retain the "same counsel" they had previously received from Rochwerg during his long association with them. He indicated that Rochwerg was a "trusted advisor", they wanted "to maintain a relationship so that he could continue to give the kind of advice that he had given in the past" as might be requested, and the directorships were offered "to lock in the continuation of that counsel and advice".
20On July 24, 1985, Rochwerg borrowed funds from a bank and subscribed for 8,000 common shares of Teklogix at an aggregate cost of $39,600. With the knowledge of Teklogix, the shares were registered in the name of Rochwerg's wife. In August 1995, Rochwerg signed an option and escrow agreement concerning the Escrow Shares and the IPO Stock Option. The following month, Teklogix made an IPO at an IPO or "strike" price of $12 per common share.
21In early July 1996, Rochwerg gave notice of his intention to withdraw from the RTZ partnership, effective July 31, 1996. The RTZ partnership was dissolved on that date.
(3) Overview of Conclusions
22Equitable principles recognized by the courts during the last 100 years impose on partners duties of loyalty, utmost good faith and avoidance of conflict and self-interest. In Ontario, the principles which inform these duties are partially reflected in the Act. At all times while Rochwerg was a partner of RTZ, he owed these duties to his partners.
23In equity and under the Act, partners are subject to a strict duty of disclosure concerning full information of all things affecting their partnership. Rochwerg's failure to disclose his interest in the Teklogix shares and stock options to his partners (until after dissolution of RTZ), and the consequences of such failure in the circumstances, if any, lay at the heart of the issues raised on this appeal.
24In a proper case, a breach of a partner's disclosure duty may give rise to liability in damages for the loss suffered by those to whom the duty was owed. This remedy is distinct from the obligation to account established by the rules of equity, and by ss. 29(1) and 30 of the Act, and is not the subject-matter of this appeal.
25Under s. 29(1), where undisclosed benefits are derived by a partner from a transaction "concerning the partnership", or from use by a partner of the "partnership property, name or business connection", a duty to account will arise. Liability to account may attach to a partner under either branch of s. 29(1). In addition, under s. 30 of the Act, a partner may be required to account to his/her co-partners for undisclosed profits where the partner carries on a business of the same nature as, and competing with, that of the partnership. This obligation flows from a partner's duty to avoid conflicts of interest.
26In these reasons, I consider whether Rochwerg's acceptance of directorships in the Teklogix companies, and his activities as a director, placed him in a position of conflict with the RTZ partnership, or in respect of his duties as a partner of RTZ, giving rise to an obligation to account under s. 30 of the Act. I conclude that it did not and, in this respect, I agree with the trial judge's conclusion.
27In this case, however, Rochwerg's entitlement to the Teklogix shares and stock options derived from his directorships in the Teklogix companies and formed part of his compensation as a director, although in non-fee income form, paid or made available to him by a client of RTZ. As such, in my view, the Teklogix shares and stock options constituted compensatory benefits in a matter "affecting" and "concerning" the partnership which he was obliged to disclose to his partners under s. 28 of the Act, and for which he must account under the first branch of s. 29(1) of the Act.
28Moreover, Rochwerg became a director of the Teklogix companies only because of his previous role, through RTZ and its predecessor partnerships, as their accountant and valued advisor. When Rochwerg joined the RTZ partnership and the Teklogix companies became clients of that firm, his prior connection and association with the Teklogix companies became a business connection of RTZ with two of its clients. Accordingly, I conclude that Rochwerg's benefits under the KESP were benefits derived by him from his use of a "partnership . . . business connection" within the meaning of the second branch of s. 29(1) of the Act. Consequently, Rochwerg is also liable to account to his former partners for the Teklogix shares and stock options on this additional ground.
IV. ANALYSIS
(1) The Claim for an Accounting
(a) The positions of the parties
29The appellants assert that Rochwerg, as a partner of RTZ, owed them a fiduciary duty and a duty of utmost good faith, and that his failure to disclose to them the investment opportunities or benefits provided to him by Teklogix constituted a breach of such duties thereby giving rise to an obligation to account.
30In turn, the respondents argue that no obligation to account arises. They acknowledge that partners owe a fiduciary duty to one another. They argue, however, that this duty is confined to matters falling within the "scope of the partnership", or to the conduct of a business of the same nature as, and competing with, the partnership business. They submit that neither situation arose in this case.
(b) The decision of the trial judge
31The Act is not mentioned in the reasons of the trial judge. Rather, his decision, which is likely responsive to the parties' arguments, is premised on an examination of the activities falling within, or outside, the "scope of the business of the partnership". He found [at p. 276 B.L.R.] that:
[T]he appointment of Rochwerg as a director; his duties as such; his duties on the Audit Committee; the advice and counsel that he gives; and the shares and options that he invested in are outside the scope of the partnership. I further find that there was no competition with the business of the partnership and as stated in the Aas case [Aas v. Benham, [1891] 2 Ch. D. 244 (C.A.)] at p. 260, "The position of director of that company is not inconsistent with that of a partner in the firm" and I so specifically find. Nor did Rochwerg act as agent of the partners; nor were the shares and options acquired for or on behalf of the partners. I find that the individual defendants do not and did not have any interest in such shares and options.
With respect, for the reasons that follow, I disagree with several of these conclusions.
(c) The corporate parties
32In their Notice of Appeal, and in oral argument before this court, the appellants do not distinguish between the corporate and individual appellants for the purpose of the claim for an accounting.
33The trial judge found that none of the corporate appellants had any interest in the Teklogix shares or stock options, and he dismissed their claims. Similarly, he held that Mymyk Corp., Rochwerg's family holding corporation controlled by his wife, had never owned or held an interest in the Teklogix shares or stock options, and he dismissed the claims of the appellants against it.
34On the record before this court, in my view, there is no basis on which the corporate appellants could assert an interest in the Teklogix shares or stock options as against either of the respondents. I see no reason, therefore, to disturb the trial judge's dismissal of the claims by and against the corporate parties. Accordingly, the issues on this appeal are confined to the claims of the individual parties.
(d) The origins of the modern partnership rules
35As I stated earlier in these reasons, partnership law in England has had a substantial influence on the development of partnership law in Ontario. The Act derives both from the English caselaw and the 1890 Partnership Act, 53 & 54 Vict., c. 39. Under s. 45 of Ontario's Act, the English jurisprudence remains relevant to Ontario's law of partnership. (See M. Ellis and A. Manzer, A Practical Guide to Canadian Partnership Law (Aurora: Canada Law Book Inc., 2001), at 5-9.) It follows, in my view, that the starting point for analysis of the issues in this case, is the origins of the modern partnership rules.
36It has long been established that partners owe a fiduciary duty to each other, and that equitable principles hold fiduciaries to a strict standard of conduct, encompassing duties of loyalty, utmost good faith and avoidance of conflict of duty and self-interest. These are well recognized, core principles of the law of partnership.
37In the early case of Dean v. MacDowell (1878), 8 Ch. D. 345, 47 L.J. Ch. 537 (C.A.), James L.J. described the operative principles as follows (at pp. 350-51 Ch. D.):
[I]t is quite clear also that in partnership matters there must be the utmost good faith, and that there is to that extent a fiduciary relation between the parties. That is to say, one partner must not directly or indirectly use the partnership assets for his own private benefit. He must not, in anything connected with the partnership, take any profit clandestinely for himself, nor must he carry on the business of the partnership or any business similar to the business of the partnership in his own or another name separate from it, otherwise than for the benefit of the partnership.
