Fasken Campbell Godfrey et al. v. Seven-Up Canada Inc. et al. [Indexed as: Fasken Campbell Godfrey v. Seven-Up Canada Inc.]

47 O.R. (3d) 15

[2000] O.J. No. 122

No. C26626

Court of Appeal for Ontario

McMurtry C.J.O., Osborne A.C.J.O. and Feldman J.A.

January 25, 2000

*Application for leave to appeal to the Supreme Court of Canada dismissed with costs September 21, 2000. (McLachlin C.J., Iacobucci and Major JJ.) S.C.C. Bulletin, 2000, p. 1451.

Professions -- Barristers and solicitors -- Duty to client -- Client acting as executor of estate while becoming president and shareholder of company in which estate held shares -- Client lawyer and former senior partner of law firm -- Law firm having no duty to advise client and company that client's acquisition of shares vulnerable to attack by estate -- Law firm's retainer in respect of that transaction limited -- Law firm subsequently acting for company in transaction from which client benefited and from which estate excluded -- Law firm involved in all aspects of that transaction -- Law firm's retainer including duty to warn client of potential problem created by estate's exclusion -- Law firm liable to client -- Nominal damages awarded.

B, a partner in the plaintiff law firm, did corporate work for S Inc. and acted as sole executor for the estate of FR, the former president of S Inc. and a shareholder of the company. B left the law firm to become president of S Inc., acquiring a 10 per cent equity stake in the company ("the B transaction"). His share acquisition diluted the estate's interest in the outstanding shares of the company. After becoming president of S Inc., B negotiated a transaction whereby the company acquired P Ltd. ("the P Ltd. transaction"). He retained the law firm to act for S Inc. in carrying out the transaction. As part of the transaction, he and other shareholders of S Inc. acquired additional shares of the company. He decided that the estate would not participate in the share acquisition. The beneficiaries of the estate were not advised of the transaction prior to its completion and their consent to it was not obtained. B subsequently resigned as executor of the estate. Two court-appointed executors commenced an actio n against B, S Inc., the law firm and others alleging that B had breached fiduciary duties owed to the estate and the beneficiaries, that he had misappropriated opportunities that belonged to the estate, that he was unjustly enriched and that he had exercised his powers in a manner that amounted to oppression. While the estate litigation was pending, B negotiated the sale of S Inc.' s assets. In order to proceed with the sale, he negotiated a settlement of the estate litigation. The amount that B and the other shareholders made on the sale substantially exceeded the amount paid to settle the estate litigation.

The law firm brought an action against S Inc., B and other parties for outstanding legal fees. The defendants counterclaimed for reimbursement of the amount paid to settle the estate litigation, submitting that the law firm should have advised them of B's potential liability to the beneficiaries, and that if it had done so, B could have secured their consent to the transaction. The trial judge found that the law firm had no duty to warn B or S Inc. that the beneficiaries might attack the B transaction. However, he held that the law firm did owe a duty to advise B and S Inc. of the risk that the beneficiaries might challenge the P Ltd. transaction because their consent was not obtained. He allocated fault as between the law firm and the defendants for the loss suffered as a result of the beneficiaries' claims as 20 per cent to the law firm and 80 per cent to B and S Inc. He found that, had proper advice been given by the law firm, it was highly unlikely that the beneficiaries would have consented. Having ass essed the lost opportunity at close to zero, he awarded nominal damages in the amount of $1,000. The defendants appealed and the law firm cross-appealed.

Held, the appeal and the cross-appeal should be dismissed.

In concluding that the scope of the law firm's retainer with respect to the B transaction did not require the firm to advise B or S Inc. of the risk that the transaction was vulnerable to attack by the beneficiaries, the trial judge noted that neither B nor S Inc. revealed to the law firm the terms of B's arrangement before it was a fait accompli, nor did B or anyone at S Inc. ask the firm to give advice on the legal issues arising from the arrangement. The trial judge's finding that the scope of the law firm's retainer in respect of S Inc. was limited was appropriate. The trial judge properly found that the law firm did not owe a duty to warn B considering that B, a senior partner in the firm, was a sophisticated client who ought to have known of the conflict of interest problem triggered by the arrangements he was entering. Moreover, B drafted the consent to the share issuance on behalf of the estate and executed it on the estate's behalf in his capacity as executor. As the firm was not retained to perform these legal steps, it was not required to provide legal advice on them. There was ample evidentiary support for the trial judge's finding that the retainer between the firm and B and S Inc. in relation to the B transaction was limited in nature.

