Solicitor's Negligence Case Summary: Royal Laser v Cassels Brock & Blackwell LLP (2012)

Author:Mr Jason Squire

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 amount.

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...

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