(Emphasis added)
These principles preclude a partner from using partnership assets for personal gain, from making secret profits in "anything connected with the partnership", and from engaging for his/her personal benefit in competing or similar businesses to that of the partnership.
38The concurring reasons of Cotton L.J. emphasized that ". . . the business in which the Defendant engaged was in no way within the scope of the partnership" (at p. 353 Ch. D.). He elaborated (at p. 354 Ch. D.):
There are clear rules and principles which entitle one partner to share in the profits made by his co-partners. If profit is made by business within the scope of the partnership business, then the partner who is engaging in that secretly cannot say that it is not partnership business. It is that which he ought to have engaged in only for the purposes of the partnership . . . So, again, if from his position as partner he gets a business which is profitable, or if from his position as partner he gets an interest in partnership property, or in that which the partnership require for the purposes of the partnership, he cannot hold it for himself, because he acquires it by his position of partner, and acquiring it by means of that fiduciary position, he must bring it into the partnership account.
(Emphasis added)
39Thesiger L.J., in his concurring reasons, identified three core principles governing the law of partnership (at pp. 355-56 Ch. D.):
The first of those principles is that a partner shall not derive any exclusive advantage by the employment of the partnership property. . . . The second principle . . . is, that a partner is not to derive any exclusive advantage by engaging in transactions in rivalry with the firm. . . . The third principle . . . is, that a partner is not allowed in transacting the partnership affairs to carry on for his own sole benefit any separate trade or business which, were it not for his connection with the partnership, he would not have been in a position to carry on.
40Aas v. Benham, [1891] 2 Ch. 244, 65 L.T. 25 (C.A.) further confirmed the principles discussed in Dean v. MacDowell. In that case, Lindley L.J. stated (at pp. 255-56 Ch.):
It is clear law that every partner must account to the firm for every benefit derived by him without the consent of his co-partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection . . . It is equally clear law that if a partner without the consent of his co-partners carries on business of the same nature as, and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business . . . As regards the use by a partner of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, the principle is that if he avails himself of it for any purpose which is within the scope of the partnership business, or of any competing business, the profits of which belong to the firm, he must account to the firm for any benefits which he may have derived from such information, but there is no principle or authority which entitl es a firm to benefits derived by a partner from the use of information for purposes which are wholly without the scope of the firm's business . . . To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd.
41Dean v. MacDowell and Aas v. Benham established that a partner could engage in activities outside of the "scope of the business of the partnership" for his/her own benefit or profit without liability to account. In the former case, this rule applied notwithstanding that the involved partner had covenanted, by the articles of partnership, to devote his whole time to the partnership business. In these circumstances, while damages for breach of the covenant might have been obtained, the courts did not recognize a strict obligation to account. These principles were approved and followed in several cases in the United States, relied upon by the respondents on this appeal. (See Latta v. Kilbourn, 150 U.S. 524 (1893); Metcalfe v. Bradshaw, 145 Ill. 124 (S.C. 1893); Shrader v. Downing, 79 Wash. 476 (S.C. 1914); and Truman v. Martin, 212 Neb. 52 (S.C. 1982)).
42After commencement of the action in Aas v. Benham, the Partnership Act of 1890 was introduced in England. It sought to codify many aspects of the law of partnership and, in so doing, imposed a strict obligation of full disclosure on partners, in relation to co-partners. Section 28 provided:
- Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.
43The drafters of the 1890 statute recognized, however, that much of the law relating to partnerships emanated from caselaw (see C.D. Drake, Law of Partnership, 3rd ed. (London: Sweet & Maxwell, 1983), at p. 27). For this reason, s. 46 of the Partnership Act of 1890 preserved the application of the rules of equity and common law applicable to partnerships, except as they were inconsistent with the express provisions of the statute.
44A significant restatement and application of the rules of fiduciary law was made by the House of Lords in Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R. 378, [1967] A.C. 134n (H.L.), a case relied upon by all parties to this appeal. In Regal (Hastings), four directors of the company derived profits from their acquisition of shares in another company, which the board of directors of Regal had intended to acquire for Regal. It was accepted that, in subscribing for the shares, the Regal directors had acted in good faith, intending to further the interests of Regal. Nonetheless, Lord Russell of Killowen observed "they may be liable to account for the profits which they have made, if, while standing in a fiduciary relationship to Regal, they have by reason and in the course of that fiduciary relationship made a profit" (at p. 385 All E.R.). He then stated, in an oft-quoted passage (at p. 386 All E.R.):
[t]he rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well- intentioned, cannot escape the risk of being called upon to account.
(Emphasis added)
45In holding the Regal directors accountable for the profits realized, Lord Russell of Killowen (at p. 388 All E.R.) and Lord Wright (at p. 393 All E.R. of his concurring reasons), relied upon the following view of James L.J. expressed in Parker v. McKenna (1874), 10 Ch. App. 96 at p. 124, 44 L.J. Ch. 425:
[I]t appears to me very important that we should concur in laying down again and again the general principle that in this court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge of his principal; that the rule is an inflexible rule, and must be applied inexorably by this court . . .
(Emphasis added)
46The obligation of an agent to his principal, as discussed in Parker v. McKenna and endorsed in Regal (Hastings), enjoys special relevance in partnership law. As stated by L.C.B. Gower in Pollock on the Law of Partnership, 15th ed. (London: Stevens & Sons Ltd., 1952) (at pp. 84-85):
The general principle is one of those which the law of partnership takes from agency, considering each partner as agent for the firm; or it is perhaps better to say that it is established in both these branches of the law [equity and agency] on similar grounds. The rule that an agent must not deal on his own account or make any undisclosed profit for himself is a stringent and universal one [Story on Agency, ss. 210, 211], and extends not only to cases in which the profit is made out of the business in which he is employed, but also to cases in which it is made as a result of a misuse of the principal's property, even although for a purpose entirely disconnected with the business [Reading v. The King, [1951] A.C. 507 (H.C.)].
(Emphasis added)
47Under English caselaw, therefore, the equitable obligation to account for secret profits has been based, variously, on agency principles, the separate but related ground of fiduciary relations, or the law of trusts.
48The principles in Aas v. Benham and Regal (Hastings) were considered by the House of Lords in Boardman v. Phipps, [1967] 2 A.C. 46, [1966] 3 All E.R. 721 (H.L.) in relation to a claim for an accounting of profits made by the appellants as a result of a transaction entered into by reason of information obtained by them in the course of their fiduciary duties. Lord Hodson, in writing one of the majority opinions, described the proposition of law in Regal (Hastings) as follows (at p. 105 A.C.):
[N]o person standing in a fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person.
49Lord Hodson further reasoned (at p. 111 A.C.): "The appellants obtained knowledge by reason of their fiduciary position and they cannot escape liability by saying that they were acting for themselves and not as agents of the trustees." The appellants relied on Aas v. Benham in support of their contention that they were not liable to account because the transaction they had entered into was outside the scope of the fiduciary relationship existing between them and the respondents. The House of Lords, by majority opinion, disagreed, finding that the fiduciary relationship in question was general in nature, and not as readily defined as that between the partners in Aas v. Benham. In either case, the extent of the obligation depended on the scope of the fiduciary relationship.