With respect to the P Ltd. transaction, the trial judge did not err in finding that the law firm owed a duty to B and S Inc. to warn them that the beneficiaries might attack the transaction because their consent was not obtained. The law firm was involved in all aspects of that transaction. The firm knew from the time it was retained that the estate would not participate in the transaction and that B was continuing as sole executor. The legal problems presented by this scenario were ones which any lawyer should recognize. The reason the law firm did not warn B or S Inc. of the attendant risk was because none of the firm's lawyers on the transaction perceived the problem, not because they perceived the problem to fall outside the firm's retainer.

The trial judge did not err in assessing damages or the apportionment of liability.

APPEAL and CROSS-APPEAL from a judgment of Sharpe J. (1997), 1997 ON SC 12305, 142 D.L.R. (4th) 456 (Gen. Div.) in an action by a law firm for fees and a counter-claim for damages for negligence.

Cases referred to de la Giroday v. Brough (1997), 1997 BC CA 2662, 33 B.C.L.R. (3d) 171, [1997] 6 W.W.R. 585 (B.C.C.A.); Eastwalsh Homes Ltd. v. Anatal Developments Ltd. (1993), 1993 ON CA 3431, 12 O.R. (3d) 675, 100 D.L.R. (4th) 469, 30 R.P.R. (2d) 276 (C.A.); Keech v. Sandford (1726), 25 E.R. 223; Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R. 378 (H.L.); Snell v. Farrell, 1990 SCC 70, [1990] 2 S.C.R. 311, 107 N.B.R. (2d) 94, 72 D.L.R. (4th) 289, 110 N.R. 200, 267 A.P.R. 94, 4 C.C.L.T. (2d) 229; Wong v. 407527 Ontario Ltd. (1999), 1999 ON CA 3788, 179 D.L.R. (4th) 38, 26 R.P.R.(3d) 262, [1999] O.J. No. 3377 (C.A.); Woodglen & Co. v. Owens (1999), 27 R.P.R. (3d) 237, [1999] O.J. No. 3989 (C.A.)

John B. Laskin and John P. Koch, for respondents. David C. Moore, for appellants.

[1] BY THE COURT: -- The respondent Fasken Campbell Godfrey ("FCG"), the successor law firm to the respondent Calvin Godfrey & Lewtas ("CGL"), sued the appellants, Seven-Up Canada Inc. ("Seven-Up"), Pathfinder Beverages Ltd. ("PBL"), 161275 Canada Inc. and Thomas B. Baker, for outstanding legal fees in the amount of $665,317.28 arising from services rendered to the appellants. The appellants did not dispute the amount of legal fees claimed, except with respect to one account, referred to as the "SkyDome account", for $136,216.33. However, they asserted by way of counterclaim that CGL was negligent in performing the legal services and that the firm's failure to provide appropriate legal advice exposed the appellants to various claims against them. The appellants sought damages based on what they paid to settle these claims and for related legal expenses.

[2] In a decision dated January 6, 1997 and since reported at 1997 ON SC 12305, 142 D.L.R. (4th) 456, Sharpe J. granted judgment against the appellants for outstanding legal fees owed to FCG in the amount of $589,100.95 plus interest and costs. He concluded that FCG was liable to the appellants for breach of duty to warn in relation to one of the transactions complained of by the appellants and assessed the appellants' consequent damages in the amount of $200 plus interest.

[3] The appellants appeal the judgment against them for payment of the legal fees and the trial judge's assessment of damages on the counterclaim. The respondents cross-appeal on the finding of liability against them. For the reasons that follow, we uphold the trial judge's decision on all issues and dismiss both the appeal and cross-appeal.

Facts

[4] These proceedings surround the activities of Thomas B. Baker, a former partner of CGL. He spent his entire legal career at the firm, where he developed a successful corporate- commercial law practice. On March 1, 1988, he left CGL to assume the position of President of Seven-Up. Seven-Up was a major client of CGL and Baker had acted as the partner in charge of Seven-Up's legal matters before leaving the firm.

[5] Baker acted as the lead partner on a leveraged management buy-out of Seven-Up from Pepsi-Cola Canada Ltd. ("Pepsi") in June 1987. Frederick Rosbrook, Jamie Colbourne, Russell Plawiuk and Mark Benadiba were the members of management who participated in the buy-out. Rosbrook acquired 20.1 per cent of the shares of Seven-Up, while the other managers each acquired 10 per cent. The remaining shares were purchased by a numbered Ontario company controlled by Michael Graye (40 per cent) and by the Bank of Nova Scotia (9.9 per cent). After the buy-out, Rosbrook was named President of Seven-Up.

