Royal Laser (RL) was a publicly traded issuer. RL made an
unsolicited offer to purchase all of the shares of Venture Steel
Inc. (VSI) for $43.5 million, reserving a right of due diligence.
Cassels Brock & Blackwell (CBB) was RL's solicitor for the
intended transaction. VSI was at the time involved in heated
litigation with a former management employee and shareholder named
Link, who VSI had purportedly terminated for cause. VSI had also
purportedly exercised an option under the VSI Shareholders
Agreement to repurchase Link's 9% common shareholding for $1.
At the time of the due diligence, Link was asserting a claim he
valued at $9 million, which claim RL would acquire if it acquired
the shares of VSI. A significant component of the claim was
Link's claim to participate rateably in the purchase price to
be paid on the RL acquisition, as if Link remained a 9% shareholder
– if Link was entitled to the value of his shares based
on the value RL was paying for 100%, he would be entitled to at
least $3.2 million for his shares, plus his claim for damages in
lieu of notice and outstanding options. The vendors agreed to
indemnify RL in the event that Link was entitled to recovery;
however, the vendors would cap their liability under that indemnity
at $1.4 million. CBB investigated, and advised RL that it could not
give an opinion that the $1.4 million indemnity was sufficient.
Nevertheless, the transaction - and the limited indemnity - were
approved by the board of directors of RL, and the transaction
closed. Link ultimately succeeded in his litigation at trial and on
appeal, and was entitled to recover approximately $5.3 million, so
RL was liable beyond the vendors' indemnity.
RL sued CBB for alleged negligence. RL claimed that CBB had
allowed RL to close the transaction with a $1.4 million indemnity
when CBB should have advised that Link would recover more than that
Before the close of pleadings, CBB produced the entirety of its
file relating to the Link litigation. Immediately upon the close of
pleadings, CBB moved for summary judgment.
Newbould J. allowed the motion for summary judgment, and
dismissed the action. Newbould J.'s reasons are an interesting
analysis of the long-standing rules concerning the evidence
necessary to meet a motion for summary judgment, requiring a
respondent to "put its best foot forward." CBB's file
contained a number of references to discussions with RL about the
exposure in the Link litigation being as high as $7.7 million; and
RL was sent a memo from a CBB partner expressing that CBB could not
give an opinion that a $1.4 million indemnity was sufficient.
Although the three CBB partners who had substantive involvement
giving advice with respect to the Link litigation swore affidavits
and were cross-examined, RL only proffered an affidavit from its
former CFO, who was not a director. RL produced no contemporaneous
correspondence or notes to call into question the veracity of the
content of CBB's file; nor did RL proffer any evidence from any
director to say that CBB's advice was misunderstood. Nor did RL
proffer any admissible expert evidence to support the claim that
CBB was negligent. RL did not proffer any evidence going to
causation – Newbould J. was prepared to find that RL
would close the transaction regardless of CBB's advice, which
in any event was clear that RL faced substantial risk beyond the
$1.4 million indemnity. Particularly on the failure of RL to
produce any minutes or notes of the directors' meeting
approving the transaction, Newbould J. found that the directors
intended to assume the risk that the outcome of the Link litigation
could well exceed $1.4 million and fight it out. This was a case
that could be decided on the documentary record, and did not
require a trial. The plaintiffs could not prove that CBB was
negligent, or that that alleged negligence caused any loss.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).