50The principles established by these cases were embodied in ss. 29(1) and 30 of the 1890 Partnership Act in England. In 1920, they were incorporated, in virtually identical language, in ss. 30(1) and 31 of Ontario's Partnership Act, S.O. 1920, c. 41, and have remained unchanged, save for the renumbering of the sections, in Ontario's legislation to date. Under the current Act, they are reflected in ss. 29(1) and 30. In addition, the disclosure obligation imposed on partners under s. 28 of the 1890 Partnership Act in England was originally introduced in Ontario, in identical language, by s. 29 of the Partnership Act of 1920. It is currently embodied in s. 28 of the Act. Finally, s. 20 of the Act, which recognizes that partners are free to regulate their dealings with one another and with third parties by agreement, derives from s. 19 of the English Partnership Act of 1890. (See also, ss. 24, 32, 33(1), 43 and 44 of the Act).
(e) The approach in Ontario
51Little jurisprudence regarding ss. 28, 29(1) and 30 of the Act has developed in Ontario. In considering the import of those provisions, and their application to this case, it is important to recognize the distinctions between ss. 29(1) and 30.
52First, an obligation to account arises under s. 29(1) without proof of a competing activity. In contrast, the obligation to account established by s. 30 of the Act requires proof of competition.
53Second, s. 29(1) has two branches. An obligation to account may arise wherever a benefit has been derived by a partner, without the consent of the other partners, from "any transaction concerning the partnership" or from "any use . . . of the partnership property, name or business connection".
54In this case, the trial judge's analysis of Rochwerg's obligation to account focused in significant part on whether Rochwerg's activities as a director of the Teklogix companies came within the "scope of the [RTZ] partnership". That focus is understandable given the prominence of that term in the established English cases. However, the trial judge failed to consider that that term does not encompass the entire basis for accountability that was recognized by the English courts, and that informed the scope of Ontario's legislation. Indeed, it is not clear on the record before this court, whether the provisions of the Act were drawn to the attention of the trial judge, or whether the distinctions between the two branches of s. 29(1) of the Act, or between ss. 29(1) and 30, and their relationship to s. 28 of the Act, were argued before him.
55The trial judge's decision that Rochwerg was not obliged to account to his former partners for the Teklogix shares and stock options was anchored in his conclusions that Rochwerg's activities with, and his investments in, the Teklogix companies were "outside the scope of the partnership" and that "there was no competition with the business of the partnership". While I agree with the latter conclusion, which relates to liability to account under s. 30 of the Act, with respect, I do not agree that the former conclusion is dispositive of the issue of liability to account under s. 29(1) of the Act.
56In my view, to trigger an obligation to account under the first branch of s. 29(1) of the Act, transactions "concerning the partnership" need not, although they may, relate to transactions or dealings falling within the scope of the partnership's activities or services. Rather, so long as the transaction at issue "concern[s]" the partnership, liability to account under the first branch of s. 29(1) can relate to benefits derived from dealings outside the "scope of the partnership". I reach this conclusion for the following reasons.
57The phrase, "scope of the partnership" does not appear in s. 29(1) despite its frequent usage in the caselaw prior to the introduction of the current Act and its predecessors in Ontario, commencing as early as 1876 with the decision in Dean v. MacDowell. In that case, and in related subsequent cases, the phrase "scope of the partnership" was defined according to the nature of the business activities or services at issue, contrasted with those of the relevant partnership. This approach is reflected in the language of s. 30 of the Act, which expressly refers to "a business of the same nature as . . . that of the firm". Thus, a s. 30 analysis specifically requires examination, and a comparison, of the nature of the business of the partnership and the allegedly competing business. (See, for example, Aas v. Benham).
58The first branch of s. 29(1), however, uses different language and does not refer to "a business of the same nature as . . . that of the firm". It must be taken, therefore, that a different meaning may attach to the phrase "concerning the partnership". In my view, the word "concerning", as used in s. 29(1), means "relating to", "in respect of", "referring to" or "connected to" in the sense of a transaction affecting the interest of, or important to, the partnership. Such words, in their ordinary and legal usage, enjoy a wide connotation and have been interpreted by the courts as having the "widest possible scope . . . of any expression intended to convey such connection between two related subject matters". (See Nowegijick v. R., 1983 18 (SCC), [1983] 1 S.C.R. 29, 144 D.L.R. (3d) 193, per Dickson J. at p. 200; Slattery (Trustee of) v. Slattery, 1993 73 (SCC), [1993] 3 S.C.R. 430, 106 D.L.R. (4th) 212; J.R. Nolan and J.M. Nolan- Haley, Black's Law Dictionary, 6th ed. (St. Paul: West Publishing, 1996); W. Little, H.W. Fowler, J. Coulson and C.T. Onions, The Shorter Oxford English Dictionary, 3rd ed., vol. 1 (Oxford: Clarendon Press, 1973); and Canadian Dictionary of the English Language (Toronto: ITP Nelson, 1998).) Accordingly, while a transaction "concerning the partnership" requires a link between the transaction and the partnership, that link can include, but is not limited to, activities or services within the "scope of the [partnership] business".
59Similarly, in my view, the second branch of s. 29(1), which contemplates misuse of the "partnership property, name or business connection", is not confined to misuse in situations falling within the "scope of the partnership". The language of s. 29(1) does not import such a requirement, either expressly or by implication. Indeed, if s. 29(1) were so interpreted, it would significantly narrow those situations involving misuse of the "partnership property, name or business connection" which would ground an obligation to account, and would permit such misuse so long as it occurred in a transactional or business context dissimilar from that of the partnership. Such an interpretation would result in commercial absurdity and considerable injustice in the law of partnership. It is, therefore, to be rejected.
60A third distinction between ss. 29(1) and 30 exists. Liability to account under the second branch of s. 29(1) is based on usage of the "partnership property, name or business connection". In contrast, s. 30 of the Act does not require proof of any use of partnership assets. As observed by R. Burgess and G. Morse, Partnership Law and Practice in England and Scotland (London: Sweet & Maxwell, 1980) with reference to the corresponding provisions of the English statute (at p. 141):
[S]ections 29 and 30 must therefore be kept distinct. The latter simply requires competition without proof of any misuse of the partnership business connection, etc., the former requires such misuse but no element of competition.
61In Cameron v. Julien, 1957 367 (ON CA), [1957] O.J. No. 242, 9 D.L.R. (2d) 460 (C.A.), Schroeder J.A. stated on behalf of this court (at paras. 8 and 9, pp. 465-66 D.L.R.):
When a dispute arises between partners, the tribunal charged with the duty of determining the rights of the parties must approach a consideration of the issues with certain firmly established equitable principles in mind. In Halsbury's Laws of England, 2nd Ed. Vol. 24, at p. 449, para. 860, the basis of the relationship between partners is defined as follows:
Ordinary partnerships are by the law presumed to be based on the mutual trust and confidence of each partner, not only in the skill and knowledge but also in the integrity of every other partner. The utmost good faith is requisite in the relations between partners inter se.
This relationship is sometimes spoken of as "fiduciary" and in Cassels v. Stewart (1881), 6 App. Cas. 64, Lord Blackburn at p. 79 said of a partner that it is "because he is an agent that the fiduciary character arises".
In Henderson and Davidson on the Canadian Law of Partnership [sic] at p. 70 the following comment is made on those sections of the Partnership Act [sic] relating to the duties of partners to account to each other:
These sections are founded on the "broadest principle of equity that from every person standing in a situation of trust and confidence with respect to another a conduct marked with the most scrupulous good faith shall be required".