[6] In late August 1987, Rosbrook was diagnosed with terminal cancer. He asked Baker to prepare his will. Baker agreed. Rosbrook, who had been married three times and had children from his first two marriages, was concerned that disputes among his beneficiaries were likely. He thus asked Baker to act as his sole executor. Again Baker agreed. CGL prepared Rosbrook's will naming Baker as executor. Two weeks later, on September 13, 1987, Rosbrook died. His only significant asset at this time was his 20.1 per cent equity stake in Seven-Up.

[7] The trial judge's factual findings on the events following Rosbrook's death are set out at pp. 460-70 of the reported version of his decision. These detailed findings, which are supported by the evidence, will not be repeated in their entirety here. The salient facts for purposes of this appeal are as follows.

[8] Baker personally assumed primary responsibility for administering the Rosbrook estate. An estate file was opened at CGL with Baker as billing partner. Two weeks after Rosbrook's death, solicitors for his former wife, Sherry Rosbrook, contacted Baker claiming support for Candice Rosbrook, one of Rosbrook's children and a beneficiary of his estate. This claim ultimately led to the commencement of legal proceedings against the estate on behalf of Candice on May 31, 1988.

[9] Also following Rosbrook's death, Baker was approached by Michael Graye to act as President of Seven-Up. He initially refused, but eventually agreed to become President on terms that he negotiated with Seven-Up ("Baker transaction"). These terms included that Baker receive 113 shares representing a 10 per cent equity stake in Seven-Up. To permit Baker to acquire the newly issued shares, he received an interest-free loan from Seven-Up for $1,312,500.

[10] Baker did not advise anyone at his firm about his intentions of becoming the President and a shareholder of Seven-Up at any time before entering the agreement with Seven- Up. Nor did he seek advice from anyone at his firm about the legal implications of his arrangements with Seven-Up, including his acquisition of shares in the company. CGL's role in the arrangements whereby Baker became President of Seven-Up was limited to a CGL associate, Mark Stinson, being instructed by Graye to obtain consents from Pepsi and the Bank of Nova Scotia to the transfer of the estate shares to Baker as executor and to the issuance of 113 shares to Baker.

[11] Baker's share acquisition on becoming President diluted the Rosbrook estate's interest in the outstanding shares of the company from 20.1 per cent to 18.1 per cent. Baker did not advise the Rosbrook beneficiaries of his intention to become the President and a shareholder of Seven-Up, nor did he obtain their consent to do so. Rather, Baker himself prepared a consent to the share issuance on behalf of the estate and executed it on the estate's behalf in his capacity as executor.

[12] On November 23, 1987, CGL officially announced that Baker was leaving the firm. He remained a partner at CGL until March 1, 1988. During this period, he remained as billing partner for the Rosbrook estate.

[13] When Peter Clark, a second-year tax associate at CGL, learned that Baker was to become President of Seven-Up and remain as executor of the Rosbrook estate, he was concerned that Baker was putting himself in a situation of a potential conflict of interest. However, Clark felt it was not appropriate for him to ask Baker about the details of his arrangement with Seven-Up, given his junior position in the firm.

[14] On January 12, 1988, Clark consulted John Fuke about Baker's deal with Seven-Up. Fuke had joined CGL in early January 1988 and was a senior lawyer with expertise in trusts and estates. Fuke agreed that Baker could be in a situation of potential conflict and suggested that it would be appropriate for Clark to raise the matter with Baker. Clark's evidence was that he had a brief conversation with Baker about the situation during which he suggested that Baker consider resigning as executor. Clark did not use the word "conflict" in this discussion, nor did he refer specifically to any trust or fiduciary principles. Clark testified that Baker responded that he would stick it out as executor in light of his commitment to Rosbrook. Baker testified that he did not recall this conversation with Clark.

[15] The next day, Clark relayed to Fuke the results of his conversation with Baker. The trial judge found that based on this discussion with Clark, Fuke formed the erroneous impression that Clark had invited Baker to meet with Fuke if he wanted to discuss the conflict issue and that Baker had declined the offer. The trial judge found that no one at CGL warned Baker of the potential for a conflict of interest, nor did anyone advise him of the applicable principles of trust law or fiduciary duty.

[16] After Baker left CGL, he continued to assume de facto control of the Rosbrook estate file and instructed the estates clerk at CGL as well as Clark on specific estate matters.

