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Case Study: Limited retainers and fiduciary duty

In two recent cases, the central issue was the exact nature of the solicitor's retainer and how far-reaching that retainer actually was. In both instances, the fact that the plaintiff was a sophisticated individual who was extensively involved in the transaction but did not necessarily disclose all of the facts to his solicitors counted heavily in the outcome of the case.

Case A: A development deal that goes awry
In the first case, an astute and experienced land developer retained a solicitor to carry out several specific tasks relating to the development of a parcel of land. These included preparing access and utility easements for some of the parcels, and a co-user agreement. The developer retained overall personal control of the project, and had engaged other planners and solicitors to help with the work. When the city reimposed part lot control before the development work was completed, the developer alleged that his solicitor was negligent in failing to warn him of this possibility.

The court's decision
LAWPRO defended the solicitor on the grounds that the solicitor was not liable because of his limited retainer. Macdonald, Ellen J. concurred. The solicitor was retained to play only a very small role in the development of the property. As a sophisticated client, the developer had to take responsibility for the lack of coordination between himself, the solicitor and his other legal and planning advisors.

[Woodglen v. Owens (1996) O.J. No. 4082 (Ontario Court General Division)]; (1997) 6 R.P.R. (3d) 259 (Ont. Ct. Gen. Div.)

Case B: When dual roles conflict
Mr. Baker., a one-time senior partner at Fasken Campbell Godfrey, resigned to become president of Seven-Up Canada. He had also agreed to act as executor of the estate of one of the corporation's major shareholders. Baker retained his former law firm to draft consents from the creditors of the corporation for the transfer of shares to himself in his capacity as executor. He did not seek the law firm's advice on whether it was prudent or proper to act as estate executor and president of Seven-Up at the same time. Baker later was obliged to disgorge some of the benefits he had received from acting in his dual capacity. He sought to recover these from the law firm on the basis that the firm should have advised him concerning the risk of acting in a dual capacity.

The law firm did act for the corporation in purchasing shares of another corporation. Baker did not allow the estate, a major shareholder in the corporation, to participate in the transaction, nor was the consent of the estate beneficiaries obtained.

The court's decision
Sharpe J. held the firm was not retained to advise Baker on the administration of the estate, and therefore could not be liable to Baker on this basis. He also held that the law firm should have warned Baker and Seven-Up that the estate could force disgorgement of profits on the corporate acquisition. However, this failure could not be characterized as breach of fiduciary duty. Sharpe found Baker 80 per cent contributorily negligent. Damages were assessed at $1,000 even though Baker and Seven-Up had paid over $1 million to settle the estate. Sharpe, J. reasoned that even if the law firm had warned Baker, there was little likelihood that the estate would have agreed to the acquisition on a "no-strings-attached" basis. The law firm's share of the $1,000 in damages suffered by the plaintiffs was $200.

The case has been appealed.

[Fasken Campbell Godfrey v. Seven-Up Canada Inc. (1997) 142 D.L.R. (4th) 456 (Ont. Ct. Gen. Div.)]

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