62The fiduciary duty between partners thus arises not only from the reciprocal agency relationship between them but, also, from the duty of utmost good faith which each partner owes to the other. Fundamental to this overarching fiduciary duty is the requirement that each partner place the interests of the partnership, and the avoidance of situations which create, or could create, a conflict between fiduciary duty and the interests of the partnership, ahead of a partner's private interests. Accordingly, partners are required to prefer the interests of the partnership over their own personal interests. The scope of the fiduciary duty in partnerships is of the broadest nature. As stated by Vice-Chancellor Bacon in Helmore v. Smith (No. 1) (1887), 35 Ch. D. 436 at p. 444, 56 L.T. 535 (C.A.):
If fiduciary relation means anything I cannot conceive a stronger case of fiduciary relation than that which exists between partners. Their mutual confidence is the life blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on.
(See R.C.I. Banks in Lindley & Banks on Partnership, 17th ed. (London: Sweet & Maxwell, 1995), at 16-03).
63Mutual trust, confidence and good faith are the cornerstones of the modern professional services partnership. Without them, the very essence of the partnership arrangement is eroded and, ultimately, destroyed. In my view, the equitable principles developed over the last century concerning the fiduciary obligations of partners continue to control contemporary partnerships. They may require, however, flexible application to respond to changing partnership structures, activities and settings. Support for this approach is found, in my opinion, in the observations of Laskin J. (as he then was) in Canadian Aero Service Ltd. v. O'Malley, 1973 23 (SCC), [1974] S.C.R. 592, 40 D.L.R. (3d) 371 when discussing the principles applied in Regal (Hastings) (at pp. 608-09 S.C.R., p. 383 D.L.R.):
What I would observe is that the principle, or, indeed, principles, as stated, grew out of older cases concerned with fiduciaries other than directors or managing officers of a modern corporation, and I do not therefore regard them as providing a rigid measure whose literal terms must be met in assessing succeeding cases. In my opinion, neither the conflict test, referred to by Viscount Sankey [in Regal (Hastings)], nor the test of accountability for profits acquired by reason only of being directors and in the course of execution of the office, reflected in the passage quoted from Lord Russell of Killowen [in Regal (Hastings)], should be considered as the exclusive touchstones of liability. In this, as in other branches of the law, new fact situations may require a reformulation of existing principle to maintain its vigour in the new setting.
Although Laskin J.'s comments concerned the responsibilities of directors and officers of corporations, and the appropriation of maturing corporate opportunities, in my view, they apply with equal force to the definition of fiduciary concepts and their application to modern partnerships. (See Davis v. Ouellette (1981), 1981 626 (BC SC), 27 B.C.L.R. 162 (S.C.), at p. 176, per McEachern C.J.S.C.).
(f) Application of the operative principles to this case
64It was open to the partners of RTZ under s. 20 of the Act to enter into a written partnership agreement defining their mutual rights and duties, including their mutual expectations and responsibilities concerning securities investments and directorships. They elected not to do so. Further, the record before this court reveals no oral agreement or established policy or practice amongst the RTZ partners regarding directorships or investments in the securities of current or former clients.
65A full answer to a claim for an accounting in equity or under ss. 29(1) or 30 of the Act would have been afforded if the consent of his partners had been obtained by Rochwerg to his acquisition of the Teklogix shares and stock options. This defence does not arise on the facts of this case, nor is it asserted. As the basis for liability in this case, in my view, is found under ss. 28 and 29(1), I will first deal with s. 30 as rejection of its application can be quickly accomplished.
(i) Competition: s. 30 of the Act
66The trial judge found that RTZ and the Teklogix companies did not carry on the same business and, hence, were not competitors. This finding was supported by the evidence. The trial judge also found that Rochwerg's activities as, and associated with, his position as a director of Teklogix and Teklogix Inc. did not constitute "competition with the business of the partnership" and, on the authority of Aas v. Benham, that his position as a director "is not inconsistent with that of a partner in the firm". These conclusions directly address the fiduciary concepts reflected in s. 30 of the Act, and I agree with the trial judge's conclusions in this regard.
67In my view, subject to professional standards and the existence of a partnership agreement which provides to the contrary, the roles of partner in a professional services partnership and director or officer of a public or private company, are not inherently competitive or inconsistent, unless the company and the partnership provide the same type of professional services. Indeed, in contemporary times, it could be argued that one of the legitimate client development or business promotion activities of a professional services partnership is to encourage partners to take an active role in the business community through the assumption of directorships in public and private companies. Where this is an intended or recognized activity, such positions are consistent, and not inconsistent, with the business objectives of the partnership, and carry with them attendant obligations to account to the partnership for fee income and non-fee benefits realized from such directorships on such terms as may be agreed upon by the partners, or otherwise determined at law. The sharing of such income and benefits among partners serves as a disincentive to partners becoming professional directors for their own financial gain, without regard to the interests of the partnership and their obligations to the partnership business.
68Where such a partnership renders professional services to a company in which a partner becomes a director, professional standards and ethical obligations must also be satisfied to ensure that the nature of the services rendered by the partnership to the company, and the independence of the partners performing the services, does not conflict with the partner's role and responsibilities as a director. This was recognized in this case as, according to Coutts, the principals of Teklogix and Teklogix Inc. held the view that Rochwerg could not serve as a director of those companies so long as RTZ performed auditing services for either company.
(ii) Benefits derived: s. 29(1) of the Act
69The trial judge also concluded, however, that Rochwerg's appointment "as a director; his duties as such; his duties on the Audit Committee; the advice and counsel that he gives; and the shares and options that he invested in are outside the scope of the partnership" [p. 276 B.L.R.]. Although the trial judge made no mention of the Act, I understand his quoted observations to be a conclusion that the fiduciary concepts embodied in s. 29(1) of the Act, and Rochwerg's fiduciary duties to his partners, were not offended in the circumstances. With respect, for the reasons that follow, I disagree. Since it is my view that many of the principles underlying the s. 28 duty of disclosure are linked, in this case, to the scope of the obligation to account under s. 29(1), it is useful to begin with consideration of the former section.
The duty to disclose
70The appellants argue before this court, in their factum, that Rochwerg was obliged to disclose to them the opportunities presented to him "in the course of and in consideration for or response to, professional services that [Rochwerg] is rendering to someone with whom the partnership has or had a professional relationship".
71Section 28 of the Act puts disclosure obligations among partners on a statutory footing. In his text Lindley & Banks on Partnership, R.C.I. Banks suggests that the disclosure requirement in s. 28 of the English Partnership Act of 1890 reflected the fundamental obligation imposed at law on a partner "to display complete good faith towards his co-partners in all partnership dealings and transactions" (at 16-01 and 16-02).
72While resort may be had to s. 28 of Ontario's Act to obtain access to the books and records of a partnership, and to ensure that those partners with access to, or particular knowledge about, the finances, accounts and business of a partnership can be made to disclose such information to other partners, in my view its reach is not limited to such matters. Rather, on a plain reading of the section, it extends to "full information of all things affecting the partnership".
73The duty of disclosure imposed by s. 28 of the Act is one aspect of a partner's fiduciary duty to his/her partners. It flows from the fiduciary obligations of utmost good faith and loyalty which this court has recognized to be requisite in the relations between partners (see Cameron v. Julien). It is one of the building blocks necessary to establish and maintain mutual trust and confidence among partners.