[17] In the first half of 1988, Baker negotiated a transaction whereby Seven-Up would acquire Pathfinder Beverages Limited ("Pathfinder transaction"). He decided that the Seven- Up shareholders, including himself, would acquire additional shares in Seven-Up as part of the transaction. He also decided that the estate would not participate in the share acquisition. Baker testified that he made this decision because the estate lacked the cash and the means to borrow the necessary funds to acquire the newly-issued shares.

[18] On May 2, 1988, after the terms of the transaction had been negotiated and set out in a letter of intent with the principal shareholder of Pathfinder, Baker retained CGL to act for Seven-Up in carrying out the transaction. The beneficiaries of the estate were not advised of the Pathfinder transaction prior to its completion and did not consent to it. The Pathfinder transaction further diluted the Rosbrook estate's proportionate holdings in Seven-Up from 18.1 per cent to 9 per cent.

[19] The Pathfinder transaction closed on June 24, 1988. In the meantime, Baker had taken steps to sell the estate's shares to Michael Graye. The shares had still not been sold when in December 1988, Baker was advised that an order in the Candice Rosbrook litigation had the effect of suspending any transaction involving the estate shares.

[20] On February 12, 1989, management members Colbourne, Plawiuk and Benabida commenced litigation seeking to remove Baker as President of Seven-Up. To compound his difficulties, on March 9, 1989, Baker received a letter from counsel retained by the Rosbrook beneficiaries demanding his removal as executor. The next day, the beneficiaries commenced an application for Baker's removal as executor. On April 14, 1989, Baker resigned as executor.

[21] On October 13, 1989, two court-appointed executors of the Rosbrook estate commenced an action against Baker, Seven- Up, Pathfinder, CGL and others alleging, among other claims, that Baker had breached fiduciary duties owed to the estate and the beneficiaries, that he had misappropriated opportunities that belonged to the estate, that he was unjustly enriched by his compensation arrangements and by the Pathfinder transaction and that he had exercised his powers in a manner that amounted to oppression under both federal and Ontario business corporation legislation ("estate litigation").

[22] In late 1991, Baker negotiated the sale of Seven-Up's assets to Pepsi. The intended sale was announced in January 1992 while the estate litigation was still pending. The plaintiffs in the estate litigation sought an injunction to restrain the closing of the asset sale. Baker testified that in order to proceed with the sale, he agreed to settle the estate litigation as against himself, Seven-Up and Pathfinder. In a settlement agreement dated March 4, 1992 Seven-Up agreed to pay the beneficiaries $1.47 million and released a claim to reimbursement for $138,000 that had been advanced to the beneficiaries. Colbourne, Plawiuk and Benabida also each paid $75,000 to the beneficiaries. One week after the settlement, the Pepsi sale went ahead.

[23] The amount that the Seven-Up shareholders received as a result of the Pepsi transaction was not disclosed at trial or to this court. However, Baker testified that the sale to Pepsi was extremely beneficial to the shareholders of Seven-Up and that the proceeds far exceeded their expectations. He also admitted that the amount that he and the other shareholders made on the Pepsi transaction substantially exceeded the amount paid to settle the estate litigation. Baker led no evidence at trial as to the amount that the beneficiaries might have accepted to settle their claim, other than the amount that they ultimately accepted.

[24] CGL's action against the appellants for outstanding legal fees was commenced on January 16, 1992. On April 27, 1992, the appellants issued their counterclaim against CGL and FCG for reimbursement of the amount paid to settle the estate litigation and associated legal fees as well as legal fees paid to CGL in relation to the Pathfinder transaction.

The Trial Judge's Decision

[25] The trial judge first considered whether CGL owed a duty to warn either Baker or Seven-Up about the potential risk that the beneficiaries might attack the transactions in which Baker participated. After reviewing the law respecting a lawyer's duties, he concluded that the duty to warn a client of the risk involved in a course of action is an integral part of a lawyer's standard of care and can form a basis for liability. However, he noted that whether a duty to warn arises in a particular situation will depend upon the precise scope of the retainer between the lawyer and the client.

[26] The trial judge concluded that CGL had no duty to warn Baker or Seven-Up that the beneficiaries might attack the Baker transaction (whereby Baker became President of Seven-Up) by invoking the line of authority based on Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R. 378 (H.L.). This line of authority requires a fiduciary to account to beneficiaries for any gains resulting from the fiduciary's position, even where the fiduciary acted in good faith and in the best interests of beneficiaries of the trust. The trial judge held that, considering Baker's status as a senior partner in the firm as well as the close control he maintained over both the estate and his arrangement with Seven-Up, the scope of CGL's retainer was limited to the specific matters it was asked to deal with. He further concluded that Seven-Up was in no better position than Baker because it too had asked CGL to perform only specific tasks.

