Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534 (1991)

Docket Number:21672

Canson Enterprises Ltd. v.

Boughton & Co., [1991] 3 S.C.R. 534

Canson Enterprises Ltd. and Fealty Enterprises Ltd. Appellants v.

Boughton & Company, Ralph R. Wollen, George O. Treit,

Treit Land Consultants Inc., Pacific Mortgage Corporation

Limited, Gordon Bert Wilkins, Sun-Mark Development

Corporation and Peregrine Ventures Inc. Respondents

Indexed as: Canson Enterprises Ltd. v. Boughton & Co.

File No.: 21672.

1990: October 29; 1991: November 21.

Present: Lamer C.J. and Wilson*, La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin and Stevenson JJ.

on appeal from the court of appeal for british columbia

Damages -- Breach of fiduciary duty -- Solicitor preparing conveyance not advising purchasers of secret profit made on a flip -- On agreed facts, purchasers fully apprised of situation would not have entered the transaction -- Action arising because inability of other professionals found liable in tort for faulty construction of building on subject lands to pay damages -- Whether or not damages recoverable.

In May, 1977, the appellants and respondent Peregrine Ventures Inc. agreed (on the proposal of respondent Treit) to purchase a piece of property and to enter a joint venture to develop it. The purchasers agreed to pay Treit a commission of 15 percent of any profit on resale. Unknown to the appellants, but known to Peregrine, Treit had arranged for an intermediate company, Sun-Mark Development Corporation, to share in the profit from the sale, a profit from which Treit would share equally. This profit came about because Sun-Mark had entered an interim agreement to buy the land from the vendors (the Hendersons) for $410,000. The purchasers paid $525,000 and the secret profit to Peregrine and Treit from the "flip" was therefore $115,000. Appellants would not have purchased the property or entered into the joint venture had they known of the interim agreement with Sun-Mark.

The alleged breach of fiduciary duty arose out of the following circumstances. The solicitor, Wollen, of the defendant law firm, Boughton & Co., acted for the purchasers in the preparation of the conveyance and joint venture agreement. He also acted for Sun-Mark in its purchase and resale of the property, but did not disclose to the appellant purchasers that the property was not being purchased directly from the Hendersons. The statement of adjustments for the Hendersons prepared by Wollen showed the sale price to be $410,000 while that prepared for the purchasers (the appellants and Peregrine) showed it to be $525,000 paid to the Hendersons. Therefore, this statement of adjustments did not disclose Sun-Mark's interest. Wollen paid over the $115,000 secret profit to Sun-Mark and did not disclose this payment to the appellants. Although the conveyance he prepared transferred the property directly from the Hendersons to the appellants and Peregrine, Wollen did not apportion the land title fees or the conveyancing fees between Sun-Mark and the appellants but rather rendered a bill to the appellants and Peregrine for the entire amount of his services.

Following the purchase, the appellants proceeded with a warehouse development on the property, but suffered substantial losses when piles supporting a warehouse constructed on the property began to sink, causing extensive damage to the building. The appellants then brought action against the soils engineers and a pile-driving company retained by the purchasers for the damage to the warehouse. At trial, the soils engineers were found negligent and damages of $4,920,200.33 were awarded against them. On appeal, the pile-driving company was also found liable in damages for breach of contract. As a result of the inability of the pile-driving company to pay, the matter was settled for a sum less than that awarded at trial. The engineering firm was unable to pay any part of the damage award, and the mortgage company, from which the appellants and Peregrine had borrowed funds, ultimately foreclosed on the property. The appellants and Peregrine received the proceeds of the settlement of the lawsuit, but were left with a shortfall of $801,290 for Canson and $280,000 for Fealty.

The appellants commenced the present action against the respondent solicitor and his law firm for the amount of the shortfall, alleging that the failure to disclose the secret profits was actionable as deceit or breach of fiduciary duty. The action was brought as a special case on the basis of an agreed statement of facts. The sole issue before the court was whether and what damages were recoverable from the defendants (respondents), assuming the facts in the agreed statement were true.