74In Advanced Realty Funding Corp. v. Bannink (1979), 1979 1681 (ON CA), 27 O.R. (2d) 193, 106 D.L.R. (3d) 137 (C.A.), a secret commission case involving a mortgage broker, Arnup J.A. stated on behalf of this court in connection with the fiduciary obligations of an agent (at pp. 196-97 O.R.):
One of the prime fiduciary duties of an agent is that of full disclosure. Wherever it appears that the agent is going to profit from the agency over and above the remuneration agreed to be paid by the principal, the duty of disclosure must be rigorously enforced by the Court, and it must be shown that after full disclosure, the principal has expressly or by necessary implication consented to the agent making a profit.
On the authorities, the Court does not engage in speculation as to what the principal might have done if disclosure had been made, nor is it an essential part of the relevant principle that there must have been detriment to the principal as a result of the non-disclosure.
(See also M. Ellis and A. Manzer, A Practical Guide to Canadian Partnership Law, [supra], at 5-13 and 5-21).
75As a director of the Teklogix companies, Rochwerg was entitled to receive fees in the amount of $1,000 for each directors' meeting which he attended, plus a further annual amount of $10,000. His directors' fees for the year 1995 to 1996, in the aggregate amount of $16,000, were paid to RTZ following their receipt by Rochwerg.
76Rochwerg clearly recognized that he had an obligation to disclose to his partners his appointments as a director of Teklogix and Teklogix Inc. In addition, he recognized his obligations to disclose that he would be receiving directors' fees from Teklogix and Teklogix Inc., and to account to the partnership for such fee income. By such disclosure, Rochwerg effectively accepted that the income derived from his directors' fees was partnership property. In my view, he was right to do so. He did not recognize or accept, however, that his entitlements under the KESP formed any part of RTZ's assets, nor did he acknowledge or act on any obligation to disclose them to his partners.
77Rochwerg's entitlements under the KESP, flowing from his directorships, permitted him to acquire both the 8,000 common shares of Teklogix purchased by him in July 1995 and the Escrow Shares and the IPO Stock Option. It is necessary, therefore, to consider the nature of his full rights under the KESP.
78The KESP was offered in anticipation of Teklogix's IPO. It was approved by the directors of the company before Rochwerg became a director, but was adopted and approved by Teklogix's shareholders in August 1995. It had the following stated purposes:
(a) to reward contributions through participation in the growth of the company,
(b) to promote ownership of company stock and foster a sense of identification with the organization,
(c) to focus attention on longer-term objectives, and
(d) to assist the corporation and its subsidiaries in attracting and retaining the human resources they require.
79The KESP consisted of the right to subscribe for the purchase of common shares in Teklogix, combined with a tandem grant of stock options based on the number of shares purchased and the method chosen to finance the acquisition of the shares. Participation in the share subscription offer under the KESP was open for acceptance from July 1 to July 31, 1995.
80Rochwerg was eligible to subscribe for 8,000 common shares in Teklogix, at a price of $4.95 per share. If he subscribed, he was also entitled to an option to acquire an additional 24,000 common shares of Teklogix at a price of $4.95 per share. This option feature was cancelled and replaced on July 22, 1995 with the following:
(a) for every two options cancelled, an option was granted for one common share of Teklogix at a price of $0.01 per share, exercisable immediately. Upon issuance, the shares were to be held in trust, subject to later release (the "Escrow Shares"); and
(b) one option for common shares in Teklogix exercisable at the greater of $10 and Teklogix's IPO price, once determined (the "IPO Stock Option").
81When Rochwerg acquired the 8,000 Teklogix common shares, the company's plan to make an IPO had been confirmed by its directors but the IPO strike price had not yet been set.
82Under the terms of the KESP, the Escrow Shares could be released from trust at the rate of 25 per cent per year, commencing July 31, 1997. The IPO Stock Option was exercisable on the same dates as the trust release dates for the Escrow Shares and in the same proportions, namely 25 per cent, on July 31st in each of the years 1997 to 2000. Thus, none of the Escrow Shares could be released, and no part of the IPO Stock Option could be exercised, until July 31, 1997, that is, two years after their acquisition by a key employee, including a director.
83These features of the Escrow Shares and the IPO Stock Option, and the stated purposes of the KESP, had clear retention objectives. Coutts described this retention focus in his evidence:
The purpose of any share distribution plan with options attached to them is the retention of employees. And there was, I guess, an added bite put into the [KESP], in that they could not exercise any of them for 2 years . . .
[T]he theory is that vice-presidents are a little more important, and that they should be -- held their feet to the fire a little bit longer, so to speak.
84The Escrow Shares and the IPO Stock Option were also subject to various other conditions. In the former case, if the purchaser left Teklogix before all of his/her shares had been released from trust, Teklogix had the right to buy back the shares on certain terms. In the case of the IPO Stock Option, if the purchaser left Teklogix, he/she had 30 days to exercise any option vested as of the date of termination with Teklogix. Any unvested options expired. The IPO Stock Option expires, in any event, on July 31, 2002.
85Rochwerg's subscription for the 8,000 common shares in Teklogix entitled him to purchase 12,000 Escrow Shares at a price of $0.01 per share and to an IPO Stock Option for 12,000 additional common shares exercisable at the greater of $10 or the strike price, once determined, per share. Under the option and escrow agreement signed by Rochwerg in August 1995, he agreed to exercise all options to purchase the Escrow Shares and his entitlement to the IPO Stock Option was confirmed.
86Rochwerg was a partner of RTZ when he subscribed for the 8,000 common shares in Teklogix and, consequently, when he became entitled to the Escrow Shares and the IPO Stock Option.
87On October 25, 1995, while Rochwerg was still a partner of RTZ, he purchased 12,000 Escrow Shares at a total cost of $120. Upon issuance, the shares were held in trust by an escrow agent under the terms of the KESP. The IPO strike price was set at $12 per share, resulting in an acquisition price in the same amount for Rochwerg under the IPO Stock Option.
88Rochwerg and RTZ played no part in setting the original share acquisition price of $4.95 per share. Coutts testified that this value was determined by the board of directors of Teklogix based on a valuation formula contained in the 1967 incorporation documents of Teklogix Inc. Similarly, Rochwerg and RTZ had no involvement in setting the IPO strike price.
89During the period September 29, 1995 to September 17, 1999, Teklogix common shares fluctuated in value from $2.58 to $22.75 per share. The appellants acknowledged shortly before trial that Mrs. Rochwerg had disposed of 5,700 common shares in Teklogix at an average price of $17 per share.
90Rochwerg explained his failure to disclose his investments in Teklogix on the basis that they were a "personal investment" having "nothing to do with the firm", he was not deriving a "benefit" therefrom as he was paying fair market value for the shares, and he had received legal advice confirming his view that the investments were personal to him.
91While it is correct that Rochwerg subscribed for the initial block of 8,000 shares in Teklogix at the then prevailing fair market value, as determined independently of Rochwerg by a formula utilized by the principals of Teklogix, the price for the Escrow Shares was $0.01 per share. Although the record reveals that the value of the Teklogix shares fluctuated materially in the years after Rochwerg became a director, at no time were the shares valued as low as $0.01 per share. Moreover, acquisition of the Escrow Shares was not tied to exercise of the IPO Stock Option. Either, both, or neither could be taken up by Rochwerg, at his election. The acquisition price of the Escrow Shares, therefore, did not reflect fair market value, either in July 1995 when Rochwerg became entitled to the option concerning the Escrow Shares, or in October 1995 when he purchased the Escrow Shares.