[27] However, the trial judge held that CGL did owe a duty to advise Baker and Seven-Up of the risk that the beneficiaries might challenge the Pathfinder transaction because their consent had not been obtained. This latter conclusion was based on the trial judge's finding that the retainer on the Pathfinder transaction was "very different" from the specific and limited retainer given in relation to the Baker transaction, and on his finding that Baker and Seven-Up had a legitimate expectation that CGL would be proactive and would give legal advice designed to avoid problems arising from the treatment of the Rosbrook beneficiaries. The trial judge then allocated fault as between CGL and the appellants for the loss suffered as a result of the beneficiaries' claims as 20 per cent to CGL and 80 per cent to Baker and Seven-Up. He assigned 80 per cent liability to Baker and Seven-Up because he found that the seeds of the problems related to the Rosbrook beneficiaries in connection with the Pathfinder transaction were sown when Baker failed to address the estate's interests when his arrangements were made to become President of Seven- Up. In particular, the trial judge noted that Baker decided without consulting CGL that the estate would not participate in the Pathfinder transaction and acted as if he were the senior lawyer with carriage of the file. Further, the trial judge found that Seven-Up stood in no better position than Baker as Baker was the President and directing mind of Seven-Up and Seven-Up acted through Baker in relation to the transaction.

[28] In terms of assessing the appellants' loss, the trial judge concluded that the amount of the loss incurred because of CGL's failure to advise the appellants of the risk of the beneficiaries' claims depended on the resolution of two issues: (1) determining the portion of the amount paid to settle the beneficiaries' claims that was attributable to the breach of fiduciary duty claim against Baker in connection with the Pathfinder transaction, of which CGL had a duty to warn; and (2) determining the likelihood that Baker would have been able to obtain the beneficiaries' consent to his compensation arrangement and the Pathfinder transaction had he received the appropriate warning.

[29] On the first issue, the trial judge concluded that 50 per cent of the amount of the settlement was attributable to the breach of fiduciary duty claim against Baker in relation to the Pathfinder transaction. In arriving at this figure, he took into account that the beneficiaries had advanced several other claims in addition to the alleged breach of fiduciary duty. He also took into account that both before and after the settlement, Baker had maintained the position that the beneficiaries' claims were groundless and that he had agreed to the settlement so that the lucrative Pepsi transaction could close. The trial judge also added 50 per cent of the legal costs incurred by the appellants in the estate litigation to the amount of the settlement that he attributed to the breach of fiduciary duty claim.

[30] On the second issue, the trial judge rejected the appellant's argument that CGL was in a fiduciary relationship with the appellants and that the burden was thus on CGL to prove that the beneficiaries' consent could not have been obtained. He determined that the appellants' claim rested on negligence in terms of a failure to render appropriate advice rather than on a breach of fiduciary duty. He further held that the burden rested with the appellants to establish their compensable loss having regard to the principles of lost chance as they relate to the assessment of damages.

[31] Citing this court's decision in Eastwalsh Homes Ltd. v. Anatal Developments (1993), 1993 ON CA 3431, 12 O.R. (3d) 675, 100 D.L.R. (4th) 469, the trial judge considered whether the appellants had shown that there was a reasonable probability that the beneficiaries would have consented to the Pathfinder transaction such as was sufficient to justify an award in their favour. Baker had testified that prior to closing the transaction in April 1988, he was on sufficiently good terms with the beneficiaries that he could have procured their consent.

[32] The trial judge did not accept Baker's evidence in this regard. He concluded that the chance that the beneficiaries would have consented to the Pathfinder transaction was "close to zero". He noted in this regard that Baker's relationship with the beneficiaries was not one of complete confidence, pointing in particular to the Sherry and Candice Rosbrook litigation. He also observed that obtaining the beneficiaries' consent would have required that he obtain a waiver from them of a possible claim of breach of fiduciary duty in relation to the Baker transaction: Baker's bargaining position with the beneficiaries in this regard was weaker after he had accepted the position of President than it would have been before. In addition, the trial judge found that obtaining the beneficiaries' consent to the Pathfinder transaction would have been unlikely considering that the estate did not stand to benefit from it. As well, he noted that if the beneficiaries were advised of their legal position and informed of the benefits that Baker had already received and that he and Seven- Up expected to receive from the Pathfinder transaction, they would almost certainly have seized the opportunity to squeeze concessions from Baker or Seven-Up.

[33] Having assessed the lost chance at close to zero, the trial judge awarded nominal damages in the amount of $1,000. As he had earlier found CGL only 20 per cent responsible in relation to the Pathfinder transaction, this amount was reduced to an award of $200.