The trial judge found the solicitor Wollen was not liable in deceit but liable for breach of fiduciary duty and awarded damages on the same basis as for an action for deceit. The Court of Appeal dismissed an appeal from that judgment. The appellants appealed to this Court on the ground that compensation for breach of the fiduciary duty should be calculated on the same footing as for a breach of trust.

Held: The appeal should be dismissed.

Per La Forest, Sopinka, Gonthier and Cory JJ.: The situation here involved a breach of a fiduciary duty sufficient to call upon equity's jurisdiction to compensate the appellants for breach of the duty. A fiduciary duty may be breached when the solicitor fails to inform a client of a fact of which he should have informed him, or that he should seek independent advice. A solicitor may be liable for a fiduciary duty for non-disclosure of a factor of some importance, even when his or her personal interest is not at stake. The law does not limit fiduciary obligations to situations where the solicitor may benefit from a misstatement.

The manner of calculating compensation adopted by the courts in trust cases or situations akin to a trust do not apply, however. There is a sharp divide between a situation where a person has control of property which in the view of the court belongs to another, and one where a person is under a fiduciary duty to perform an obligation where equity's concern is simply that the duty be performed honestly and in accordance with the undertaking the fiduciary has taken on. The principles applicable to trusts should not be transposed to a breach of a fiduciary duty of the type in question here. The harshness of the result is reason alone, but apart from this, the claim for the harm resulting from the actions of third parties can fairly be looked upon as falling within what is encompassed in restoration for the harm suffered from the breach.

The equitable remedy of compensation is not likely to be resorted to frequently, except as adjunct to some other equitable remedy. The tort of deceit has long provided a convenient common law remedy that makes resort to the equitable remedy infrequent in cases of fraud, and with the development of the principle in Hedley Byrne & Co. v. Heller & Partners Ltd., it is unlikely to be used often in cases of negligent misstatement. An award of compensation, however, is no less that because the amount recovered in a particular case is the same as would have been awarded in an action at common law.

Policies underlying concepts like remoteness and mitigation might have developed from an equitable perspective. However, given the paucity of authority in the field, it is scarcely surprising that courts will deal with a case falling properly within the ambit of equity as if it were a common law matter or as justifying the use of its mode of analysis.

The maxims of equity are malleable principles that can be flexibly adapted to serve the ends of justice as now perceived. Law and equity have long overlapped in pursuit of their common goal of affording adequate remedies against those placed in a position of trust or confidence when they breach a duty that reasonably flows from that position and it was reasonable and proper that the courts have tended to merge the principles of law and equity. Only when there are different policy objectives should equity engage in its well-known flexibility to achieve a different and fairer result.

The fusion of law and equity provides a general, but flexible, approach that allows for direct application of the experience and best features of both law and equity, whether the mode of redress (the cause of action or remedy) originates in one system or the other. The whole of the two systems should not be indiscriminately melded together; some equitable concepts like trusts, equitable estates and consequent equitable remedies must continue to exist apart, if not in isolation, from common law rules.

With fiduciary relationships and the law regarding misstatements, both the courts of common law and of equity provided remedies where a person failed to meet the trust or confidence reposed in that person. There was throughout considerable overlap. In time, however, the common law outstripped equity and the remedy of compensation became somewhat atrophied. Under these circumstances, there is no reason why equity should not borrow from the experience of the common law. Whether the courts refine the equitable tools such as the remedy of compensation, or follow the common law on its own terms, is not particularly important where the same policy objective is sought.

Where a situation requires different policy objectives, the remedy may be found in the system that appears more appropriate. This will often be equity. Its flexible remedies such as constructive trusts, account, tracing and compensation must continue to be moulded to meet the requirements of fairness and justice in specific situations. This process should not be confined to pre-existing situations.

Per Lamer C.J. and L'Heureux-Dubé and McLachlin JJ.: Apart from cases where the trustee controls the property of the cestui que trust, damages for breach of fiduciary duty should not be measured by analogy to tort and contract. Proceeding by analogy with tort overlooks not only the unique foundation and goals of equity...

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