92In addition, the Escrow Shares, the original block of 8,000 shares in Teklogix and the shares which can be acquired upon exercise of the IPO Stock Option all represent tangible, although fungible, assets. Rochwerg became entitled to subscribe for or acquire them because he was a director, and remained so entitled only so long as he continued as a director, of the Teklogix companies. In my view, such assets are properly characterized as "benefits" in Rochwerg's hands, deriving solely from his directorships.
93Rochwerg became a director and acquired rights under the KESP to the Teklogix shares and stock options when he was a partner of RTZ. Accordingly, at the time of his acquisition of these rights, he clearly owed fiduciary duties, including obligations of the utmost good faith and full disclosure, to the other partners of RTZ. He acquired the Teklogix shares and stock options secretly. While he may have done so in the honest belief that they were a personal investment and that he was not obliged to disclose his rights under the KESP, Regal (Hastings) and related cases confirm that bad faith, fraud or the deliberate withholding of information are not necessary to found liability to account (see Regal (Hastings), at p. 386 All E.R., per Lord Russell of Killowen, and at p. 392 All E.R., per Lord Wright). He was obliged under s. 28 of the Act and under his duty of utmost good faith to disclose his rights under the KESP if they "affect[ed] the partnership".
94In my view, both in equity and under s. 28 of the Act, Rochwerg was obliged to disclose to the other partners of RTZ full information concerning his directorships in Teklogix and Teklogix Inc., and the benefits associated with those directorships, for the following reasons.
95First, the entitlements of key employees and directors under the KESP were intended, in part, to "reward contributions" to Teklogix. The trial judge was correct, in my view, in treating this purpose of the KESP as a "reward for work". As such, the entitlements conferred under the KESP on Rochwerg, formed part of his compensation as a director, although in non-fee income form.
96Moreover, both the KESP generally, and the stock options specifically, were designed to ensure the retention of services regarded by Teklogix as important to, or desirable for, the company. These retention features are also associated with a "reward for work", that is, with compensation designed to ensure the continuation of services by personnel whose services are regarded as valuable to the company. Under the terms of the KESP, such personnel expressly included directors. Indeed, the objective of retaining the services of directors, such as Rochwerg, was precisely the reason why directors were eligible participants under the KESP. For this reason, as well, the benefits of the KESP must be viewed as compensatory in nature.
97Second, Teklogix was a client of RTZ when Rochwerg became a director of the Teklogix companies, and remained so thereafter, although apparently at a less significant level. It follows, in my view, that the compensation paid to Rochwerg as a director by a client of the firm was a matter "affecting the partnership" within the meaning of s. 28 of the Act. As the right to acquire the Teklogix shares and stock options formed part of Rochwerg's compensation as a director, absent agreement among the partners to the contrary, he was obliged under s. 28 to provide "full information" of such compensation to the other partners of RTZ. (See Davis v. Ouellette, at pp. 176-77 B.C.L.R., per McEachern C.J.S.C.).
98The standards imposed on partners are of the highest order. As a result, every partner is bound to disclose to his/ her other partners any facts which are material to the partnership and its business. Generally, a partner's dealings with a client are matters which may affect the partnership. Where the dealings between the partner and the client involve the payment of compensation by the client to the partner for services rendered or work performed, the partner's dealings do affect the partnership. It is the duty of partners to refrain from concealment of such information.
Transactions "concerning the partnership"
99Does this mean, however, that an obligation to account arises in equity or under s. 29(1) of the Act? I conclude that the answer is "yes".
100Similar reasoning to that underlying the disclosure obligation established by s. 28 of the Act applies to the analysis of Rochwerg's obligations under s. 29(1). The Teklogix shares and stock options formed part of Rochwerg's compensation package as a director, paid to him by a firm client. While not every transaction between a partner and a firm client need be a matter "concerning the partnership", where the transaction concerns compensation paid by the client to the partner for services rendered or work performed, in my view, it is a matter "concerning the partnership". Consequently, the Teklogix shares and stock options were "benefits" in Rochwerg's hands arising from a transaction "concerning the partnership" within the meaning of those words in the first branch of s. 29(1) of the Act. Accordingly, under that branch of s. 29(1), he is obliged to account to his partners for this undisclosed compensation. In this case, having disclosed his fee income derived from Teklogix, Rochwerg is obliged also to account for his non-fee benefits, in the manner and to the extent later described in these reasons.
Use of partnership "business connection"
101Rochwerg is also liable to account for such benefits under the second branch of s. 29(1) of the Act if they derived from any use of the "partnership property, name or business connection".
102Rochwerg became a director of the Teklogix companies only because he had served in the past as their accountant and valued advisor. Once he became a partner of RTZ, these were activities which arose directly from his professional capacity as a partner and from the professional services rendered by him while a partner of RTZ, and its predecessor firms.
103Teklogix and Teklogix Inc. were not clients of Rochwerg personally. They were clients of RTZ. When Rochwerg joined the RTZ partnership and the Teklogix companies became clients of that firm, his prior connection and association with the Teklogix companies through his previous partnerships became a business connection of RTZ. This connection was one of the assets brought to the new firm, and to its predecessor partnerships. This flows, in my view, from the status of the Teklogix companies as clients of RTZ. Moreover, as I have said, Teklogix remained a client of RTZ after Rochwerg became one of its directors, although its need of RTZ's professional services was reduced.
104The fact that Rochwerg was involved in a professional capacity with Teklogix and its principals prior to the formation of RTZ and, indeed, prior to the formation of several predecessor accounting firms, does not vitiate the business connection established upon creation of RTZ. It was because Rochwerg's association with the Teklogix companies continued during the currency of the RTZ partnership, and in his capacity as a partner of RTZ, that Rochwerg remained a trusted professional advisor to the companies. The offer of the directorships derived from this association and business connection.
105It is irrelevant whether the opportunity to become a director or to acquire the Teklogix shares and stock options would, or could, have been available to the other partners of RTZ. It is also irrelevant that Rochwerg, in acquiring the initial 8,000 Teklogix shares, arguably assumed a risk of financial loss to be occasioned by a downward turn in the market value of the shares. It is also irrelevant whether the other partners of RTZ, in fact, were damaged by the actions of Rochwerg. On the authority of Regal (Hastings) and Phipps v. Boardman, these factors are all "outside considerations". (See Regal (Hastings), at pp. 386 and 389 All E.R., per Lord Russell of Killowen; and Phipps v. Boardman, at p. 109 A.C., per Lord Hodson and at p. 117, per Lord Guest). Rather, the liability to account arises from the fact of realizing a benefit or a profit, if realized by Rochwerg through use of his fiduciary position.
106Accordingly, in my view, the benefits derived by Rochwerg under the KESP were benefits derived by him from his use of a "partnership . . . business connection" within the meaning of that phrase under the second branch of s. 29(1) of the Act. On this ground, as well, Rochwerg is obliged to account to his former partners concerning the Teklogix shares and stock options.
107It is to be emphasized that an obligation to account may be avoided, if desired, by the simple devices of recording the mutual rights and duties of the partners in a written partnership agreement or by establishing a consensual policy or practice. The RTZ partners, including Rochwerg, chose not to do so.
(2) The Extent of the Required Accounting
(a) The positions of the parties
108The appellants do not stipulate the manner of accounting sought but, rather, ask this court to set the accounting or to direct a new trial limited to the question of determining the manner and amount of the accounting. They also seek an order directing a set off of the amounts found by the trial judge on the partnership income allocation issues, and to be found on the accounting, to be owed by the appellants to Rochwerg or Mymyk Corp., or either of them, against the amount found on the accounting to be owed to them by Rochwerg.