[34] Finally, the trial judge dismissed Baker's claim that CGL or FCG were liable for his costs of defending proceedings against him by the Law Society of Upper Canada ("LSUC") in relation to his conduct as executor of the Rosbrook estate. He concluded that CGL's retainer on the estate file was limited to the performance of specific tasks and did not include the matter complained of in the LSUC proceedings.

Issues

[35] The appellants raise the following issues:

-- whether the trial judge erred in holding that CGL was not liable in respect of its acts or omissions before March 1, 1988; and

-- whether the trial judge erred in his assessment of damages.

[36] The respondents raise the following additional issue on the cross-appeal:

-- whether the trial judge erred in finding CGL liable for failing to warn in connection with the Pathfinder transaction.

Analysis

CGL's duty to warn

[37] The appellants submit that the trial judge erred in holding that CGL did not owe a duty to warn Baker or Seven-Up that the beneficiaries might attack the Baker transaction. The appellants argue that Seven-Up initiated the request which resulted in Baker assuming the position of president, that CGL performed work on behalf of Seven-Up to complete the transaction, and that CGL claimed that it provided "proactive service" to its clients. The appellants submit that accordingly, CGL owed a duty to warn Baker or Seven-Up of all risks associated with the transaction.

[38] The trial judge correctly set out the law regarding a solicitor's duty to warn a client about the risks involved in a transaction or course of action. He summarized the case law in this area at p. 471:

Defining the scope of the solicitor's retainer is an essential element in cases where the client's complaint is that the solicitor failed to warn the client of a risk. In Midland Bank Trust Co. v. Hett, Stubbs & Kemp, [1978] 3 All E.R. 571 (Ch. D.), Oliver J. stated that there was nothing like a "general retainer" in the sense that a solicitor is duty bound to consider all the aspects of the client's interests generally when consulted for a particular aspect of the problem (at 583). The duty to warn only arises when an ordinarily competent and prudent solicitor would have issued a warning, taking into account all of the surrounding circumstances, including the form and nature of the client's instructions and the sophistication of the client: see Woodglen & Co. v. Owens, unreported (November 20, 1996) [summarized 67 A.C.W.S. (3d) 390 (Ont. Ct. (Gen. Div.))].

[39] In concluding at p. 473 that the scope of CGL's retainer with respect to the Baker transaction did not require the firm to advise Baker or Seven-Up of the risk that the transaction was vulnerable to attack by the beneficiaries, the trial judge noted that neither Baker nor anyone at Seven-Up revealed to anyone at CGL the terms of Baker's arrangement before it was a fait accompli. Neither did Baker nor anyone at Seven-Up ask the firm to give advice on the legal issues arising from the arrangement. The finding that the scope of CGL's retainer in respect of Seven-Up was limited was appropriate considering that Seven-Up did not consult CGL either directly or through Baker in negotiating the arrangements with Baker; the firm was simply given specific instructions by Graye to perform certain specific tasks to implement the arrangements. The trial judge properly found that CGL did not owe a duty to warn Baker considering that Baker, a senior partner in the firm, was a sophisticated client who ought to have known of the conflict of interest problem triggered by the arrangements he was entering. Moreover, as noted above, Baker drafted the consent to the share issuance on behalf of the estate and executed it on the estate's behalf in his capacity as executor. As CGL was not retained to perform these legal steps, it was not required to provide legal advice in relation thereto.

[40] This court recently stated in Woodglen & Co. v. Owens (1999), 27 R.P.R. (3d) 237, [1999] O.J. No. 3989, that the nature and scope of a solicitor's retainer is "a factual question on which the findings of the trial judge are entitled to great deference". In this case, there was ample evidentiary support for the trial judge's finding that the retainer between the firm and Baker and Seven-Up in relation to the Baker transaction was limited in nature. Accordingly, this ground of appeal does not succeed.

[41] With respect to the Pathfinder transaction, the respondents on their cross-appeal submit that the trial judge erred in finding that CGL owed a duty to Baker and Seven-Up to warn them that the beneficiaries might attack the transaction because their consent to it had not been obtained. The respondents raised a number of arguments in support of the cross-appeal. Counsel for the respondents argued that the retainer for the Pathfinder transaction was limited in that Seven-Up did not ask CGL to provide advice on the risk of a potential dispute among its shareholders and that Baker acted as if he were the lead solicitor on the transaction. In addition, the respondents argued that the appellants failed to establish that any individual lawyer had the necessary knowledge to give rise to vicarious liability on the part of the firm for failure to warn.

