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BARRISTERS AND SOLICITORS - Negligence - Liability - Conflict of interest

Wednesday, March 04, 2020 @ 9:33 AM  

Lexis Advance® Quicklaw®
Action by Hart and Alliance H. Inc. against the defendant lawyer and law firm for breach of fiduciary and professional duties. Hart entered the dental distribution business in the early 1980s and acquired a controlling interest in a Canadian dental distribution company named Ash Temple Limited. In 2005, Hart entered into a transaction with Henry Schein Inc., the largest dental distributor in the world. The transaction was structured to first spin out the Ash Temple manufacturing business to Alliance, Hart’s family holding company. Schein Canada then acquired the shares of Ash Temple. Schein Canada and Alliance entered into a supply agreement in which Schein Canada agreed to purchase Alliance’s products over a four-year term. Disputes between Schein Canada and Alliance over the supply agreement arose early on. The parties settled their disputes at mediation in September 2006. Alliance’s business struggled, and it eventually wound up its operations. The defendant Baker started his position as in-house counsel for Ash Temple in March 2003. Baker continued in his role as in-house counsel for Ash Temple under Henry Schein ownership. Baker started as an associate at Gardiner Roberts in March 2007. The plaintiffs took the position that Baker breached his fiduciary duty to them as he was in conflict of interest when he acted for Henry Schein at the mediation and was involved in finalizing the New Supply Agreement (NSA) in the following months. The plaintiffs claimed $12.7 million in damages in respect of Baker’s breach of fiduciary duty. The plaintiffs also claimed that Gardiner Roberts fell below the standard of care by failing to warn Hart about Baker’s conflict of interest. The plaintiffs submitted that because of Gardiner Roberts’ breach, they lost the chance to pursue arbitration instead of settling at mediation. The plaintiffs further claimed that Gardiner Roberts fell below the standard of care in drafting and advising Hart on the NSA. The plaintiffs also submitted that Gardiner Roberts breached its fiduciary duty by acting in a conflict of interest when Baker returned to the firm and brought Henry Schein as a client. The defendant submitted that the plaintiffs’ claim was statute-barred.

HELD: Action dismissed. The defendants’ limitation defence was rejected. Baker was in a solicitor-client relationship with Hart and Alliance. The issues at mediation were directly and closely related to the matters Baker had previously been involved in as a member of the Hart legal team. Baker received confidential information attributable to a solicitor and client relationship relevant to the matter at hand. Baker was in a conflict of interest when he acted for Henry Schein at the mediation and on the NSA. However, there was no causal link between Baker’s presence at the mediation or his involvement in finalizing the NSA and the plaintiffs’ claimed losses. Gardiner Roberts did not fall below the standard of care in drafting the NSA but did fall below the standard of care in failing to warn the plaintiffs of Baker’s conflict. However, the plaintiffs failed to prove that the breach caused any damages. The Court did not accept that if Gardiner Roberts warned Hart about Baker’s conflict, Hart would have discontinued settlement negotiations and proceeded to arbitration. Furthermore, the plaintiffs would not have achieved a better result by going to arbitration than by settling at mediation. Gardiner Roberts also breached its fiduciary duty by acting for both the plaintiffs and Henry Schein without obtaining Hart’s informed consent. However, the plaintiffs conceded that no damages flowed from that breach.

Alliance H. Inc. v. Gardiner Roberts LLP, [2020] O.J. No. 36, Ontario Superior Court of Justice, B.A. Conway J., January 6, 2020. Digest No. TLD-March22020007