Alberta Court of Appeal rules that attorney who had fiduciary duties to multiple parties in setting up ostrich farm with birds from U.S. had committed malpractice when he entered into transactions for some clients without notifying all others
In 1993, Antony Finch (plaintiff) entered into a business arrangement with the two Zelman brothers, Randy and Scott, to buy and operate an ostrich farm to be called the Alberta Ostrich Farm (AOF). They asked for a loan from the Drumheller Regional Business Development Center (DRBDC), where attorney William A. Herman (defendant) was a director. Plaintiff located some land and he and the Zelman brothers retained defendant to represent them in the land purchase. Defendant knew the Zelmans needed financing and that plaintiff did not want to go ahead with the deal without the loan funds.
As of the time DRBDC sent the instructions, defendant acquired a total of four clients: plaintiff, the Zelman brothers and the DRBDC. At no time did defendant advise plaintiff that there might be a conflict of interest arising from the retainer by plaintiff and the Zelman brothers as well as by plaintiff and the DRBDC. Defendant also neglected to notify plaintiff that defendant was a director of the DRBDC. Under the law, defendant received the proceeds of the loan in trust for plaintiff and the Zelman brothers.
At the direction of the Zelman brothers, and without advising or seeking instructions from plaintiff, defendant released $ 50,000 of the loan to a Mr. Starkey in the United States to buy two ostriches. The U.S. ostriches were then sold to the Zelman brothers' father, Dennis, who was not even a party to the loan agreement. The actions of the Zelmans and defendant wrecked the plan for plaintiff's ostrich farm. No one repaid the loan to DRBDC which had two of the ostriches seized. An arbitrator called for the seizure of more birds and for the sale of the land which did yield a small profit; the arbitrator directed the payment of the net proceeds to the DRBDC.
Plaintiff Finch sued the defendant and his law firm for negligence, breach of contract and breach of fiduciary duty. The trial judge found that defendant was acting for plaintiff and the Zelman brothers in connection with the receipt of the loan funds, and that he owed fiduciary duties to all three. He determined that defendant had breached his fiduciary duties to plaintiff by failing to disclose his actions on behalf of the Zelman brothers, thus depriving plaintiff of the option of withdrawing from the business arrangement before DRBDC had advanced the loan funds.
The trial judge also held that defendant had violated his fiduciary duties by failing to represent plaintiff with undivided loyalty and by neglecting to fully disclose all material information to plaintiff. The trial judge awarded plaintiff $ 60,000, representing the value of plaintiff's ostriches in June 1993. Defendant appealed to the Alberta Court of Appeal in Calgary. That Court dismisses the appeal.
In the challenged factual findings below, the Court saw no error. "The evidence supports the trial judge's conclusion that [plaintiff] was Herman's client with respect to the loan transaction. Although the trial judge found that Herman knew that a partnership existed, whether [plaintiff] was a client as an individual or as a partner is not determinative. On either basis, Herman owed fiduciary duties to [plaintiff]. The law is clear that a solicitor owes fiduciary duties to all members of a partnership, and solicitors are obliged to make full disclosure to all parties where they act for more than one party on the same side of a transaction." [ΒΆΒΆ 14-15].
The appellants also contended that they did not use the loan proceeds for the Zelman brothers' personal benefit, but rather for the AOF. The Court, however, is not persuaded. "The evidence is clear that the loan proceeds were used to purchase the American ostriches for Dennis Zelman (the father), who in turn transferred them to the Zelman brothers, rather than to the AOF. Whether the Zelman brothers actually misused the loan proceeds may be relevant in other legal proceedings, but it is not relevant to the issue of whether Herman breached his fiduciary duties to [plaintiff]." [ΒΆΒΆ 18-19]
The appellants further maintained that the plaintiff would have lost his ostriches in any event, regardless of the breach. The Court sees no merit in this point. "However, where a fiduciary is in breach of duty, he or she may not avoid liability by demonstrating that the loss would have occurred in any event. [Cites]. Inevitability of loss is irrelevant in determining liability for a breach of fiduciary duty."
"In any case, a close examination of the dates supports the finding of the trial judge that, at the date that Herman sent the money to [the mysterious] Starkey without advising or receiving instructions from Finch, the agreement for sale had not been signed and Finch's ostriches had not been registered with the Personal Property Register. Had Finch known about the disbursement of the loan proceeds, he could have taken action to protect his financial position." [ΒΆΒΆ 23, 24]
"The duty of full disclosure is a hallmark of a fiduciary relationship, and Herman breached this duty when he failed to advise [plaintiff] that he was a director of the DRBDC and that he was having separate discussions and receiving instructions from the Zelman brothers. Herman also owed [plaintiff] a duty of loyalty that he breached in disbursing the loan monies as he did. Herman's argument that he owed no duty to [plaintiff] because the relationship was one of contract has no merit. We find no error in the trial judge's conclusion that the appellants owed Finch fiduciary duties and breached them." [ΒΆΒΆ 30, 31].
Finally, the Court addresses the issue of causality. "[Unlike the common law,] it is clear that the proper approach to determining damages for breach of fiduciary duty is restitutionary; remoteness of damage is generally not a relevant consideration. When [plaintiff] began his relationship with Herman, he owned three ostriches he was prepared to commit to the AOF. When the monies were disbursed by Herman in breach of his fiduciary duties, a series of events followed involving the deposit on the land purchase, and demands of DRBDC that resulted in [plaintiff] losing his three ostriches."
"The trial judge committed no error in finding that the loss of the three ostriches was caused by Herman's breach of fiduciary duties. There is a sufficient causal link between [plaintiff's] loss and Herman's fiduciary breaches. Thus, the trial judge did not err in holding Herman liable for [plaintiff's] loss, nor did he err in setting damages as the value of the ostriches in June of 1993." [ΒΆΒΆ 34, 35]
Citation: Finch v. Ross, Todd & Co., [2006] A. J. No. 352; 2006 AB.C.A. 98 (March 31, 2006).
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