[42] The findings of the trial judge amply support his conclusion that the retainer on the Pathfinder transaction included a duty to warn Baker and Seven-Up of the potential problem created by the estate's exclusion. As found by the trial judge, CGL was involved in all aspects of the transaction. The firm knew from the time it was retained that the estate would not participate in the transaction and that Baker was continuing as sole executor. The legal problems presented by this scenario are ones that the trial judge properly observed any lawyer should recognize. The trial judge also correctly observed that the reason that CGL did not warn Baker or Seven-Up of the attendant risk was because no CGL lawyer on the transaction perceived the problem and not because they perceived the problem to fall outside its retainer.

[43] As noted, a trial judge's determination of the nature and scope of a solicitor's retainer is entitled to deference by an appellate court. In our view, the trial judge's findings regarding the nature and scope of the retainer on the Pathfinder transaction are supported by the record and there is no basis for this court to interfere with them.

The Assessment of Damages

[44] Counsel for the appellants raised several grounds of appeal related to the trial judge's assessment of damages. First, counsel submitted that the trial judge erred by focusing on the lost chance of obtaining the beneficiaries' consent at no cost to Seven-Up. Counsel argued that the appellants were entitled to damages so long as there was a reasonable basis to conclude that their losses could have been reduced. To this end, counsel suggested that there was a reasonable basis to conclude that the cost of obtaining consent in April 1988, at the time of the Pathfinder transaction, would have been lower than the amount ultimately paid to settle the estate litigation. In the alternative, counsel argued that the trial judge should have considered that the appellants could have pursued other means for avoiding paying the settlement amount, such as by formally requesting the estate to invest in the Pathfinder transaction prior to closing. It was submitted that if such a course were followed, the evidence show ed that the estate lacked the funds to invest and would have had to decline the opportunity, thereby undermining a subsequent claim by the beneficiaries for breach of fiduciary duty.

[45] These arguments are not persuasive. The appellants' submission that there was a reasonable prospect that consent could have been obtained at a lower cost than was ultimately paid to settle the estate litigation is not compelling in light of the absence of evidence to support this position. There was no evidence led at trial regarding the possibility of obtaining the beneficiaries' consent to the Pathfinder transaction at a lower cost, that is, on the basis of a payment less than the amount paid to the beneficiaries to settle their claim. Nor was there any evidence from Baker as to what he, and hence Seven- Up, would have paid to procure the beneficiaries' consent to the Pathfinder transaction. Thus, the appellants' case for damages at trial did not proceed on the basis that counsel now seeks to advance on appeal.

[46] To require the trial judge to consider all of the various permutations of what one party might have paid and the chances that the other party might have accepted that amount does not involve mere "difficulty in assessing damages", particularly where there is no evidence from either party on the point. It renders the assessment of damages impossible.

[47] The appellants' alternative submission that the trial judge should have considered that they could have pursued other means to avoid paying the settlement is similarly undermined by the absence of evidence before the trial judge on this point. Moreover, this submission could work against Baker. It may be that the beneficiaries would have found a way to participate in the Pathfinder transaction if they had been given the opportunity to do so. Had the beneficiaries thereby acquired some of the newly-issued shares, Baker's ultimate share in the proceeds from the Pepsi transaction would have been reduced, perhaps by an amount that exceeded the cost of settling the estate litigation. Accordingly, the possibility of the beneficiaries' participation in the Pathfinder transaction undermines the appellants' claim for damages flowing from CGL's failure to warn the appellants of their potential liability to the beneficiaries.

[48] Furthermore, even if Baker had given the beneficiaries the opportunity to participate in the transaction and if they had been unable to raise the necessary funds to do so, this fact would not have been a defence to Baker's liability for breach of fiduciary duty. Critical to the concept of fiduciary duty is the requirement that the fiduciary scrupulously avoid placing himself or herself in a possible conflict of interest with the beneficiary. The fact that the beneficiary is unable to participate in or profit from a transaction has not been permitted to allow the fiduciary to benefit from it where a potential conflict exists: Keech v. Sandford (1726), 25 E.R. 223.

[49] Secondly, counsel for the appellants submitted that the trial judge erred with respect to the onus and standard of proof applied to the assessment of damages. Counsel argued that, because CGL's negligence made it difficult to assess damages, the trial judge ought to have reversed the onus, or resolved uncertainties in the proof of damages in favour of the appellants.