109The respondents argue that if an obligation to account arises, as in my view it does, this court should either refer the matter to the trial judge for determination or set the damages on the basis that:
(a) the damages should be based on a price of $17 per share as proposed by the appellants shortly before trial; and
(b) the damages should be limited to those shares in Teklogix which Rochwerg owned on July 31, 1996, being the date of dissolution of the RTZ partnership, and should not extend to either the Escrow Shares or the shares which may be acquired under the IPO Stock Option.
110Finally, the respondents assert that the appellants had an obligation to mitigate their damages by purchasing replacement shares in the open market at a price of less than $4.95 per share when the Teklogix shares were trading below that price.
(b) Rochwerg's entitlement to share in the benefits
111In Olson v. Gullo (1994), 1994 1268 (ON CA), 17 O.R. (3d) 790, 113 D.L.R. (4th) 42 (C.A.), application for leave to appeal to the Supreme Court of Canada dismissed, S.C.C. File no. 24176, this court held that the obligation to account is for the benefit of "the firm" under the provisions of both ss. 29(1) and 30 of the Act. Accordingly, as the obligation to account is to the partnership as a whole, the partner who has profited from his/ her wrong does not forfeit his/her entitlement to share in the profit. In this case, as Rochwerg enjoyed a 2/9 proportionate share of the profits of the RTZ partnership at the date of the firm's dissolution, his obligation is to account for 7/9 of the benefits realized by him. Rochwerg's entitlement to his share of such benefits was recognized by the appellants in the finalized version of their pleading in this case.
(c) Mitigation
112By the time of the trial, Rochwerg's direct or indirect holdings in shares and stock options related to Teklogix were as follows:
(a) His wife had sold 5,700 of the original block of 8,000 common shares, but continued to hold 2,300 shares;
(b) 9,000 Escrow Shares had been released from trust to Rochwerg and the remaining 3,000 Escrow Shares were scheduled for release on July 31, 2000. None of the Escrow Shares had been sold; and
(c) None of the IPO Stock Option shares had been acquired, although 75 per cent of the IPO Stock Option had been "earned", in the sense of the passage of time while Rochwerg was a director, entitling Rochwerg to acquire 9,000 common shares. The remaining 3,000 shares could be acquired on July 31, 2000, so long as Rochwerg remained a director on that date.
113The market value of the Teklogix shares fluctuated from a low of $2.58 to a high of $22.75 per share during the period September 29, 1995 (the date of Teklogix's IPO) to September 17, 1999. The individual appellants were free at any time after September 29, 1995 to purchase common shares of Teklogix on the open market at the then prevailing price. They did not do so. For a period of at least seven months, the market price was below $4.95 per share. Truster testified that he would not have gone into the market to purchase Teklogix shares because, in his view, he already had an interest in the shares and stock options held by Rochwerg.
114Rochwerg relies on Asamera Oil Corp. Ltd. v. Sea Oil & General Corp. and Baud Corp., N.V., 1978 16 (SCC), [1979] 1 S.C.R. 633, 89 D.L.R. (3d) 1 as support for the proposition that the individual appellants had a duty to mitigate their losses by purchasing replacement Teklogix shares on the open market at an advantageous market price, when Rochwerg failed to deliver any Teklogix shares to them or to otherwise account for his investments in Teklogix. In response, the individual appellants assert that a duty to mitigate does not arise on a claim for an accounting but, rather, only on a claim for damages.
115The concept of awarding "damages" for the breach by a partner of his/her fiduciary duty is misleading in some respects. The remedy for breach of a fiduciary duty by the realization of secret profits or benefits requires that the fidiciary be prevented from retaining any gain from the activity which arose from the breach of duty. The assessment of compensation for such breach focuses on the wrongdoer's gain, and not on the beneficiary's loss: "The concept of payment of profits made, rather than reimbursement for loss, is unique to the trustee or fiduciary" (M. Ellis and A. Manzer, A Practical Guide to Canadian Partnership Law, at 5.570 and 5.210). Thus, the Act stipulates in ss. 29(1) and 30 that the remedy for breach of duty by a partner is an accounting for the "benefit" realized (s. 29(1)) or for "all profits made" (s. 30).
116In Asamera, a breach of contract case, the Supreme Court of Canada held that the appellant had a general duty to mitigate its losses by acquiring replacement shares on the open market within a reasonable time after the respondent's breach of contract. The appellant had sought specific performance of an agreement between the parties to require the delivery to it of shares acquired by the respondent in Asamera. In addition, the appellant claimed damages. Estey J., in delivering the judgment of the court concerning the assessment of contractual damages, referred to the following passage from G.H. Treitel, The Law of Contract, 4th ed. (London: Stevens & Sons, 1975), at p. 618 (at pp. 672-73):
In general, damages are based on loss to the plaintiff and not on gain to the defendant. They are not, in other words, based on any profit which the defendant may have made out of the breach.
117In this case, we are concerned not with any damages or losses allegedly sustained by the individual appellants but, rather, with the benefit or gain realized by Rochwerg in consequence of his breach of fiduciary duty.
118Mitigation is a limitation on damages designed to compensate a successful litigant for all losses suffered as a result of the wrong occasioned by another. The assessment of compensation and the role of mitigation in cases where equitable relief is sought raises complex issues of law as illustrated by the decision of the Supreme Court of Canada in Canson Enterprises Ltd. v. Boughton & Co., 1991 52 (SCC), [1991] 3 S.C.R. 534, 85 D.L.R. (4th) 129. In that case, writing for the majority of the court, La Forest J. commented (at paras. 69 and 70, pp. 576-77 S.C.R.):
The appellants strongly emphasized that the courts of equity had, before the Judicature Act, [sic] no power to award damages, this being the exclusive domain of the common law, and the only statutory change to this regime was made by Lord Cairn's Act [sic] and its successors. Equity, they assert, was concerned with restoring a plaintiff to the position he or she was in before the breach of duty calling upon equity's intervention.
There can be little doubt that damages come within the province of the common law . . . although some early transgressions appear to have taken place where equity awarded damages . . . Damages are a monetary payment awarded for the invasion of a right at common law. Equity aimed at restoring a person to whom a duty was owed to the position in which he or she would have been had the duty not been breached. This it did through a variety of remedies, including compensation.
119In his reasons in Canson Enterprises, La Forest J. also discussed the distinction between a situation where the wrongdoer, in breach of a fiduciary duty, has received some benefit, as in this case, and one where no benefit has been obtained by the wrongdoer. The measure of compensation differs depending on whether a benefit has been realized. He stated (at para. 72, p. 578 S.C.R.):
In the case of a trust relationship, the trustee's obligation is to hold the res or object of the trust for his cestui que trust, and on breach the concern of equity is that it be restored to the cestui que trust or if that cannot be done to afford compensation for what the object would be worth. In the case of a mere breach of duty, the concern of equity is to ascertain the loss resulting from the breach of the particular duty. Where the wrongdoer has received some benefit, that benefit can be disgorged, but the measure of compensation where no such benefit has been obtained by the wrongdoer raises different issues.
