Case information

Fiduciary duty — Attorneys — Escrow agents and depositaries — One party’s former counsel acting for other party in contract matter — First party referred to independent counsel and former counsel continued acting for other party — Former counsel acted as escrow agent and depositary in contract dealings — Duties of lawyers to former clients — Whether escrow agent is fiduciary relationship.

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In the context of an agreement under which the applicants would sell shares in Niverville Swine Breeders Ltd. (“NSB”) to The Puratone Corporation, a lawyer from the applicants’ former counsel (Taylor McCaffrey) was representing Puratone. It referred the applicants to independent counsel. Until the final payment was made, the shares were to be held in trust by Taylor McCaffrey as the escrow agent and depositary. The agreement gave the applicants security in the shares, but the applicants’ counsel advised an applicant to get additional security. However, when Puratone refused to agree to additional security, he was instructed to proceed. Thereafter, Puratone suffered severe financial difficulty. Among other things, it gave up beneficial ownership of the NSB shares and arranged for two Manitoba Agricultural Services Corporation (“MASC”) loans in 2008 and a BMO loan in 2009. Although NSB guaranteed Puratone’s debts and provided a mortgage-backed guarantee, the MASC loans were paid to Puratone. TM acted for Puratone on the MASC loans. Puratone notified an applicant that the MASC loans were being sought. In 2011, having consulted counsel, the applicants gave Puratone additional time to make the first payment. In September 2012, Puratone began proceedings under the Companies’ Creditors’ Arrangements Act, R.S.C. 1985, c. C-36. It never repaid the MASC loans, which implicated NSB its CCAA proceedings, and it did not pay the applicants. The applicants were unable to realize on their security.

The trial judge dismissed the claims against Taylor McCaffrey and two of Puratone’s directors. The Court of Appeal dismissed the applicants’ substantive appeal, but allowed their costs appeal.