[50] The appellants cannot succeed on this ground of appeal. In terms of the onus of proof, the onus was on the appellants to establish the value of the lost chance. The lost chance assessment does not proceed on the basis that an inference of lost chance may be drawn where the defendant fails to adduce evidence to the contrary: see Snell v. Farrell, 1990 SCC 70, [1990] 2 S.C.R. 311, 72 D.L.R. (4th) 289.

[51] In the lost chance assessment, the plaintiff must establish causation and the value of the lost chance on a balance of probabilities: see de la Giroday v. Brough, 1997 BC CA 2662, [1997] 6 W.W.R. 585, 33 B.C.L.R. (3d) 171 (C.A.). However, the plaintiff need not prove on a balance of probabilities that the chance would have in fact materialized: see Wong v. 407527 Ontario Ltd. (1999), 1999 ON CA 3788, 179 D.L.R. (4th) 38, [1999] O.J. No. 3377 (C.A.). Thus, the fact that the chance of avoiding a loss or obtaining a benefit was less than 50 per cent does not serve as a bar to the plaintiff's claim for damages, provided that the chance of success is above the de minimis range identified in Eastwalsh Homes, supra.

[52] Applying these principles to this case, the trial judge properly accepted that the appellants could be compensated for the value of the lost chance of obtaining the beneficiaries' consent at the time of the Pathfinder transaction. His finding that the appellants' evidence only established an entitlement to nominal damages did not involve an improper shift in onus, nor an improper application of the standard of proof. In any event, it bears noting that the trial judge found that the appellants had satisfied the onus of proving causation and the value of the lost chance.

[53] Counsel for the appellants' third submission was that the trial judge erred by assessing the damages at 50 per cent of the amount paid to settle the beneficiaries' claims and by attributing 80 per cent of the loss to Baker and Seven-Up. Counsel argued that CGL's failure to warn was the cause of all proximate losses as all of the beneficiaries' concerns would have been resolved had a warning been given. Counsel further suggested that it is inappropriate to apportion liability as CGL knew of the problems and chose not to give a warning.

[54] These arguments again are without merit. The trial judge found that the beneficiaries' success in obtaining a large settlement did not have "an all-or-nothing causal connection" with CGL's failure to warn the appellants of their potential liability to the beneficiaries. On this basis, he found that 50 per cent of the settlement and the related legal costs were attributable to CGL's breach. We agree with this finding for the reasons given by the trial judge. The trial judge acknowledged the difficulty of estimating the portion of the settlement amount attributable to the breach of fiduciary claim. In arriving at the 50 per cent figure, he had regard to Baker's evidence that the estate litigation was settled primarily to permit the highly lucrative asset sale to Pepsi to proceed. As well, he considered that the estate litigation included a number of other claims aside from breach of fiduciary duty. We do not see a basis for disturbing his finding that only 50 per cent of the settlement amount was attribu table to CGL's failure to warn.

[55] In apportioning liability, the trial judge found that Baker ". . . acted virtually as if he were the senior lawyer with carriage of the file." In this regard, he noted that Baker made the decision that the estate should not participate in the Pathfinder transaction without consulting CGL. He further found that Seven-Up was in no better position than Baker as Baker was Seven-Up's President and directing mind. His finding that Baker and Seven-Up were 80 per cent responsible for any losses flowing from the Pathfinder transaction is supported by the evidence and there is no basis for this court to interfere.

[56] Finally, the appellants submit that the trial judge erred in rejecting the appellants' claim for other heads of damage, including the costs of defending the estate litigation and the LSUC complaint and the account paid for the Pathfinder transaction. The appellants argue that their legal costs are properly recoverable as there would have been no estate litigation or LSUC complaint against Baker had the beneficiaries' concerns been addressed in 1988. In connection with the Pathfinder account, the appellants argue that it is wrong to allow CGL to retain fees for services negligently performed.

[57] We do not accept these submissions. The appellants' claim for legal costs associated with defending the estate litigation was dealt with by the trial judge, who concluded that 50 per cent of these costs were attributable to CGL's breach. The submission that the legal costs of defending the estate litigation or the LSUC complaint could have been avoided if the beneficiaries' concerns had been addressed in 1988 is not supported by the evidence. Although there was negligence in the performance of the legal services related to the Pathfinder transaction in light of the failure to warn Seven-Up, no damages other than those already found by the trial judge in relation to the failure to warn were suffered as a result of that negligence. Indeed, Seven-Up derived significant benefit from the completion of the transaction, which had the effect of augmenting the assets of the company. Accordingly, the appellants' claim for reimbursement for these services is untenable.

Disposition

[58] Both the appeal and cross-appeal are dismissed with costs.

Appeal and cross-appeal dismissed.