(Emphasis added)
120In this case, 5,700 of the original block of 8,000 Teklogix common shares have been sold. It is no longer possible, therefore, to effect restitution in specie to the individual appellants of their share of the 5,700 shares which have been sold. In any event, the entire block of 8,000 shares was acquired in the name of Mrs. Rochwerg, who is not a party to this action. Moreover, as described below, the parties have agreed on the per share value of that block of shares. Accordingly, I conclude that the proper approach to Rochwerg's accounting is to require him to compensate the individual appellants for their proportionate share of the worth of the benefits represented by the Teklogix shares and stock options in lieu of restitution in specie, in accordance with the reasons which follow.
121In my view, no discount to the restitutionary sums for which Rochwerg is accountable is appropriate or necessary on account of mitigation principles. While it is true that the individual appellants were free, after September 29, 1995, to purchase Teklogix shares on the open market at a price which, at various times, was less than $4.95 per share, it is also the case that Rochwerg could have limited his exposure to the individual appellants at any time after September 29, 1995 by transferring to them the value of the shares in issue at a time when they were trading at or below $4.95 per share on the open market. Neither party pursued these options. In the circumstances, therefore, it is appropriate that the individual appellants be afforded compensation for their share of the gain realized by Rochwerg at the per share value that they have accepted, namely, $17 per share. This approach achieves compensation for the individual appellants while requiring disgorgement by Rochwerg of the value of the benefi ts wrongly derived by him. As stated by La Forest J. in Canson Enterprises (at para. 88, p. 589 S.C.R.): "Both the common law and equity sufficiently support the fiduciary position by compensating the victim of the breach of confidence". In this case, compensation equivalent to the individual appellants' share of the worth of the benefits derived by Rochwerg, in the words of La Forest J., "would seem sufficient to meet both these ends" (at para. 88, p. 589 S.C.R.).
(d) The benefits subject to an accounting
122For what, then, is Rochwerg required to account in this case?
123Rochwerg argues that his accounting should be limited to the block of 8,000 common shares of Teklogix acquired by him, through his wife, on July 25, 1995 because these were the only assets actually "acquired" as at July 31, 1996, the date of dissolution of RTZ. With respect to those shares, Rochwerg claims that the total "damages" are the net amount of $84,388 being the total value of the shares at a price of $17 per share (for an aggregate value of $136,000), less the purchase price paid (in the sum of $39,600) and the carrying costs of Rochwerg's personal bank loan by which he financed the acquisition of the shares, calculated from the date of acquisition to the date of trial. Counsel for the individual appellants agreed during oral argument of this appeal, that the net sum of $84,388 is the proper benchmark for compensation in connection with this block of shares. I agree. Accordingly, in respect of these 8,000 shares, Rochwerg is obliged to account to the former partners of RTZ by paying to them the amount of $65,635.10 (7/9 of the net sum of $84,388).
124Rochwerg also argues, however, that he should not be obliged to account for either the Escrow Shares or the shares associated with the IPO Stock Option because these shares had not been "earned" by him at the date of dissolution of the partnership and the options had not vested, in the sense of entitling him to possession of the shares and, in the case of the Escrow Shares, their release from trust.
125In my view, there is an important distinction to be drawn between the Escrow Shares and the shares associated with the IPO Stock Option.
126While Rochwerg was not entitled to possession of the Escrow Shares on the date of dissolution of the RTZ partnership, he had elected to exercise the option pertaining to them by purchasing the Escrow Shares in October 1995 at a cost of $120, subject to the trust terms of the KESP. While the retention features of the KESP prevented the release from trust of any of the Escrow Shares until July 31, 1997, and permitted the release on that date of only 3,000 shares (25 per cent of the total optioned shares), the grant of the option for the Escrow Shares served as a "reward for work", that is, as part of Rochwerg's compensation as a director. By July 31, 1996, the date of dissolution of the RTZ partnership, Rochwerg had completed his first year as a director of the Teklogix companies and, accordingly, had notionally "earned" 50 per cent of that portion of the Escrow Shares subject to release from trust on July 31, 1997, providing that Rochwerg remained a director on that date. His additional work as a direc tor during the period July 31, 1996 to July 31, 1997 entitled him to the release on the latter date of 3,000 of the Escrow Shares. Accordingly, in a notional sense, 50 per cent of the first 3,000 of the Escrow Shares (1,500 shares) had been earned on July 31, 1996 through Rochwerg's contributions to Teklogix (subject to Rochwerg continuing in office as a director until July 31, 1997), while the remaining 50 per cent was unearned.
127In these circumstances, Rochwerg should account to the individual appellants for that portion of the Escrow Shares notionally earned by him while he was a partner of RTZ, that is, for 1,500 of the Escrow Shares, at the same per share value acknowledged by the individual appellants to be appropriate for the first block of 8,000 shares in Teklogix, namely, $17 per share. This results in Rochwerg being accountable to the individual appellants for $19,713.33, that is, 7/9 of the further sum of $25,500 (1500 x $17) less the $120 purchase price paid by Rochwerg for the shares.
128In contrast to the option concerning the Escrow Shares, the IPO Stock Option had not been exercised by Rochwerg on July 31, 1996. While it might be argued that he had notionally "earned" 50 per cent of the first 25 per cent of the 12,000 shares associated with the IPO Stock Option by his services to Teklogix during his first year as a director, he had not realized any benefit from the IPO Stock Option as at July 31, 1996, had not exercised that option and had not paid for any of the shares associated with it. Accordingly, in my view, his obligation to account to the individual appellants does not extend to the IPO Stock Option or the shares associated with it.
(3) Costs
129The trial judge awarded the respondents party and party costs against the appellants in respect of the action, the appellants' counterclaim, and an interlocutory motion. The appellants were awarded costs on a party and party basis concerning the respondents' motion at trial to amend their pleadings to allege a failure by the appellants to mitigate their losses. Before this court, the appellants seek costs of the trial and this appeal.
130The trial involved many complex issues unrelated to the claim for an accounting in relation to the Teklogix shares and stock options and, on the record before this court, it is unclear what proportion of the eight-day trial was devoted to the latter issue. Judgment was granted in favour of the individual appellants against Rochwerg for $565,422.54 plus prejudgment interest, while judgment was granted in favour of Mymyk Corp. against the corporate appellants for $669,866 plus interest. Success at trial, therefore, was divided but Mymyk Corp. was more successful in monetary terms than the appellants. In addition, in arriving at his conclusions, the trial judge commented adversely on Truster's credibility and the reliability of his evidence.
131The effect of the decision on this appeal is to significantly narrow, but not to eliminate entirely, the difference between the respective monetary awards made by the trial judge in the exercise of his discretion. In all of the circumstances, I would not interfere with the trial judge's award of costs at trial.
V. CONCLUSION
132For the reasons given, I would dismiss the appeal of the corporate appellants and allow the appeal of the individual appellants, set aside the decision of the trial judge concerning the Teklogix shares and stock options and direct Rochwerg to account to the individual appellants by paying to them the aggregate amount of $85,348.43 in respect of the original block of 8,000 Teklogix shares and the Escrow Shares. The individual appellants are entitled to set off that amount against the sums found by the trial judge to be owed by them to the respondents. Further, the individual appellants are entitled to their costs of this appeal, on a partial indemnity basis.
133In order to comply with the rule that now requires this court to fix costs, if the parties cannot otherwise agree on a joint submission regarding the quantum of the awarded costs of this appeal and the delivery of same in writing to this court within ten days, the individual appellants are requested to file a bill of costs with this court, in the appropriate form, within ten days. Rochwerg may make submissions in writing thereon within ten days after filing and the individual appellants may reply in writing within five days thereafter.
Appeal of corporate appellants dismissed; appeal of individual appellants allowed in part.
