COURT OF APPEAL FOR ONTARIO

Court File and Parties

DATE: 20000622

DOCKET: C30010

RE: NICK FILIPOVIC, TONY MODUGNO, EVAN EFSTON, SAM DELMONTE, RENZO RINALDI, STEPHEN BRAY, JOE CAMARA, JAMCO WOOD PRODUCTS LTD., EFSTON SCIENCE INC., 436416 ONTARIO LIMITED and MARQUIS INVESTMENTS SERVICES INC. (Appellants) – and – PHILIP UPSHALL, ANGUS MACKENZIE, ERIC KELDAY and GEORGE SNOWDON (Respondents)

BEFORE: LABROSSE, ROSENBERG and MACPHERSON JJ.A.

COUNSEL: Bernard Burton, for the appellant

Monica Creery, for the respondent

HEARD: June 16, 2000

On appeal from the judgment of Chapnik J. dated May 28, 1998

E N D O R S E M E N T

[1] This is an appeal from the judgment of Chapnik J. dismissing the action brought by a group of investors against a law firm. A member of the firm performed legal work in relation to an investment that ultimately went sour, causing the investors to lose all of the money they had advanced. The case against the law firm depended on the nature of the relationship between the solicitor and the investors. One of the promoters, Bell, retained the solicitor to act as corporate solicitor for 835051 Ontario Limited [“the company”]. The essential issues centred on whether the solicitor also had a solicitor-client or other fiduciary relationship with the investors.

[2] The appellants advanced a number of grounds of appeal that may be summarized as follows:

(1) The trial judge erred in failing to find that the judgment of Wilkins J. constituted a determination that the company held and had always held the property as a trustee for the benefit of the investors and that the investors were therefore the solicitor’s client;

(2) In the alternative, the trial judge erred in failing to find that the solicitor was aware that Bell was in a fiduciary relationship with the investors and he was constructively a party to Bell’s breach of duty;

(3) The trial judge erred by not concluding that the solicitor had breached his duty of care to the investors by placing mortgages on the subject land and disposing of funds without proper authorization from the corporation.

[3] In our view, there is no merit in any of these grounds of appeal and the appeal must be dismissed. Accordingly, it is unnecessary to consider the appellants’ argument that the trial judge also erred in finding that even if there was a breach of duty by the solicitor it did not result in any damages to the appellants.

[4] The first ground of appeal depends upon the proper characterization of the judgment of Wilkins J. in the former proceedings between the investors and the promoters and the corporation. While the solicitor testified at those proceedings, he was not a party to them. The appellants nevertheless contend that the judgment given by Wilkins J. was an in rem judgment and was binding on the respondents. We agree with the respondents that there is nothing to indicate that Wilkins J. intended to create a substantive constructive trust that would retroactively affect the relationship between the solicitor and the investors. All of the matters in issue in this case predate the judgment of Wilkins J. by several years.

[5] The finding that the judgment of Wilkins J. did not create a substantive constructive trust is not determinative of the issues. The nature of the relationship between the solicitor and the investors depended upon the facts. Counsel for the appellants pointed out a number of circumstances to demonstrate that in any event the solicitor had a solicitor-client or fiduciary relationship with the investors. The relationship between solicitor and client is based on general concepts of contract and the specific concept of retainer. The usual indicia of a solicitor-client relationship – meetings between solicitor and client, a retainer agreement, correspondence between solicitor and client, and a bill for services – are all missing in this case. The trial judge fully reviewed the evidence, including the various circumstances relied upon by the appellants, and concluded that the solicitor was not in a solicitor-and-client relationship with the appellants. That finding is fully supported by the evidence and is unimpeachable.

[6] With respect to the second ground of appeal, it was open to the trial judge to find that the solicitor was not otherwise in a fiduciary relationship. It is not suggested that the trial judge misapprehended the applicable legal principles or the underlying facts.

[7] None of the indicia of a fiduciary duty – scope for exercise of discretion or power, actual exercise of discretion or power to affect the beneficiary’s interest and unique vulnerability of the beneficiary – are present in this case: see Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574. Moreover, the courts should be careful in imposing fiduciary obligations on a solicitor outside the solicitor-client relationship if the solicitor is engaged in the delivery of legal services. The imposition of a fiduciary duty on a solicitor in relation to a non-client involved in a transaction with a client whom the solicitor is representing could give rise to a serious conflict of interest: see Anand v. Medjuck, [1994] O.J. No. 2571 (Gen. Div.) affirmed [1998] O.J. No. 101 (C.A.).

[8] We do not think that the solicitor breached his duty of care by failing to take steps to ensure that Bell made full disclosure to the appellants. The trial judge found that although the solicitor was not in a fiduciary relationship with the investors, he stood in a sufficient relationship of proximity with the appellants to “engender a duty of care” on his part. Assuming that this is correct, we agree with the trial judge that the solicitor did not breach his duty of care to the appellants. It is now apparent that Bell misled the appellants, or some of them, as to the nature of the investment and did not fully disclose that they were to be shareholders only and that the property was encumbered by two very large mortgages. The trial judge found that there was nothing to indicate to the solicitor that Bell had not made full disclosure to the investors about the nature and structure of the investment opportunity. It is implicit in her reasons that she found the solicitor acted reasonably in relying on Bell's assurances. Counsel meticulously reviewed the evidence to attempt to demonstrate that the circumstances surrounding the investment agreement were obviously suspicious. We have not been persuaded that the trial judge erred in finding that the solicitor did not breach any duty of care he might have owed to the investors. Further, in light of the trial judge's findings of fact there is no basis for finding that the solicitor knowingly assisted in the breach of Bell's fiduciary duty to the investors.

[9] With respect to the third ground of appeal, the trial judge found that the solicitor reasonably believed that Bell and Zahavy, the presidents of the company at the relevant times, had the necessary authority to act on the company’s behalf and give the necessary instructions for disbursement of the funds and placing of the mortgages. This finding was supported by the evidence and is entitled to deference. Although the circumstances, especially those attending the placing of the second mortgage, are of some concern, the trial judge had the benefit of seeing and hearing the witnesses and we cannot say that her findings are unreasonable. In light of this conclusion it is unnecessary for us to consider the respondents’ position that a legal challenge to the authorizations would need to be made by the corporation, not by the individual investors.

[10] Accordingly, the appeal is dismissed with costs.

(signed) "J. M. Labrosse J.A."

(signed) "M. Rosenberg J.A."

(signed) "J. C. MacPherson J.A."